Excerpts from the ChicagoTribune.com:

The Illinois Supreme Court on Friday unanimously ruled unconstitutional a landmark state pension law that aimed to scale back government worker benefits to erase a massive $105 billion pension debt, sending lawmakers and the new governor back to the negotiating table to solve the pressing financial issue.

Republican Justice Lloyd Karmeier, writing for the entire court, said the law violated provisions of the 1970 Illinois Constitution known as the pension protection clause. The clause says public employee pensions are a contractual relationship with government and benefits cannot be diminished or impaired.

The December 2013 law called for curbing automatic and compounded annual cost-of-living increases for retirees, extending retirement ages for current state workers and limiting the amount of salary used to figure pension benefits.

Karmeier rejected arguments by the state that economic necessity forced curbing retirement benefits despite the constitution’s pension protections.

… he noted, “The law was clear that the promised benefits would therefore have to be paid and that the responsibility for providing the state’s share of the necessary funding fell squarely on the legislature’s shoulders.

“The General Assembly may find itself in crisis, but it is a crisis which other public pension systems managed to avoid and … it is a crisis for which the General Assembly itself is largely responsible,” Karmeier wrote.

Karmeier also faulted lawmakers for failing to keep in place a 2011 temporary income tax hike that boosted the personal tax rate to 5 percent. At the start of the year, the tax increase automatically phased down to 3.75 percent for individuals, costing the state $4 billion in annual revenue. Much of the tax increase was used to make the state’s share of pension payments during those four years.

“The General Assembly could also have sought additional tax revenue. While it did pass a temporary income tax increase, it allowed the increased rate to lapse to a lower rate even as pension funding was being debated and litigated,” he wrote.

Karmeier added: “The financial challenges facing state and local government in Illinois are well known and significant. In ruling as we have today, we do not mean to minimize the gravity of the state’s problems or the magnitude of the difficulty facing our elected representatives.

“It is our obligation, however, just as it is theirs, to ensure that the law is followed. That is true at all times. It is especially important in times of crisis when, as this case demonstrates, even clear principles and long-standing precedent are threatened. Crisis is not an excuse to abandon the rule of law. It is a summons to defend it,” he wrote.

New Republican Gov. Bruce Rauner issued a statement Friday calling for a constitutional amendment that “would allow the state to move forward on common-sense pension reforms.”

Rauner has argued that the law struck down by the courts was unconstitutional and also does not go far enough to reduce the state’s pension debt. Rauner has proposed allowing veteran state workers to keep the current benefits that they’ve earned, but move them into a lower-paying benefit plan created for newer state workers. To try to make that approach pass legal muster, he’s proposed that lawmakers pass and ask voters to ratify a proposed constitutional amendment to clarify that future retirement benefits could be changed.

In its ruling, the court found that state worker retirement benefits that are promised on the first day of work cannot be later reduced during their term of employment. But it is unclear that a change in the constitution, a difficult prospect in the legislature, could even be applied to existing state workers and would be likely to result in years of litigation and could involve both state and federal courts.

A coalition of unions that represent government workers and retirees applauded the ruling.

“We are thankful that the Supreme Court has unanimously upheld the will of the people, overturned this unfair and unconstitutional law, and protected the hard-earned life savings of teachers, police, fire fighters, nurses, caregivers and other public service workers and retirees,” Illinois AFL-CIO President Michael Carrigan said in a statement. “Public service workers are helpers and problem solvers by trade. With the Supreme Court’s unanimous ruling, we urge lawmakers to join us in developing a fair and constitutional solution to pension funding, and we remain ready to work with anyone of good faith to do so.”

Democratic Senate President John Cullerton issued a statement noting concerns he raised at the time the bill was passed.

“From the beginning of our pension reform debates, I expressed concern about the constitutionality of the plan that we ultimately advanced as a test case for the court. Today, the Illinois Supreme Court declared that regardless of political considerations or fiscal circumstances, state leaders cannot renege on pension obligations. This ruling is a victory for retirees, public employees and everyone who respects the plain language of our constitution,” the statement read.

Cullerton and his Republican counterpart, Senate GOP leader Christine Radogno, talked about the need to work on a solution.

“I am committed to working with everyone to find a solution that adheres to the constitution. We must work together in bipartisan cooperation with Gov. Rauner, who has demonstrated his commitment to tackle the most difficult problems facing Illinois,” said Radogno, of Lemont.

Ty Fahner, president of the Civic Committee of the Commercial Club of Chicago, offered a grim reaction.

“There are no winners today. If there’s any good news, it’s that Chicago and Illinois are resilient, and we’ve responded to great challenges before,” Fahner’s statement read. “The Civic Committee stands ready to work with Governor Rauner and the General Assembly to craft a bipartisan solution to rescue the state from financial collapse and restore Illinois as a compassionate and competitive state.”

The state Supreme Court’s ruling upheld a November decision by Sangamon County Circuit Judge John Belz to strike down the law, ruling that state constitutional protections to pension benefits were “absolute and without exception,” prompting the state to appeal to the high court.

For decades, governors and state lawmakers failed to put enough money into the public employee pension systems covering most state workers and university employees, as well as suburban and downstate teachers. Now, state spending on pensions amounts to almost a quarter of every tax dollar that goes into the state’s general bank account.

The decision by the high court came almost two months after justices heard oral arguments from the state, which contended that the constitutional pension protection clause was not an absolute guarantee, particularly at a time of great financial emergency.

But lawyers for public employee unions and retirees argued cuts to retirement benefits shouldn’t occur because of decades of financial mismanagement by the state for failing to adequately fund the employer’s share of pension costs.

The decision not only affects Illinois but also taxpayers in Chicago and towns throughout Illinois struggling to cope with growing pension debts that are straining government budgets.

Previously, the state’s highest court ruled an effort to make state retirees pay more for their state-subsidized health care violated the constitution’s pension protection clause.

In that case, the court found that the constitutional guarantee was “aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.”

Now lawmakers and a new governor must figure out a pension solution.

“Our path forward from here is now much more difficult, and every direction will be more painful than the balance we struck (in the pension law that was thrown out),” said state Rep. Elaine Nekritz, a Northbrook Democrat who helped negotiate the pension law, in a statement Friday.