On Constitutionally-Guaranteed Contracts
In regard to the “diminishing or impairing” of a pension clause
or contract that protects citizens’ rights, the United States Supreme Court has
held “that the court must establish that impairment is reasonable and necessary
to serve an important public purpose, such as ‘the remedying of a broad and
general social or economic problem.’ To show that a change is necessary, the state
must establish that no less drastic modification could have been implemented to
accomplish the state’s goal and that the state could not have achieved its
public policy goal without modification” (Education Sector Policy Briefs).
“Federal Contracts Clause requires the courts to determine:
first, whether there is a contractual relationship between plaintiffs and the
state; second, if so, the nature of the contractual promises that allegedly
have been impaired; third, whether a state law (a constitutional provision)
impairs any of those contractual promises and, if so, whether the impairment is
‘substantial’ and, fourth, if so, whether the state law creating the
substantial impairment is justified by a significant and legitimate purpose and
whether the method used by the state to advance that public purpose constitutes
an unnecessarily broad repudiation of its contractual obligation to private
persons.
“Under this test, once a
contract is found to exist, the balancing factors are interrelated; the more
substantial and severe the impairment, the greater the government’s burden to
justify the impairment. Also, government actions taken to relieve the government
of its own contractual obligations are viewed more stringently than
governmental actions that affect only private contracts. Thus, the balancing
test is applied with more bite when government seeks to alter a contract to
which the government itself is a party, as courts reason that self-interest is
more likely to be the motivation than public policy when the government is
acting to eliminate or reduce its own financial obligations, rather than those
of third parties.
“Courts applying this
type of balancing analysis to amendments that alter public employees’ existing
contractually protected pension benefits have almost unanimously treated these
efforts as imposing ‘substantial’ impairments, and courts also have typically
found governments’ justifications based on even real fiscal crises or
emergencies insufficient. Most states therefore cannot readily reduce their
existing pension obligations to their employees in an effort to solve a fiscal
crisis, and until recently few even tried” (Greenfield, Douglas L., Lahne, Susan G. (2012). How Much Can States Change Existing Retirement Policy? In
Defense of State Judicial Decisions Protecting Public Employees’ Pensions.
National Council of State Legislatures Legislative Summit, 1-16).
To declare that Illinois is in an “emergency state,” without
attempting revenue and debt restructuring will no doubt ignite litigation and an
examination of the ethical motivations of policymakers and whether they attempted
to exhaust every alternative available to them for resolving the state’s
financial debts before attempting to renege on a constitutional contract.
“Budgetary relief is not a legitimate public purpose; for a
severe financial crisis (Great Recession), courts [have been] split [on the
issue]. Courts seem to be in consensus that the long-term fiscal health of a
pension plan to assure receipt of future benefits is a legitimate public
purpose… If a pension benefit is diminished without ‘offsetting consideration
or benefit to plan members,’ courts will typically find ‘substantial
impairment’” (Pension Reform, Legal Principles and Consideration). The
plaintiff must prove the unconstitutionality of statute beyond a reasonable
doubt. Once offered, historically and legally, promises that were made need to
be kept.
Whether any new piece of
legislation is a diminishment of Article XIII, Section 5 of the Illinois
Constitution, and is deemed “reasonable and necessary” in order to carry out a
“legitimate public purpose,” will depend upon Illinois courts and their
interpretations. “More moderate alternatives that do not violate a
constitutional contract,” such as the ability to raise money [through revenue
reform] must be considered initially, as well as whether a legitimate public
purpose is “an exercise of police power for a broad societal issue v. benefits
for a special interest” (Pension Reform, Legal Principles and Considerations).
Sources:
To avoid the more difficult (not hard nor impossible) lifting, these legislators have decided that those who must pay for the state's fiscal criminality are the very victims whose pockets were originally picked. They will still face funding shortfalls and service crunches because they did not target the real culprit: an unfunded liability never addressed correctly back in 1995 when they had their first chance to do it right, and ignored again now. All of us in the public sector will be expected to pay for the state's past bill, but don't be surprised when they haven't enough and will return to get more. Once on the hook for their past transgressons, we will be expected to pay for the future inabilities to make the unfunded payments.
ReplyDeleteRequired payments to this year's retirees are less than last year, but it is the unfunded liability that pushes the limits on the state's budget and their single-minded agenda. Other revenue sources or even creative, more effective concepts to deal specifically with the unfunded liability will remain outside the ken of impatient and arrogant representatives.