Fate of state pension law uncertain after judge’s ruling

Twenty-dollar bill stuffed in a nest

A Sangamon County judge’s ruling that the state’s new pension law is unconstitutional may foretell its fate when the Illinois Supreme Court hears the case, experts say.

Illinois Attorney General Lisa Madigan said she would file an appeal with the Illinois Supreme Court after a Sangamon County Circuit Court Judge John Belz ruled Friday that the law is unconstitutional.

“The State of Illinois made a constitutionally protected promise to its employees concerning their pension benefit,” Belz wrote in his decision. “Under established and uncontroverted Illinois law, the State of Illinois cannot break this promise.”

The ruling creates more uncertainty for university employees, said David Merriman, professor in the Institute of Government and Public Affairs.
“We won’t really know what the pension system will be until at least the Illinois Supreme Court rules and even then, there could be a lot of uncertainty,” said Merriman, professor of public administration. “But it does increase the probability that the Illinois Supreme Court is going to shoot down this law. It seems that the judge’s ruling was pretty unequivocal.”

The pension law would reduce cost-of-living adjustments, increase the retirement age for some employees and cap pensionable earnings. The law was passed Dec. 3, 2013, in response to the state’s $100 billion pension shortfall.

Friday’s ruling means that in the short term, nothing changes, said Brenda Russell, president of UIC-SUAA, the UIC chapter of the State Universities Annuitants Association. Retirees will still receive their 3 percent cost-of-living increase in January, but the future remains uncertain, she said.

“How this goes, going forward — there are many questions,” said Russell, professor emerita of physiology and biophysics.

“This is a reprieve until the Illinois Supreme Court hears the case, and it seems like it will be on the fast track for a hearing.”

The pension law would have little short-term effect on the state’s debt but could help in the long run, Merriman said. But other factors, such as a scheduled drop in the personal income tax rate from 5 percent to 3.75 percent in January, would have a much larger impact on the state’s overall fiscal picture, he added.

“The pension is part of the fiscal problem, but only a relatively modest part of the fiscal crisis that the state faces,” Merriman said.

“What’s going to happen with the income tax dropping is that there will be a huge hole in the budget. The university may face rescissions and budget issues because of that. And if the legislature decides to come up with a different solution for the pension, that could have implications for the university budget.”

The state’s debt stands at $400 billion, Russell said — $300 billion of that unrelated to pensions. Of the pension shortfall, $70 billion is debt on pensions and $30 billion is the actual cost of the pensions, she said.

“With Gov. Bruce Rauner coming in, he’s got a revenue shortfall and he’s going to have to look at the income tax carefully,” Russell said. “It’s very tough fiscal times and until it’s sorted through, none of us knows how this is going to go.”

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