Wednesday, May 8, 2013

Constitutional Issues Concerning Senate Bill 2404















Dear Public Employee and Retiree,

Regardless of the We Are One Illinois Labor Coalition’s acquiescence to modify public employees’ rights and benefits, SB 2404 remains what it is: “A unilateral reduction of pension rights [that might have been deemed] unconstitutional, even if coupled with equally unilateral benefits that the [Labor Coalition] imagines retired and active public employees might theoretically find desirable (4)…” (Gino L. DiVito, John M. Fitzgerald, and Katherine M. O’Brien of Tabet, DiVito & Rothstein LLC, Constitutional Issues Concerning Legislative Pension Reform Proposals, February 2013).
 
Many of us do not support a decision to cut benefits and rights already guaranteed by the State and U.S. Constitutions that some Illinois politicians choose to ignore. SB 2404 “attempts to extract a pretense of agreement from individual public employees and retirees to the reduction of their vested pension rights...; [SB 2404] forces a retiree to choose between pension rights and health care coverage. [This] rests upon an assumption that the State has an unlimited right to exclude a public employee or retiree from participation in a health insurance program.


“[Furthermore], in many cases, retired teachers have a vested contractual right to participate in a health plan by virtue of collective bargaining agreements between their unions and their school districts. As the Illinois Appellate Court has recognized, if a collective bargaining agreement between a teacher’s union and a school district promises health benefits to teachers in retirement for a term that extends beyond the agreement’s duration, the teachers who retired under that agreement have a vested right to the promised health benefits. [Read] Haake v. Board of Education for Township High School Glenbard District 87, 399 Ill. App. 3d 121, 132-34, 137-39 (2010) (6)…  

“Vested contractual rights to health benefits in retirement cannot be taken away as a penalty for refusing to surrender vested pension rights. Accordingly, retired teachers who have vested rights to health coverage under their collective bargaining agreements could raise particularly strong legal challenges to… legislation that would eliminate their health coverage as a consequence of their refusal to surrender their vested pension rights.

“Moreover, an ‘agreement’ extracted from a retiree on the threat of losing his or her health coverage would hardly be the sort of voluntary undertaking that is necessary for a valid contractual modification (7)… More fundamentally, [SB 2404] and similar legislation effectively are mechanisms for circumventing the Pension Protection Clause. As explained in Kraus v. Board of Trustees of Police Pension Fund of the Village of Niles, 72Ill. App. 3d 833, 849 (1979), legislation ‘which has an incidental effect on the pensions which employees would ultimately receive, is not prohibited’ if it is ‘directed toward another aim.’

Conversely, because [SB 2404] is directed specifically toward penalizing pension annuitants, it is an impermissible end-run around the Pension Protection Clause. Similar end-runs around the Pension Protection Clause are equally impermissible” (8) (Gino L. DiVito, John M. Fitzgerald, and Katherine M. O’Brien of Tabet, DiVito & Rothstein LLC, Constitutional Issues Concerning Legislative Pension Reform Proposals, February 2013).

Commentary

SB 2404 is an attempt to circumvent the “Pension Clause” by giving retirees and public employees a “choice” or “new consideration” to impair their own contract for a precarious state guarantee. Even John Stevens, Legal Consultant for the “We Are One” Labor Coalition, stated: “To take away the Cost-of-Living Adjustment [COLA] for [current and future] retirees is not a free and fair choice.” Has Stevens changed his mind because of the IEA?

The courts might have found the “illusory promise [of health care in exchange for a compounded COLA]… grossly inadequate and accompanied by unfairness because the employer [the state] is using its superior bargaining position to take undue advantage of the employee and substantially impair the employee’s exercise of free will” (250 Ill. App. 3d 423, 620 N.E.2d 1328, 1st Dist. 1993: footnote to Is Welching on Public Pension Promises an Option for Illinois? An Analysis of Article XIII, Section 5 of the Illinois Constitution by Eric M. Madiar, pg. 62).

Based upon both past and current legislators’ dereliction of duty to pay for the public employees’ constitutionally-guaranteed pensions, a court of law might have found that the Illinois General Assembly had been and is currently in “violation of any standard of good faith and fair dealing” (Professor of Law, Emeritus, Claude D. Rohwer and Professor of Law, Emeritus, Anthony M. Skrocki, Contracts in a Nutshell).

Modification of the “Pension Clause” might have been seen as a “result of a violation of fair dealing,” as an accommodation for “only” some members of the Illinois General Assembly who continuously steal money from the public pension systems and are, thus, “avoiding a pre-existing duty rule” (Rohwer & Skrocki).

According to National University of Singapore Professor Mindy Chen-Wishart, “The consideration doctrine is a moving target… Different [understandings] yield different [interpretations]… Each conception can be contradicted by another… Courts have considerable latitude in determining whether to find consideration (or not), and hence whether to enforce a promise (or not)… A contract supported by consideration can still be set aside for… misrepresentation, duress, or undue influence or its contents may be supplemented by implied terms or [be] partially invalidated because of unfairness. In these cases, the presence of serious inadequacy of consideration will usually be the major, although not the sole, factor… It would be highly undesirable to allow public officials to extract benefits in return for the performance of their existing legal duties” (Contract Law).


Ask legislators if they would make their so-called pension reform bills binding on themselves (if they had only one pension like public employees) and why they have excluded the state's judges.

There is no “Shared Sacrifice” when a governor rolls back the billionaire’s and millionaire’s taxes and then lacerates the state’s school budget and will diminish a public employee’s pension. There is no “Shared Sacrifice” when, for most teachers, their pension plan is their only retirement subsidy because they cannot receive Social Security benefits. There is no “Shared Sacrifice” when legislators who caused the fiscal morass want to change an existing constitutional contract to one that forces the state's public employees to accept an impairment and diminishment of their constitutionally-guaranteed pension and retirement benefits and rights. Sacrificing public employees does not address the state's antiquated revenue structure and the self-imposed state's pension debt problem. 

Approximately 35,000 retirees are being deprived of an earned and promised benefit. They were not represented at the table when Cullerton and the Coalition made their agreement. They were excluded from the process that affects them. It’s ironic that it is the legislators who owe the outstanding obligations and not the public employees and retirees, and that Cullerton and the Coalition have decided public employees and retirees will provide consideration for the debt. 

-Glen Brown

For more constitutional analyses, please also read:


“Defending and Protecting Public Employees’ Pensions against the Legislative Siege…” (excerpts from Eric M. Madiar) and “How Much Can States Change Existing Retirement Policy? In Defense of State Judicial Decisions Protecting Public Employees’ Pensions” by Douglas L. Greenfield and Susan G Lahne) (posted December 10, 2012)

Illinois Pension Clause’s Convention Debates, Text and Historical Background (excerpts from Eric M. Madiar) (posted February 4, 2013)

Illinois Pension Reform Is without Legal and Moral Justification (posted May 29, 2012)



10 comments:

  1. from MiC

    My greatest concern with health benefits as consideration, besides it being morally repugnant, is that the state health plan is not guaranteed, nor is funding it guaranteed, nor are plan benefits defined or guaranteed. As best I can tell there is nothing preventing Springfield politicians from playing the same game with health care that they did with funding pensions - they could change the health plan at any time unilaterally or make up excuses why they can't fund it. --MiC

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  2. Glen,

    I have read your analysis and reviewed the position of the IRTA. I have great respect for your work and am deeply in your debt for all of your efforts.

    On this issue - SB2404 - I disagree. I favor the IEA approach for reasons put forward by Bob Haisman. You have already read those and Bob articulated those quite well.

    Teachers still working see this as a viable solution that offers a way to actually be able to retire - something that most of us (me in particular) have been worried about.

    I also believe the IRTA has engaged in poor political and negotiation strategy here. Their stance suggests a strategy that may force the General Assembly to simply side with Madigan. Their public stance was ill considered and certainly ill timed. As a former negotiator, I would never have pursued their public posture - it hurt the cause and may move us all to some serious and damaging results.

    To suggest that it simply is a court issue is not comforting or perhaps realistic. I remain less confident in our courts than the IRTA and others. Our court is made up of elected judges - those who have deep political ties to Madigan and also Republican leadership. While I believe the Madigan plan should lose on its merits, I have seen too many court cases go in directions that are shockingly wrong.

    You are my friend and one of the brightest minds I know - but I disagree on this issue, and it is my hope that SB2404 passes in the Senate today and then makes it through the full General Assembly.

    Mark

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  3. Glen,

    I respect you tremendously. I agree with you about the vital importance of standing up for our rights. The State of Illinois has never collected enough revenue to do what it was supposed to - including funding our pensions. There is a way out this mess that does not reduce our pension: re-amortize the debt, get a graduated state income tax, close tax loopholes, and yes, militate for a federal bailout. People who believe in and want pension reform should realize that they got it 2010 - and got it faster than if they'd ordered it on Amazon.com: just eleven hours. And they got all the State Constitution should allow for.

    That all said the above simply seems politically impossible. I've said time and again, the elephant in the room driving all this simply the municipal bond market. Bond traders do not respond to anything except the cold, hard calculus of debt and the balance sheet. And 96 billion in unsecured, free-floating pension debt scares them and they aren't going to tolerate it anymore and they are demanding action. But they don't take out ads in the paper or on TV. No need to: They will just jack up the cost of state's borrowing or will simply embargo the state entirely. This is not exaggeration or fantasy on my part. New York City had this precise problem in the 1970's. Anyone close to this issue will tell you I'm correct about this.

    The Civic Club and other groups might be exploiting this circumstance to advance their own agenda, but make no mistake Glen, they aren't the ones creating it. I think Fred Klonsky et. al. don't grasp how gigantic 96 BILLION DOLLARS is. It's THREE TIMES the French deficit. It's half the size if Greece's national debt.

    And so what to do? The General Assembly cannot simply restructure the tax system in a few weeks - it would take an amendment to the state constitution. Or angering powerful interests to close loop holes. And for three years now they've been swirling in the waters, treading the line and doing little.

    And we are in perilous political times for public employees anyway. There is no sympathy for us among the poor taxpayers - who do not understand public pensions and cannot see past the surface issues of early retirement age and percentage of final salary. No amount of explaining will persuade them.

    Many don't even understand the difference between compound and simple interest, much less the complex machinery of how public pensions actually work. Most people think the state just cuts teachers a check from the General Revenue fund!

    And the state has certainly made some harsh choices - elderly people on Medicaid and Medicare lost their prescription drug coverage from the state and will end up paying more for their medication - sick elderly people have to sacrifice, but not me? And paying an extra 2% of their income with each paycheck to the state is a bitter reminder to every worker in the State. I cannot - and should not - just quote the State Constitution to them.

    So what's the option, Glen? Sometimes, you just have to rise above principle. So I'm willing to pay a bit extra and compromise, lest it all explode. Cullerton's bill helps provide cover for voting against Madigan's plan, which could well survive a court challenge if it passes. (No judge wants to be the one to vote to collect $90 billion in taxes from 12 million people, so they'll leap at any rationale - or rationalization for that matter!.)

    It's not political expedience; it's political necessity.

    That's my take.

    Richard

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  4. Glen,

    I am in 100% agreement with your comments on SB2404. I always forward your insightful (and spot on) comments to our staff. The sad part is I doubt if they read it. I believe the unions sold us out with their endorsement of SB2404. I’ve expressed this to Bob Haisman, and he disagrees.

    This is what I sent to our staff this morning:
    If SB2404 eventually becomes law, it will NOT solve the pension debt crisis and subsequently the legislators will be back to take more. My guess is within 5 years. Furthermore, according to WTTW’s Springfield correspondent, it sounds quite possible that SB2404 was introduced by Cullerton (with possibly the nod from Madigan) to appease the unions, but that Madigan has no intention to support it and will ram SB1 through to the governor’s desk. I am now thinking that this might be the best option. Let’s support SB1; let the governor sign it into law. And then let’s roll the dice and take them to court. If the courts rule the law unconstitutional, then maybe we will finally be done with this nonsense. If not, then we are screwed. Either way, it will end this seemingly endless debate.

    OR

    I actually think the unions got played by Madigan and Cross. I think Madigan and Cullerton were playing good cop bad cop. Madigan (bad cop) proposes and rams through a horrific pension bill, meanwhile Cullerton (good cop) “negotiates” with the unions a “constitutional” alternative that “isn’t as bad as SB1” The unions fearful that Madigan’s bill could pass agree and endorse it. This may have been Madigan’s and Cullerton’s plan all along.

    Now fast forward to Madigan and Cullerton patting each other on the backs once the bill is signed by the governor. Both will both come out winners politically. I can see it now: “we faced the tough issues, and the two houses worked together with union support to achieve substantial reforms to the pensions. See how great we are?” And the unions fell for it.

    No doubt, SB2404 is not worse than SB1; however, bear in mind that if this bill would have been proposed three years ago, it would have been unquestionably rejected by all the unions. Now it’s ok? …I also see that it sets a precedent that the legislators can take what they want from public employees. But wait, they have been doing that for the last 45 years…

    Doug

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  5. Glen,

    I DO agree with you.

    The Pension Clause (1970) of the Illinois Constitution was put in for EXACTLY these reasons - so that future Illinois legislators wouldn't find themselves in a financial disaster (this one is of their own making) and penalize public employees and impair or diminish our pensions.

    The Pension Clause was voted upon by the citizens of Illinois in 1970. For the state legislators to actually have the discussion that - "we've made such a mess of things”; now let's penalize and vilify public employees by chipping away at their pensions in unconscionable.

    If we cannot honor the Illinois Constitution or the United States Constitution, what have we left?

    The public employees should not bear the burden of this insane "pension reform." I will share the burden as an Illinois taxpayer along with others who benefit from the services of this state. That's shared sacrifice.

    Glen, just because what we believe in is in direct opposition to the majority reminds me of the saying I use with students all the time. Just because it's popular doesn't make it right, and usually what is right isn't popular!

    Cathy

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  6. Glen I believe that both are unconstitutional and should be rejected by any rational person who goes thru life with any sort of moral compass. All the arguments that contradict your excellent take/coverage of this issue come from a position lacking a moral bottom line. "Everything can be negotiated or compromised on." BULLSHIT!

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  7. “Unions, organizations formerly steeped in the doctrine of class struggle and filled with those who sought broad social and political rights for the working class, have been transformed into domesticated partners of the capitalist class. They have been reduced to simple bartering tools. The social demands of unions early in the twentieth century that gave the working class weekends off, the right to strike, the eight-hour day, and Social Security have been abandoned” (Chris Hedges).

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  8. LET US HOPE THAT THE FOLLY OF OUR UNION LEADERSHIP AND THEIR AGREEMENT WITH THE LIARS AND THIEVES OF THE ILLINOIS GENERAL ASSEMBLY MONTHS AGO TO DIMINISH OUR GUARANTEED CONSTITUTIONAL RIGHTS AND BENEFITS IN SB 2404 DOES NOT COME TO PASS.

    Consider today’s ruling and what Senator Chapin Rose says at the end of this article:

    Ruling backs Illinois retirees on health benefits
    Thu, 07/03/2014 - 11:44am | The Associated Press Carla K. Johnson, Associated Press

    CHICAGO (AP) — The Illinois Supreme Court on Thursday sided with retired state employees who argue that health insurance premiums are a protected retirement benefit. The court's 6-to-1 ruling reverses a lower court decision allowing the state government to force retirees to pay for a portion of their own health care. The justices sent the case back to the lower court, where retirees can proceed with their challenge.

    At issue is a law passed in 2012 that allows the state to collect premiums from retirees for their state-subsidized health care. Prior to that, state workers who retired with 20 or more years of service were entitled to premium-free health insurance. Under the new law, retirees had to cover part of the cost. The case is seen as a possible indicator of how the court will rule on a wider challenge to a statewide pension overhaul approved last year.

    Writing for the majority, Justice Charles Freeman said the plain language of the constitution supports the conclusion that health insurance premium subsidies are part of a contractual relationship with retirees that can't be diminished.

    "Giving the language... its plain and ordinary meaning, all of these benefits, including subsidized health care, must be considered to be benefits of membership in a pension or retirement system of the State and, therefore, within that provision's protections," Freeman wrote.

    Retirees filed several lawsuits after the 2012 law was passed. A Sangamon County judge dismissed the cases, saying health insurance benefits aren't protected by the constitution. Retirees and the state then agreed to appeal directly to the Supreme Court…

    An area state senator said an Illinois Supreme Court ruling on health insurance premiums could be a sign of things to come with the pension overhaul legislation passed last year. The comments from Republican Chapin Rose of Mahomet came on the heels of the Supreme Court siding Thursday with retired state employees who argue that health insurance premiums are a protected retirement benefit.

    Rose said he hopes that the Illinois House of Representatives will return to Springfield to vote on pension legislation that already passed the Senate [SB 2404]. It's legislation that Rose said will not be challenged in court… -Michael Kiser and The Associated Press.

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  9. "…As this opinion has previously observed, our economy is and has always been subject to fluctuations, sometimes very extreme fluctuations. Throughout the past century, market forces have periodically placed significant pressures on public pension systems. The repercussions of underfunding those pension systems in such an environment have been well-documented and were well-known when the General Assembly enacted the provisions of the Pension Code which Public Act 98-599 now seeks to change.

    "The General Assembly had available to it all the information it needed to estimate the long-term costs of those provisions, including the costs of annual annuity increases, and the provisions have operated as designed. 13 The General Assembly understood that the provisions would be subject to the pension protection clause. In addition, the law was clear that the promised benefits would therefore have to be paid, and that the responsibility for providing the State’s share of the necessary funding fell squarely on the legislature’s shoulders.

    "Accordingly, the funding problems which developed were entirely foreseeable. The General Assembly may find itself in crisis, but it is a crisis which other public pension systems managed to avoid and, as reflected in the SEC order, it is a crisis for which the General Assembly itself is largely responsible.

    "Moreover, no possible claim can be made that no less drastic measures were available when balancing pension obligations with other State expenditures became problematic. One alternative, identified at the hearing on Public Act 98-599, would have been to adopt a new schedule for amortizing the unfunded liabilities. The General Assembly could also have sought additional tax revenue. While it did pass a temporary income tax increase, it allowed the increased rate to lapse to a lower rate even as pension funding was being debated and litigated.

    "That the State did not select the least drastic means of addressing its financial difficulties is reinforced by the legislative history. As noted earlier in this opinion, the chief sponsor of the legislation stated candidly that other alternatives were available. Public Act 98-599 was in no sense a last resort. Rather, it was an expedient to break a political stalemate..." (In re PENSION REFORM LITIGATION (Doris Heaton et al., Appellees, v. Pat Quinn, Governor, State of Illinois, et al., Appellants) Opinion filed May 8, 2015, JUSTICE KARMEIER delivered the judgment of the court, with opinion. Chief Justice Garman and Justices Freeman, Thomas, Kilbride, Burke, and Theis concurred in the judgment and opinion

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  10. "…Adherence to constitutional requirements often requires significant sacrifice, but our survival as a society depends on it. The United States Supreme Court made the point powerfully nearly a century and a half ago when it struck down as unconstitutional President Lincoln’s use of executive authority to suspend the writ of habeas corpus during the Civil War, a period of emergency that, by any measure, eclipsed the one facing our General Assembly today. In rejecting the government’s argument that wartime concerns justified the curtailment of the constitutional protections, the Supreme Court employed language which seems appropriate to this case:

    "'Time has proven the discernment of our ancestors; for even these provisions, expressed in such plain English words, that it would seem the ingenuity of man could not evade them, are now, after the lapse of more than seventy years, sought to be avoided. Those great and good men foresaw that troublous times would arise, when rulers and people would become restive under restraint, and seek by sharp and decisive measures to accomplish ends deemed just and proper; and that the principles of constitutional liberty would be in peril, unless established by irrepealable law. The history of the world had taught them that what was done in the past might be attempted in the future. The Constitution *** is a law for rulers and people, equally in war and in peace, and covers with the shield of its protection all classes of men, at all times, and under all circumstances. No doctrine, involving more pernicious consequences, was ever invented by the wit of man than that any of its provisions can be suspended during any of the great exigencies of government. Such a doctrine leads directly to anarchy or despotism ***.'" (Emphasis in original.) Ex parte Milligan, 71 U.S. 2, 120-21 (1866).

    “…The judgment of the circuit court declaring Public Act 98-599 to be unconstitutional and permanently enjoining its enforcement is affirmed” (In re PENSION REFORM LITIGATION (Doris Heaton et al., Appellees, v. Pat Quinn, Governor, State of Illinois, et al., Appellants) Opinion filed May 8, 2015, JUSTICE KARMEIER delivered the judgment of the court, with opinion. Chief Justice Garman and Justices Freeman, Thomas, Kilbride, Burke, and Theis concurred in the judgment and opinion).

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