Update: The analysis and conclusions herein have now been affirmed by a June 2019 decision by the Rhode Island Supreme Court applying federal law. See our article on that decision linked here, and a further MuNinet article thereon linked here.
By: Mark Glennon*
If Illinois someday had the political will to fix its broken pension system, could it amend the state’s constitutional pension protection clause and proceed with reforms that modified benefits now protected?
Reform opponents say no, without qualification. If we took that route, they say, courts would still invalidate the reform as a constitutionally impermissible impairment of contracts under what’s called the Contract Clause.
They are wrong. While the issue would be litigated, chances are high that reform would prevail and those chances improve every day. Here’s why:
A state constitutional amendment, unquestionably, would eliminate all state law issues as long as it were worded broadly enough to do so. It would supersede not just the pension protection clause but everything else in state law, including the state’s own constitutional Contract Clause.
But this route to reform would still be challenged under the United States Constitution’s Contract Clause. It’s that federal law issue that reform opponents really base their argument on, and that’s where the issue is.
However, the federal constitutional ban on contract impairment is not absolute. The United States Supreme Court has made clear that contracts may be impaired if there is a significant and legitimate public purpose behind the contract adjustment, and the adjustment of “the rights and responsibilities of contracting parties [is based] upon reasonable conditions and [is] of a character appropriate to the public purpose justifying [the legislation’s] adoption.”
That’s the “police power” exception to the Contract Clause, which the Illinois Supreme Court declined to apply in its 2015 decision invalidating pension reform. But that was under state law. Federal law is separate, and it’s only that federal law that would matter after a properly broad state constitutional amendment. Regardless of whether the litigation started in a state or federal court, a judge would apply federal law.
Most importantly, any decision would ultimately be appealable to the United States Supreme Court.
Nothing said so far is disputable. That’s why it’s wrong for reform opponents to say unequivocally that a constitutional amendment won’t work. Reform opponents saying that have included AFSCME Council 31 and Ralph Martire of the Center for Tax and Budget Accountability. Instead, the issue is whether the test for meeting the exception to the Contract Clause laid down by federal courts could be met.
No less than Eric Madiar said as much that at a conference two years ago sponsored by The Civic Committee and The Federal Reserve Bank of Chicago. He has served as Senate President John Cullerton’s main pension advisor and is widely seen as a key legal expert opposing serious reform. When asked about the exception he said he agreed it exists but that Illinois would not meet the test. Fair enough.
But what would federal courts really say? If they wouldn’t allow the exception to the Contract Clause now, they will eventually. That’s because the insolvency of Illinois and many of its municipalities deepens every day, so passing the test for the exception is inevitable.
Since 2015 when the Illinois Supreme Court ruled on the matter, the state’s constitutionally protected pension and pensioner healthcare unfunded liability has jumped by roughly another $40 billion. That’s despite a major tax increase and at least one other is in the works. Property taxes passed suicidal levels in many communities. The state suffered five straight years of population loss. The Illinois court’s earlier view on the matter wouldn’t matter much to a federal court anyway, among other reasons because the state courts never tried the police powers issue on the facts.
And remember that these issues apply to Illinois municipalities, too. Many are far more desperate than the state, and essential services are being compromised because of pension costs. Harvey and East St. Louis have collapsed so completely that it’s hard to envision a turnaround under any circumstances.
There’s no end in sight to further strain from growing pension costs. The graduated income tax now being considered would raise, proponents claim, just $3.4 billion, which wouldn’t come close to stabilizing the state. Even if that went entirely to pensions, the state still wouldn’t be covering interest that effectively accrues on its pension and related healthcare debt. By the time any court heard the issue, 2021 at the earliest, Illinois and most of its municipalities will be in far worse shape. Maybe Illinois will have gone entirely off the cliff by then, but if it hasn’t, would a court applying federal law insist on waiting for that inevitability to happen before granting relief? That’s very doubtful.
Finally, and most importantly, can anybody really see this United States Supreme Court, where the dispute would finally end, ruling that the United States Constitution bars pension reform? A state constitutional amendment would require a three-fifths vote by the General Assembly then ratification by the public. The new, conservative majority on the Court surely would be disinclined to override those votes.
Today, Illinois has no political will for any pension reform. Not one dime of pension benefits should be cut, the establishment says, so a constitutional amendment is off the table. But the facts change for the worse each year and, even in Illinois, politicians may someday be replaced or come to their senses. It’s no sure thing that pension reform following a constitutional amendment would survive a challenge under federal law, but chances are good, and Illinois has no choice but to pursue that chance. There is no route to fiscal stability without real pension reform.
Justice Oliver Wendell Holmes famously said, regarding his duty as a judge to enforce the law, “If my fellow citizens want to go to Hell I will help them. It’s my job.”
A corollary we can expect to be honored is that if they choose not to go to Hell, through the difficult process required to amend Illinois’ constitution, courts will help them with that, too.
*Mark Glennon is Founder of Wirepoints. He formerly practiced law and taught as an Adjunct Professor at the University of Texas Law School.