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Ill. Supreme Court strikes down Chicago pension rescue plan

Mayor Rahm Emanuel. Brian Jackson / Sun-Times

The Illinois Supreme Court on Thursday dealt Mayor Rahm Emanuel an expected body blow in his fight to solve Chicago’s daunting pension crisis, but it wasn’t a knockdown.

In fact, the ruling that overturned Emanuel’s plan to save Municipal Employees and Laborers Pension Funds, on pace to run out of money in eight and 12 years respectively, all but invited the mayor and the unions to go another round.

The Supreme Court declared that, “as a matter of law, members of the funds did not bargain away their constitutional rights.”

That’s even though 28 of 31 unions signed off on Emanuel’s plan to raise employee contributions — to 11 percent by 2019 — and end compounded cost-of-living adjustments for retirees ineligible for Social Security.

The ruling also states, “The pension protection clause was not intended to prohibit the Legislature from providing ‘additional benefits’ and requiring additional employee contributions or other consideration in exchange.”

The Emanuel administration seized on that as charting a path forward.

“Obviously, we would have preferred a win, but we don’t think the door is completely shut. They left the door open to collective bargaining,” said a top mayoral aide who asked to remain anonymous.

“Individual employees get to decide whether to make future pay hikes pensionable. In exchange for that, they agree to modification of pension benefits. Or, they get to keep the current benefit structure and give up future pay increases being pensionable.”

Illinois Senate President John Cullerton has applied that same “consideration model” to the state’s pension crisis. He called Thursday’s ruling “more than a glimmer of hope” for Chicago.

“We have a clear path on how to solve it. This is a positive decision. The court is basically saying if you do that in a collective bargaining setting, that’s a contract and you can ratify it,” Cullerton, Emanuel’s closest ally in Springfield, said Thursday.

“They could go in and renegotiate the same bill we passed, ratify it in a collective bargaining setting and it would be fine. Reduce certain pension benefits. Increase contributions. They could go back to the table and negotiate the same thing and that contract would be constitutional where the bill was not.”

In a statement, Emanuel said he would “continue to work with our labor partners on a shared path forward” that preserves and protects the two pension funds “while continuing to be fair to Chicago taxpayers.”

But a negotiated settlement will not come easy.

AFSCME Council 31, the Chicago Teachers Union, the Illinois Nurses Association and Teamsters Local 700 made that clear in a statement by pointing the finger at unnamed politicians who failed to adequately fund retirement benefits while city employees who earn an average annual pension of $32,000 were “faithfully paying their share.”

Plaintiffs’ attorney Clint Krislov said he expects the next round of negotiations to focus on health care issues.

“It may be the city will try to put together an alternative package that says you can keep benefits or get a different package if you voluntarily trade it. But it would have to be something meaningful. They’d have to give you a package attractive enough to give up the right to 3 percent automatic increases in exchange for getting something else,” he said.

During oral arguments in mid-November, Supreme Court justices made clear through their questioning that they did not buy the city’s central arguments: that Chicago’s negotiated reforms were different than state reforms imposed “arbitrarily” and that the city’s commitment to “preserve and protect” the two funds amounted to a “massive net benefit.”

In Thursday’s ruling, the Illinois Supreme Court shot down both arguments and stated that the city — not the pension funds — is responsible for the massive debt.

“The city’s contention . . . would lead to an absurd and unjust result,” the ruling states.

Krislov called that “one of the most important aspects” of Thursday’s decision.

“The city was essentially threatening and saying, ‘If you don’t go along with this, we’re going to walk away from the funds.’ The city can’t do that now. This puts a dagger in that argument,” Krislov said.

In the short run, Thursday’s ruling will ease the burden on beleaguered Chicago taxpayers.

The city’s annual contribution to the two funds will drop by $90 million this year, and Emanuel will be off the hook to find $250 million in additional revenue over five years.

But over time, the city could be forced to bear a far heavier burden if employees and retirees won’t meet it halfway.

Emanuel initially proposed raising property taxes by $250 million over five years to bankroll the city’s increased contribution to save the two funds. He substituted a 56 percent increase in Chicago’s telephone tax for the city’s first-year contribution, only after then-Gov. Pat Quinn balked at a pre-election property tax increase.

If the new round of collective bargaining fails to produce pension reforms that can pass legal muster — or if those savings run short of the overturned plan — the mayor is expected to try to negotiate work-rule changes, lower break-in pay for new employees, another round of health care reforms, and other cost-saving concessions and dedicate those savings to pensions, City Hall sources said.

The remaining shortfall could come from raising the telephone tax. Chicago is legally authorized to raise its telephone tax to the highest rate charged by any municipality in the state.

More property tax increases are unlikely, considering the fact that Emanuel just raised property taxes by $588 million for police and fire pensions and school construction, and has promised to raise them by another $170 million for teacher pensions, whether or not the state does its part to help the nearly bankrupt Chicago Public Schools.

With bills reflecting the largest property tax hike in city history due to arrive in Chicago mailboxes within weeks, the chairman of the City Council’s Budget Committee was quick to embrace a telephone tax hike.

“That’s a lighter way. I would rather pay $20 on a telephone than to pay $2,000 on a property tax. That would be easier. It would be a more softer approach,” Ald. Carrie Austin (34th) said Thursday.

“The big [property] tax that they got coming up on them — that’s a lot. If this is a smaller way to do that where it won’t be as detrimental, then I would rather see that.”

State supreme court pension ruling