Pension reform and the constitution

We can expect to see an intense focus on two major but divergent paths on pension reform at the state Capitol the next few weeks. Both would institute cuts that violate public employees’ established expectations and that reduce retirement benefits promised by the state. Yet they rest on very different predictions of the legal analysis ultimately used by the Illinois Supreme Court to determine the fate of any reform law’s constitutionality.

Senate President John Cullerton’s theory is based on analysis familiar to every first-year law student: Pensions are a contract between the state and employees and, as such, only changes agreed to by both parties can pass constitutional muster. His bill requires employees to choose between keeping their 3 percent automatic cost-of-living adjustments annually and their right to state-subsidized health care. Retiree benefits are not touched.

His decision may be calculated to increase the likelihood of judicial approval. But it also locks in a tremendous amount of inequality between retirees and current employees, pitting their interests against each other and raising serious concerns about who is bearing the burden for solving the pension crisis. It is unclear that this choice will produce sufficient revenue to save the system from collapse.

The approach taken by state Rep. Elaine Nekritz and state Sen. Daniel Biss, joined by House Republican Leader Tom Cross, applies across-the-board cuts to retirees and employees without the Cullerton choice rhetoric. Cullerton sympathizers argue the Nekritz-Biss plan is patently unconstitutional because of the way it unilaterally reduces benefits. That argument works only in a world free of today’s financial calamity, where the state’s pension debt is an almost incomprehensible $96 billion and growing.

We can expect the Illinois Supreme Court’s ultimate review not to be limited to the absolutist contract law approach, even if some state courts have adopted it. New circumstances require new analyses, and no Illinois court has yet been asked to consider legislative reduction of benefits against the backdrop of impending financial doom.

It is critical to remember: No provision of any constitution is absolute, no matter how absolute its language.

For example, the U.S. Constitution’s Contract Clause explicitly says “no state shall pass any law ... impairing the obligation of contracts.” That mirrors the apparent absolute ban on any law impairing or diminishing pension benefits found in Illinois’ constitution. But the U.S. Supreme Court has interpreted the language to mean something very different in extreme circumstances, essentially adding the proviso that impairments are constitutional if “reasonable and necessary to serve an important public purpose.”

If the Nekritz-Biss plan becomes law and the state Supreme Court takes this more contextualized approach to interpreting the Pension Clause, then its constitutionality will depend on clear and convincing evidence of a disastrous fiscal crisis. If a strong case is made that Illinois can meet its pension obligations without running itself into the ground, then the court is more likely to invalidate the benefit cuts. But if the state can show that there are no reasonable alternatives to reducing benefits — that more tax increases and spending cuts in other areas are simply not enough — then the court is unlikely to write an opinion that would essentially push the state into default.

Every legislator takes an oath to uphold the state and federal constitutions. Voting for a clearly unconstitutional bill would be a serious dereliction of that duty. But that is not the choice legislators face. Either of the two leading proposals could reasonably be found to be constitutional.

The Illinois and U.S. Constitution require our legislature to adopt pension reform that will spread the pain of cuts fairly among all beneficiaries of the pension system, ensure its long-term financial sustainability and allow it to meet its many other duties to all Illinois citizens.

Ÿ Laurie Reynolds is the Prentice H. Marshall Professor of Law at the University of Illinois at Urbana-Champaign.