Posts Tagged Chicago public pension reforms law

Chicago police and fire pension reform bill

Excerpts from the

After 10 months, Mayor Rahm Emanuel’s closest ally in Springfield has sent to Gov. Bruce Rauner legislation giving Chicago 15 more years to ramp up to a 90 percent funding level for police and fire pensions.

Illinois Senate President John Cullerton has been holding the bill — approved by the Illinois House and Senate last spring — amid concern that Rauner would veto the legislation to squeeze cash-strapped Chicago and strengthen his own hand in the budget stalemate over the governor’s demand for pro-business, anti-union reforms.

The delay has already been costly to Chicago taxpayers. Two weeks ago, Emanuel used $220 million in short-term bridge financing to make a state-mandated payment to police and fire pension funds that’s higher than his tax-laden 2016 budget anticipated because the police and fire pension reform bill has not been signed into law.

On March 31, Cullerton quietly sent the legislation to the governor’s desk. The governor has 60 days to act on the bill. If he vetoes the bill, there would still be time to attempt an override before the spring session ends.

In a statement, the governor’s office said: “The governor has been clear he will consider this legislation as part of a broader package of structural reforms that help taxpayers across the state. He welcomes dialogue and negotiation with all stakeholders as the process moves forward.”

A mayoral confidante, who asked to remain anonymous, said: “It’s important for the city. It needs to get done. If he signs it, great. If he does nothing, that’s good for us as well. If he vetoes it, it would go back to the Senate. It passed the first time with 38 votes. We need 36 votes to override. All we’re asking for is the same funding arc that downstate police and fire already have. There’s no reason for [Rauner] not to sign it.”

In a statement issued Tuesday, Emanuel said “Current state law requires that Chicago taxpayers close a $550 million gap in one year, even though it was created by decades of underfunding. That’s why I worked with members of the General Assembly to pass . . . a reasonable and responsible funding plan that has the support of police and fire union leaders, passed both the House and Senate, and was included in Gov. Rauner’s own pension reform plan. If this bill becomes law, we will ensure that our first responder [police and fire]  pensions are secured and fully-funded, while reducing the impact on Chicago’s taxpayers.”

After authorizing the $220 million short-term borrowing, Emanuel emphatically rejected the suggestion that he made a mistake by trusting his old friend Rauner to sign the police and fire pension reforms.

“I am not going to go to the property taxpayers of Chicago, who just stepped up in a big way, and say, ‘You should pay $250 million more because Springfield’s politics are dysfunctional. I’m not going to ask taxpayers to pay more to make up for Springfield’s failures,” the mayor said.

On March 16, trustees of the firefighters pension fund demanded that the city release $47.1 million on deposit with the treasurer within 31 days, so that it can be invested by the pension fund. But sources said Tuesday that demand has since cooled off.

“As long as the pension fund gets the money they are owed by law, the city has fulfilled their end of the bargain . . . The way the law reads, they have to account for the money. The money has been set aside. Their hope is there’s some movement with legislation down in Springfield. If that does not happen, that money set aside will be given, I guess, at the end of the year. As of right now, they haven’t done anything wrong, ” Tom Ryan, president of the Chicago Firefighters Union Local 2 said.

Tags: , , , ,

High court strikes down Chicago public pension reforms

Excerpts from the

While saying they recognize the fiscal crisis cited by lawmakers in Illinois is real, the justices of the Illinois Supreme Court have again slapped aside an attempt by state legislators to rewrite some public employee pension funding rules, saying the attempt by the state and the city of Chicago to ease the funding burden on the city and its taxpayers violates the state constitution’s prohibition on reducing public employees’ retirement benefits in any way.

On March 24, the state high court ruled 5-0 that the 2014 Chicago public pension reforms law, known formally as Public Act 98-641, runs afoul of the state constitution’s pension protection clause.

Justice Mary Jane Theis authored the court’s opinion, with Chief Justice Rita Garman and justices Robert Thomas, Thomas Kilbride and Lloyd Karmeier concurring. Justices Charles Freeman and Anne Burke abstained from the decision.

The high court decision upheld the ruling of Cook County Circuit Judge Rita Novak, who had invalidated the pension funding reform effort in July 2015, declaring the law failed the constitutional test, just as earlier pension reform attempts enacted Illinois state lawmakers.

Under the reform bill, the state had given the city permission to rework how it funds pensions through two employee retirement funds, the money for which has historically come from city property taxes.

Before the reform bill, city employees had contributed 8.5 percent of their earnings toward their pensions, and the city contributed amounts based on a multiplier of 1 or 1.25 times employee contributions. Retirees would then collect annuities, which would automatically be increased 3 percent, compounded annually, regardless of economic or fiscal circumstances nationally or in Illinois or Chicago. Annuities for retirees who began working for the city in 2011 or later would increase at a rate tied to the Consumer Price Index.

However, later analyses of the city’s pension funds indicated the city’s contributions to the pension funds fell far short, and a multiplier of close to 3 times the employees’ contributions would be required to adequately finance the plan. The city projected, without reforms, its two public employee pension funds, not including police officers and firefighters, would be insolvent in about 10-20 years.

To address those problems, the Illinois General Assembly enacted a reform bill, requiring the city to up its payments to the retirement funds to 90 percent of actuarial funding levels by 2021. It would also have given the pension funds the right to sue the city to obtain court orders requiring it to meet its funding obligations under the law.

In exchange, the city would be allowed to require employees to contribute 0.5 percent more of their pay per year to the pension plans, topping out at 11 percent in 2019. Once the city’s funding ratio reaches 90 percent, the employee contribution levels could be reduced to 9.75 percent.

The law also would strike the automatic 3 percent compounding annuity increases for retirees, replacing them with a different funding formula.

City employees and retirees responded to the reform law with lawsuits, asserting, as with prior public employee pension reform attempts, this one also should be considered illegal under the Illinois state constitution, which includes the so-called pension protection clause which states public employee pension benefits “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

The city argued the reforms should be permitted because they, on net, produce a benefit to public employees and retirees by guaranteeing 90 percent city funding and staving off insolvency in the pension funds.

State Supreme Court justices, however, said they did not believe those legal arguments were valid, as the city’s net benefit argument stands as an attempt to force city employees to pay more and retirees to accept less in exchange for a promise that the city will meet its pension funding obligations, “something already constitutionally mandated by the pension protection clause.”

Further, they noted the 90 percent actuarial funding guarantees spelled out in the pension reform law does not stand as a contractual obligation, but merely empowers the retirement funds to sue the city to uphold the guarantee. And that, the justices said, would leave retirees with access only to what the city may have available to fund the pensions, rather than an ironclad legal guarantee to the funding level promised.

They noted the court had ruled in 2015 that a fiscal crisis does not give the state the power under the state constitution to sidestep the diminishment and impairment clause. And the same doctrine should apply to the Chicago reform attempt, justices said.

The justices said the city’s legal reasoning “would lead to an absurd and unjust result.”

“Rather, as we have explained, the Illinois Constitution mandates that members of the Fund have ‘a legally enforceable right to receive the benefits they have been promised’ – not merely to receive whatever happens to remain in the funds,” justices wrote.

Justices also brushed aside the city’s contention the reform bill was the result of years of talks with unions representing city employees, and so should be allowed to stand. While acknowledging the unions’ participation in the drafting of the reforms, the court said they did not believe the making of the law represented a binding collective bargaining process, so individual retirees and city workers “did not bargain away their constitutional rights in this process.”

“Rather, we agree with the trial court that ‘these negotiations were no different than legislative advocacy on behalf of any interest group supporting collective interests to a lawmaking body,’” the justices wrote. “The individual members of the Funds have done nothing that could be said to have unequivocally assented to the new terms or to have ‘bargained away’ their constitutional rights.”

Tags: , , , ,