Charles Lomanto, a 28 year employee of Chicago’s Streets and Sanitation Department speaks at a news conference Friday, July 24, 2015, in Chicago after Cook County Judge Rita Novak issued a written ruling stating that a 2014 law aimed at reducing multibillion-dollar shortfalls in two of Chicago’s pension funds is unconstitutional.
City attorney Stephen Patton says if the law is voided, the pension systems will run out of money.
“The city’s argument, premised on the notion that participants have no right vis a vis their employer to expect payment of their pension benefits, is fundamentally at odds with the supreme court’s teachings”, Novak wrote.
Novak cited the recent Illinois Supreme Court ruling affirming that entrance into a pension system is a “contractual relationship” where benefits can not be diminished or impaired.
The 2014 overhaul sought to eliminate a $9.4 billion unfunded pension liability in two of the funds by cutting benefits and increasing contributions.
The ruling will require the cash-strapped city to come up with an additional $250 million over the next five years to meet the pension fund obligations.
The case is Jones v. Municipal Employees Annuity and Benefit Fund of Chicago, 2014CH20027, Circuit Court, Cook County, Illinois, Chancery Division (Chicago).
Members of the pension funds sued the city, saying it wasn’t fair for it to renege on the pension agreements years after they had been made.
While Chicago has the worst-funded pension system of any major US city, the pension problem is not an anomaly in many US metropolises. City officials also have said residents will likely see huge tax increases without pension reform.
The judge also said Chicago’s argument that a majority of affected unions in a working group backed the law fell flat, given that there was no evidence union members agreed to the benefit cuts in exchange for something of value. Credit-rating agency Moody’s Investor’s Services has downgraded the city’s bonds to “junk” status, making further efforts to finance the debt harder. And the state is operating without a budget because of stalemate between Republican Governor Bruce Rauner and the Legislature’s Democratic leadership.
Anders Lindall, a spokesman for the American Federation of State, County and Municipal Employees Council 31, said the union remains confident that the Illinois Constitution is “clear and without exception” when it comes to pension benefits. Standard & Poor’s earlier this month cut the rating to the low investment-grade level of BBB-plus because of a chronic structural deficit.