Monday, November 24, 2014

Labor Unions – 1; State Budget Fix – 0

In a move that was not surprising to most, a Sangamon County judge ruled last Friday that the pension reform bill enacted just about a year ago is unconstitutional.

Most people by now know that Illinois tops the list of states with the worst funded state pension programs in the nation. In fact, it is the condition of the state pension programs that has virtually brought the state to its knees, resulting in not only a lowered credit rating, but also the ouster of Pat Quinn as Governor and the election of unknown Republican Bruce Rauner to that office with the voters hoping that if he made himself millions, maybe he can save the state from this mess.

Unions argued that the currently declared unconstitutional pension legislation deprived public employees of the full benefit of their “contract” with the state because they entered public service with the promise of pension benefits that were subsequently reduced by the legislation. This all, argued the labor unions, violates the state constitution which prohibits any abridgement to contracts with the state. The state argued that it is facing a financial crisis and under its emergency powers can and should correct that crisis.

Sangamon County Judge Belz agreed with the unions, holding "In summary, the state of Illinois made a constitutionally protected promise to its employees concerning their pension benefits,'' Belz's ruling stated. "Under established and uncontroverted Illinois law, the state of Illinois cannot break this promise.''

While the  Illinois Supreme Court will ultimately decide the issue, it is certain that the state, led by Rauner, will take another – and maybe different stab at this problem. In the meantime, what should employers do? Primarily, employers have to sit tight and wait for the fall out. Employers should remember, though, that absent legislation that “fixes” the problem, the billions of dollars in pension shortfall may ultimately be the responsibility of public employers.  This is important for employers to remember when they go to the bargaining table because more of their dollars may end up going to make up this shortfall, leaving less to spend on wages and increases,  and every wage increase translates to a greater pension liability.  The rest, for now, is up to the state Supreme Court.