Illinois Gov. J.B. Pritzker, signing police and fire pension fund consolidation legislation, Senate Bill 1300, into law last week | facebook.com/GovPritzker/
CHICAGO – Aaron B. Maduff, managing member of the national employment law firm Maduff & Maduff in Chicago, can answer better than many others the question of why Illinois' almost $140 billion public pension crisis has proven so difficult to fix.
The state simply cannot get around a decades-old provision, known as the Pension Protection Clause, in its own state constitution, Maduff said during a recent interview.
Maduff successfully argued that point before the Illinois Supreme Court in a case decided almost five years ago, that public pensions cannot be diminished without violating the state constitution.
Aaron B. Maduff, managing member of the national employment law firm Maduff & Maduff in Chicago | madufflaw.com/
"The reason the amendment was added to the constitution in 1970 was because people feared exactly what is happening today," Maduff said.
Illinois lawmakers have tried to get around the clause and could try again. However, eliminating the clause or declaring an emergency to circumvent the clause - or just ignoring it - could have unintended consequences, Maduff said.
"It's not an easy question to answer," he said. "My best answer is that we need to resolve it, and the way to resolve is not to cut the pensions. There has to be other ways and we have to find them."
Maduff has testified before Illinois state Senate and House committees about numerous employment law bills and has drafted portions of employment related statutes, including the Illinois Equal Pay Act of 2003. He is past chair of the Chicago Bar Association's Labor and Employment Law Committee and currently serves on the Illinois State Bar Association's Labor and Employment Law Section Council.
Most notably, Maduff successfully challenged Public Act 98-599, public pension reforms that passed the state legislature in 2013, in an attempt to reduce the future burden placed on state finances by fast-growing pension benefits and debt. His challenge was made on behalf of a group of current and retired public university employees in a case that came to be known as In Re: Pension Reform Litigation. Arguments in that case focused in large part on the Illinois Constitution's Pension Protection Clause, which says that state pensions "shall not be diminished or impaired."
Maduff argued the case all the way to the Illinois Supreme Court, which ruled 7-0 in May 2015 that Public Act 98-599 was unconstitutional because it violates the Pension Protection Clause.
The year prior, the Illinois Supreme Court's decided in Kanerva v. Weems that health-care benefits bundled into state workers' pensions are constitutionally protected, also tightly hemming in the state's pension reform options.
State lawmakers have since continued to grapple with the problem largely along party lines, with Illinois' Republican minority urging reforms and the Democratic majority pushing for increasing revenue through higher and new taxes, and other administrative means.
Earlier in December, Gov. J.B. Pritzker signed into law SB 1300, a police and fire pension fund consolidation bill intended to increase investment returns and decrease fund management costs by consolidating the current 649 downstate and suburban plans into two statewide funds. The bill, which Pritzker's office touted as the first legislation of its kind, followed "more than 70 years of failed attempts to remedy the patchwork of first responder pension plans across the state," Pritzker's office said.
"This was a significant bipartisan reform effort that will make positive change," Illinois State Rep. Mark Batinick (R-Plainfield), chief Republican negotiator and chief co-sponsor of the bill that passed during the most recent veto session, said in a news release shortly after Pritzker signed the bill. "The work is not done on pensions, but today we can all celebrate this success.”
The celebration wasn't especially loud and didn't last long. The ink from Pritzker's signature was barely dry when the Illinois Policy Institute issued a report saying SB 1300 arrived "with pension sweeteners without public cost estimates," in addition to other hidden costs, and "will do nothing to solve the state’s $137 billion pension crisis."
"This new law should come with only half a celebration," Illinois Policy Institute Budget and Tax Research Director Adam Schuster said in the institute's report. "While the bill could make Illinois' pension funds more efficient and provide taxpayers savings, it's irresponsible that there was no analysis to show if this fix will save the state money on net."
And so, the pension crisis continues and resolution remains elusive.
"Resolving this situation is going to have to, at some level, involve looking at expenditures and looking at where you can cut expenditures and looking at your revenue is coming from and how you can increase revenue," Maduff said. "I could say, 'Oh, well, let's raise corporate taxes.' Then somebody else could come back and say, 'Well, you're going to drive corporations out of the state and you're going to end up, in the long run, losing revenue'."
Some lawmakers, trying to find a workable solution to the pension crisis, are also considering the seemingly unthinkable, including whether to amend or again try to use an exception to work around the constitution.
Overall, constitutional exceptions have been identified largely by interpretation, such as U.S. Supreme Court Justice Oliver Wendell Holmes Jr's opinion in a 1919 case that the Constitution does not protect all free speech, such as "falsely shouting fire in a theatre and causing a panic."
"Those exceptions really come down to sovereign power or police power to do something," Maduff said.
Precedents for using sovereign or police powers to circumvent the constitution have been based on "emergencies" and have been subject to abuse, such as what led to the Japanese internment camps in the U.S. during World War II, which later was found to be unconstitutional, Maduff said.
"We were in the middle of a war and the government acted," Maduff said. "So it's perfectly possible to violate the constitution but somebody is going to come back and make an argument later."
Caught in the middle are the state's tens of thousands of pensioners.
"At some point you need to step back and say, 'Well, wait a minute, what's morally right here?'" Maduff said. "Remember that for most of these employees, the state opted out of Social Security in favor of these pensions. So you're talking about a lot of people who are not going to get Social Security benefits. If you turn around now and gut the pensions that they spent years and years accumulating working for the state, it's going to have a devastating effect on an awful lot of people."
Maduff acknowledged reports about some pensioners who've gamed the system, but said those cases are relatively rare.
"This also includes a guy who has worked at Chicago State University for his entire career," Maduff said. "Maybe his English isn't all that good and he hasn't been making a lot of money, his pension is going to be affected, too."
The damage done to pensioners if their pensions were cut or eliminated would be "dramatic," Maduff said.
"I do see the concern, that now we have to drive up taxes to try to pay for it or we have to do other things, we might have to sacrifice other services or whatever the case may be and those are all very valid, serious concerns," he said. "But we have obligations. If I have a debt, if I can't pay off my house, can I come back and say, 'You know what? I don't have enough money to buy clothes, so cancel my debt.' We don't do that. You would have issues collecting, certainly, but we just don't do that. Why should the state be any different? Particularly when there are a lot of these people who, literally, could be ending up on the street. I mean, I don't know any particular individual's situation, I'm not thinking about anybody in particular, but I know there are a lot of state employees out there who are not making a hundred thousand dollars per year and they won't have Social Security."