SPRINGFIELD, Ill. (AP) — With the fight over solving Illinois’ worst-in-the-nation pension shortfall now headed to the courts, the financially troubled state faces a grim possibility: The plan could be tossed, and Illinois could wind up in an even deeper fiscal hole than the one it’s in now.
Legislative leaders, anticipating a legal challenge from public-employee unions once the landmark bill approved Tuesday is signed, went extra lengths to bolster the law’s odds in the courtroom — including an unusual three-page preamble to the legislation in which they lay out their case for cutting worker and retiree benefits.
But legal experts say those efforts could mean little in a state that provides some of the country’s stronger constitutional protections of pension benefits.
They point to Arizona as a possible warning sign. In 2012, a judge there said a law raising the employee contribution to pension benefits was illegal, and ordered the state to repay the money to workers — with interest.
Amanda Kass, budget director and pension specialist for the Center for Tax and Budget Accountability in Chicago, predicted Illinois could see a similar outcome.
“The state could owe back a huge sum of money, possibly with interest,” she said.
Recent rulings across the country bring even greater unpredictability to a plan supporters described as crucial to getting Illinois on better financial footing. A bankruptcy judge in Michigan ruled Tuesday that Detroit can cut its pensions despite constitutional protections like Illinois’ — a blow to labor unions and their members.
Illinois, Michigan and Arizona are among the seven states that have clauses in their state constitutions that protect pension benefits, according to the Center for Retirement Research at Boston College. The others are Alaska, Hawaii, Louisiana and New York.
Illinois and New York’s protections are considered to the strongest, however, because the language expressly states that it applies to current and future benefits.
“I think they’ve got a serious problem,” said Professor Ann Lousin, the Edward T. and Noble W. Lee Chair in Constitutional Law at John Marshall Law School in Chicago, speaking of the legislative leaders who were the political architects of the Illinois measure.
Illinois’ unfunded pension liability is $100 billion, largely because lawmakers for decades didn’t make the state’s annual contributions to the funds.
The enormous shortfall led major credit rating agencies to downgrade Illinois to the lowest credit rating in the country. Pension payments also grew to consume about one-fifth of the state’s general funds budget — siphoning money from education, social services and other areas.
After years of failed negotiations and disagreements with labor unions over how to fix the problem, the Democrat-controlled Illinois General Assembly on Tuesday approved a plan legislative leaders say will save the state $160 billion over the next three decades and fully fund the systems by 2044.