One of the most critical financial issues to face Illinois government in a half-century went before the state Supreme Court on Wednesday as lawyers for the General Assembly and governor defended a massive state-employee pension bailout that a lower court invalidated last fall.
The issue is whether the law, designed to deal with a $111 billion deficit in four retirement accounts by cutting benefits to current state employees, violates the state constitutional protection against reducing that assistance. The state says the government's power to take extraordinary action in times of crisis trumps any pension promise.
Illinois Supreme Court justices peppered the state's lawyer over her claim that lawmakers could cut public-pension benefits because of a fiscal emergency.
Solicitor General Carolyn Shapiro argued before the high court Tuesday. She says a $111 billion deficit in four retirement accounts and other state debts are sufficient reason for the state to invoke its "police powers" to reduce pension benefits, as lawmakers did with an overhaul in 2013.
But Justice Robert Thomas asked repeated questions about whether the state itself created the emergency by low-balling required annual pension payments for decades. Shapiro says the 2008 recession and uncertain inflation rates have been major contributors to the problem, too.
State employees and retirees say the law violates a constitutional prohibition on action to "impair or diminish" benefits.
Although new Republican Gov. Bruce Rauner and Democrats who control the Legislature are largely aligned on this pension question, an unfavorable ruling could widen the budget rift between them. Should the pension deal be reversed, Rauner could be forced to either make deeper spending cuts than he's already proposing or agree to the demands of many Democratic legislators to increase revenues.
Lawmakers argue the state reserves so-called "police powers" — under federal as well as state law — that allow it to reduce contractual benefits in extraordinary circumstances. Key to the argument is the national economic crisis of 2008, which sliced into income-tax revenue while social-service spending needs increased and a stock market collapse strained the pensions' portfolios, their value dropping 30 percent from $70 billion to $48 billion.
Working against the state is the fact that lawmakers let a 67 percent temporary surcharge in the income tax, which brought in $7 billion extra a year, expire in January after Quinn was defeated and Rauner had campaigned against extending it.
Illinois also has to answer questions about its track record. For decades, even before adoption of the current constitution in 1971, the government's share of pension contributions fell short, and it hasn't fared much better in the past 40 years. Are recently as a decade ago, long after the severity of the problem was clear, Democrats in the Legislature and governor's office agreed to free up spending money by skipping $2.3 billion in obligated pension-fund payments for 2005 and 2006.