Judge hands victory to city retirees, defeat to Emanuel

A Cook County court judge has thrown a curveball that threatens to prevent Mayor Rahm Emanuel from saving $108.7 million a year by completing a three-year phase-out of the city’s 55-percent subsidy for retiree health care.

In a 15-page ruling handed down this week, Circuit Judge Neil Cohen rejected the city’s motion to dismiss a lawsuit filed by 30,000 retirees and kept the individual pension funds on the hook as well.

More importantly, Cohen ruled that the lifetime health care coverage of 20,000 people who started working for the city prior to Aug. 23, 1989, is protected by the Illinois Constitution’s pension protection clause. It states that those benefits “shall not be diminished or impaired.”

The precise nature of the obligation was not determined. That decision was postponed until a later date.

The judge dismissed the lifetime benefits claim made by retirees who started working for the city after Aug. 23, 1989. He argued that they began working under a statute that provided benefits only for limited periods of time and that those agreements have expired.

Although it sounds a bit like a mixed bag, Clinton Krislov, an attorney representing the retirees, portrayed Cohen’s ruling as a “clear-cut victory for people who gave their working lives to the city.”

“They’re entitled to permanent retiree health care benefits because the Constitution protects those benefits no less than state workers,” Krislov said.

“This was an effort by the city and the funds to get off the hook entirely. It was an effort at a show-stopper and it failed. It means the city is going to have to honor its permanent health care obligations to its retirees. They won’t be able to phase it out. They cannot just dump these people. They can’t can’t phase it out to zero and, we hope, the judge will agree with us that they can’t phase it out at all.”

City Hall seized on that portion of Cohen’s ruling that said employees hired after Aug. 23, 1989 are not entitled to lifetime health care benefits.

“The 1989, 1997 and 2003 amendments to the Illinois pension code were time-limited at creation and for good reason. They were enacted solely to codify the time-limited settlements agreements between their parties,” Cohen wrote.

“By their express terms, these amendments specifically do not provide the annuitants with ‘lifetime’ or ‘permanent’ health care benefits. Since any obligations under these amendments expired by the specific terms of those amendments, there is nothing to diminish or impair.”

In an emailed statement, Law Department spokesman Bill McCaffrey said: “We are pleased the court dismissed most of the claims against the City, and plan to seek clarification of the court’s ruling on the single, remaining claim before determining our next steps. This ruling dismissed Counts II and III outright and allowed Count I to go forward on a limited basis, but did not reach a ruling on the merits of that Count. The City plans to seek clarification of the ruling on Count I before determining its next legal steps.”

Before persuading the City Council to raise property taxes by $588 million for police and fire pensions, Emanuel ordered sharply higher health care contributions from 313 City Hall bureaucrats, including himself.

He also cut a deal with organized labor to wring $20 million in savings out of their health care costs, using tele-medicine, expert second opinions before surgery, diabetes management and higher co-payments.

Then, he lowered the boom on retirees — by completing the three-year phase-out to save $30 million and assuming that the retirees’ lawsuit would fall flat.

Armed with the new ruling, Krislov plans to ask Cohen to block those third-year rate hikes.

“They have charged retirees more for health coverage. The city’s announced plan is to phase them out by vastly increasing their rates in 2016 and providing no coverage after 2016. This would preclude that,” Krislov said.

Krislov acknowledged that Cohen’s ruling is “defeat at this point” for post-1989 hires and that they might end up having to pay more money out of pocket.

“Under three amending statutes, which were done in connection with settlements, those don’t provide a lifetime benefit. They have a specific term. That’s a defeat at this point for those participants,” Krislov said.

“But the question is, what are they entitled to? For them, we will present the court with a very specific set of terms they are entitled to on a permanent basis. But their claims are not dead. The only question is how much will they have to pay in costs. It may be higher for that group. Their claim is a little different. But we will present a case for not phasing them out at all.”

In assuming that the retirees’ lawsuit would fall flat, Emanuel rolled the dice — just as he did by authorizing a school budget that assumes $480 million in pension help from Springfield that may never come.

If he ultimately loses the case, there will be even more pressure to raise property taxes. The Illinois Supreme Court has also made it abundantly clear with sharp questions raised during oral arguments that it intends to shoot down Emanuel’s plan to save the Municipal Employees and Laborers pension funds.

That would provide the city with an immediate savings, but saddle Chicago taxpayers with hundreds of millions of dollars in additional costs over time.

Cohen is the husband of Susan Sher, who served as former Mayor Richard M. Daley’s corporation counsel, then chief of staff to First Lady Michelle Obama. After leaving the White House, Sher returned to the University of Chicago, where she is spearheading the university’s plan to build the Obama Presidential Library in either Washington or Jackson Parks.