Chief Legal Counsel to Illinois Senate President John Cullerton, Eric Madiar, on Breaking a Contract with Public Employees

 

“Anyone following the pension-reform debate knows Illinois has long diverted the money needed to properly fund its pension systems to avoid tax increases, cuts in public services or both. Some may not admit it, but they know it. They also know this practice is the primary reason why the systems are under water.

“Because much of my time the past three years has been spent on the state’s pension problem, I wanted to find out how long it’s been that way and how long we have known about it. As chronicled in an article I wrote that was published by Chicago-Kent College of Law, I have an answer: 1917.

That’s not a typo.

“In 1917, the Illinois Pension Laws Commission warned leaders that the retirement systems were nearing ‘insolvency’ and ‘moving toward crisis’ because of the state’s failure to properly fund the systems. It also recommended action so that the pension obligations of that generation would not be passed on to future generations.

“The warning and funding recommendation went unheeded, as did similar warnings and recommendations found in decades of public pension reports issued before and after the pension clause was added to the Illinois Constitution in 1970.

“For decades, these reports consistently warned the public and lawmakers of the dire consequences of the state’s continued underfunding and of the significant burden unfunded pension liabilities posed for taxpayers. They advised that the pension clause bars the legislature from unilaterally cutting pension benefits of retirees and current employees.

“Indeed, one of the clause’s purposes is to prevent the state from reneging on its pension obligations during a fiscal crisis because of the burden imposed by unfunded liabilities. The clause was added at a time when the pension systems were no better than they are today.

“These reports also reveal that as early as 1979 Moody’s and Standard and Poor’s advised Illinois that it would lose its AAA bond rating if it did not begin tackling its increasing unfunded pension liabilities.

“In 1982, Gov. Jim Thompson succeeded in passing legislation making pension funding far more dependent upon stock market returns to stave off higher state pension contributions. Interestingly, that legislation resulted from a report commissioned by Thompson that highlighted how the pension systems should consider investing in mortgage-backed securities to obtain higher stock market returns.

“Further, a 1985 task force report noted that Standard and Poor’s reduced its bond rating for Illinois from AAA to AA+ because of the state’s ‘deferral of pension obligations,’ and that another rating agency viewed Illinois’ pension funding as a future financial ‘time bomb.’

“Finally, the much-heralded 1995 pension funding plan was designed to increase the state’s unfunded liabilities and postpone its actuarially sound pension contributions until 2034.

“Given this well-documented history, it’s extremely hard to legitimately believe Illinois’ current situation is so surprising that the state constitution can be ignored and pension benefits unilaterally cut. As noted in my previous legal research, the pension clause does not support such a result.

“The likelihood of that result occurring seems even more remote given the Illinois Supreme Court’s July decision, in which it explained that the clause was intended to ‘insulate’ benefits from ‘diminishment or impairment by the General Assembly’ and that the court could not rewrite the clause ‘to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve.’

“Make no mistake, the court’s decision strongly signals doom for the argument that the 2013 pension-reform bill is constitutional because the legislature can trump the pension clause when it declares a fiscal necessity. So, too, does the state’s sordid history of failing to properly fund its pension system.

“When it comes to Illinois’ pension-funding problem, what’s past is prologue. Addressing this problem, however, requires the acceptance of this history, as well as the obligations and boundaries imposed by the pension clause.”

Eric M. Madiar is chief legal counsel to Senate President John Cullerton. 

from Eric Madiar: With Illinois’ pension systems, what’s past is prologue

Commentary:

James Madison was prescient when he wrote 226 years ago that “laws impairing the obligation of contracts are contrary to the first principles of the social compact and to every principle of sound legislation… One legislative interference is but the first link of a long chain of repetitions” (qtd. in Fliter and Hoff 20-21). 

Undoubtedly, this has been the case in Illinois for several decades and, as most of us know, there are more than a dozen antedated court cases that confirm legislative attempts to subvert both the Illinois and U.S. Constitutions. Of course, the most recent challenge to a constitutional contract is Senate Bill 1, although 80 Illinois legislators did not vote to break a constitutional contract with public employees and retirees.

As some of us are also aware, nearly all of Attorney General Lisa Madigan’s 180 answers and defenses to the claims currently defending the State and U.S. Constitutions are simple rejoinders and appear ironically akin to Bartleby’s existential “I prefer not to” denials. Madigan’s tautological ripostes are merely “Defendants deny the allegations” or “Defendants lack knowledge sufficient to form a belief regarding the remaining allegations” for 54 of the 66 pages.

Madigan maintains that “In light of the magnitude of the pension problem and all of the other efforts the State has made to date [which apparently does not include an effort to re-amortize the flawed 1995 “Pension Ramp” to pay the debt service legislators have incurred; reform the state’s defective revenue structure; ensure corporations pay their fair share of taxes; reduce wasteful spending; and eliminate tax giveaways for the wealthy elite, corporate CEOs, and millionaire shareholders of Motorola, Navistar, Mitsubishi, and Sears, to name just a few…, according to Madigan] the Act represents a valid exercise of the State’s reserved sovereign powers to modify contractual rights and obligations, including contractual obligations of the State established under Article 1, Section 16 and Article XII [sic], Section 5 of the Illinois Constitution” (Answer and Defenses).

In other words, the State of Illinois is declaring a financial emergency and; thus, the State’s preferred scapegoats—its vulnerable public employees and retirees—must acquiesce to a coerced, diminished and impaired retirement contract to solve the state's fiscal problems. This is assumed to be a “relief afforded by the 'Act' [and] commensurate with the [so-called declared] emergency,” though it is without “a rational compromise between individual rights and public welfare” (Fliter and Hoff 134-35).

Illinois legislators are not dealing with a threat to the “public’s safety, health, and morals as well as peace, well-being and order of the state”; (98) nor are they dealing with an economic emergency of such magnitude that they are compelled to invoke powers to protect the state's citizens and, thus, serve a reasonable public purpose or need.

However, hundreds of thousands of citizens of Illinois are dealing with a calculated legislative thievery and, despite Madigan’s “answers and defenses” regarding the recent injunction, these public employees and retirees are dealing with a violation to the Pension and Contract Clauses, the taking of property without due process of law, and a violation of the Fourteenth Amendment and the equal protection of the laws.

There is a history of court cases that have prohibited state legislatures from repealing laws that establish contractual obligations in this nation. Historically, it is in the interests of the “public good,” to protect property rights and respect the Contract Clause, no matter what some politicians conveniently presume otherwise. (There are seven states that have their legal basis for protection of public pension rights under state laws in their state constitution: Illinois, New York, Alaska, Arizona, Hawaii, Louisiana and Michigan. There are 34 states that have their legal basis solely through contract, six states through property, two states through gratuity, and one state through promissory estoppel).

What Illinois citizens can accurately predict about future contracts with state legislators who believe they have the “power to interfere with the obligations of contracts [that are] specifically denied to the states [in Article 1, Section 10 of the U.S. Constitution]” (154) is that if Illinois legislators “can declare an emergency to exist and abrogate one provision of [both State and U.S. Constitutions]…, ‘this decision serves notice upon [every citizen of Illinois], who heretofore had trusted in the constitutions for protection and believed in the sanctity of a contract, that the constitutions are no longer a guarantee nor security against the abrogation of a proper and legal contract’” (qtd. in Fliter and Hoff 154).

“It is difficult for [laypersons] to understand how even 'rational' interference can be assumed to be among the reserved powers of the Tenth Amendment [of the U.S. Constitution]” (154); it is also difficult to comprehend that Illinois legislators can continue to choose which contracts to honor and which ones to violate now and in the future.

Eighty years ago, Supreme Court Justice George Sutherland stated: “The framers wrote the Contract Clause for the very reason that they feared emergencies unwisely tempt legislatures to loosen contract rights… [The] meaning of constitutional provisions [at both state and federal levels] is changeless; it is only their application which is extensible… [W]hatever tends to postpone or retard the enforcement of a contract, to that extent weakens the obligation” (141).

Indeed, it has been said that a state’s “sovereign powers” refer to a general authority of a government to regulate for health, safety, morals, and welfare of its citizens. Nevertheless, past precedents show that “state legislatures exercise police power by passing laws in such areas as crime, land use, infrastructure, lotteries, discrimination, licensing of professionals, nuisances, schools, and sanitation… State and local governments… can use police power to enact laws promoting the general welfare only if the laws do not violate provisions in the U.S. Constitution, including the Contract Clause” (33).

Nearly two hundred years ago, Chief Justice Marshall stated unequivocally: "The power of changing the relative situation of debtor and creditor, of interfering with contracts, a power which comes home to every man, touches the interest of all, and controls the conduct of every individual in those things which he supposes to be proper for his own exclusive management, had been used to such an excess by the state legislatures, as to break in upon the ordinary intercourse of society, and destroy all confidence between man and man.

“This mischief had become so great, so alarming, as not only to impair commercial intercourse and threaten the existence of credit, but to sap the morals of the people and destroy the sanctity of private faith. To guard against the continuance of the evil was an object of deep interest with all the truly wise, as well as the virtuous, of this great community, and was one of the important benefits expected from a reform of the government” (31).

This is the time for citizens of Illinois to openly resist the way in which the state's politicians (without moral conscience) have now chosen to “regulate public morals and welfare.” This is the time to protest against the liars and thieves who have manufactured a financial crisis; to protest against the liars and thieves who have perpetuated a financial predicament through irresponsibility, mismanagement and corruption; to protest against the liars and thieves who have ignored moral responsibility and refused lawful remedy for the financial problems they have created. They have stolen part of the pension you have earned. They will continue to steal more of your pension in the future.


Fliter, John A. and Derek S. Hoff. Fighting Foreclosure: The Blaisdell Case, the Contract Clause, and the Great Depression. Kansas: the University Press of Kansas, 2012.

from The Contract Clause and the State of Illinois’ “reserved sovereign powers” in Senate Bill 1 (June 12, 2014).

-Glen Brown

“[Furthermore, a] plain language reading of the Pension Clause’s text makes clear that governmental entities may not reduce or eliminate a public employee’s pension payments and other membership entitlements once the employee becomes a pension system member… Further, the Clause’s prohibitory language against the diminishment or impairment of pension benefits is cast in absolute terms and lacks any exceptions…” (Is Welching on Public Pension Promises an Option for Illinois?). 

To challenge the “Pension Clause” is to defy common understanding of its legal and moral principles and to believe that every word in the State and U.S. Constitutions might also be interpreted in an infinite, fabricated regression of definitions. 

There is nothing transcendental or metaphysical about these 26 words: “Membership in any pension or retirement system of the State… shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired” (Constitution of the State of Illinois, Article XIII, Section 5. Pension and Retirement Rights). 

It does not require intuitive or a priori thinking to justify or verify this claim because we have learned the English language and the rules governing its use. We know what these words mean in relation to written, verbal, historical and cultural contexts.

Lexical definitions, denotations and connotations of the words “diminishment” and “impairment” are unequivocal. It is not necessary to break down these words into simple constituent parts unless, of course, we simply misunderstand them because of stupidity, carelessness, intentionality or maliciousness. 

We cannot mistake the meaning of words such as “shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired” because we understand and speak the English language. If words in our State Constitution are to refer or mean anything, they must be commonly understood and accepted as they have been for decades. Moreover, if words are to refer to anything, they must also be understood through their use, role, employment and past agreements.

We have before us “the validity of decades of judicial precedents” that provide “the binding nature of legislation establishing pension commitments to government employees” (Defending and Protecting Public Employees’ Pensions against the Legislative Siege). 

If there is anything else we might examine regarding the “Pension Clause” and its relationship to a reality that reveals repeated attempts by the wealthy elite, their politicians and the media to steal constitutionally-guaranteed pension benefit rights, perhaps we should also dispute the relentless attacks on the very intelligibility of the English language by these liars and thieves. We know the “Pension Clause” is valid because it is understood to be a contractual right and guarantee that public employees have earned. 

Though incompetent, corrupt politicians and their wealthy benefactors continue to ignore legal and moral terminologies and court precedents, logical and ethical people understand the essential history and necessity of the “Pension Clause” and know what it also means to uphold the State and U.S. Constitutions. 

An equally important and unfortunate issue arises when politicians/lawyers swear an oath to uphold the State and U.S. Constitutions in one context and then contradict their pledge in another context, made evident in Attorney General Lisa Madigan’s and Attorney Joshua Ratz’s sidestepping arguments or attempt to use “reserved sovereign powers” to break a constitutional contract (The Contract Clause and the State of Illinois’“reserved sovereign powers” in Senate Bill 1). 

Logical and ethical people know that the context which states “membership in any pension or retirement system of the State… shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired” emerged because “prior to the [Pension] Clause’s adoption, nearly all public employees were members of mandatory pension plans that lacked constitutional protection as ‘contractual’ rights and could be adversely changed by the legislature at any time. These mandatory plans were also underfunded and no better funded than the State’s five pension systems today...

“[Logical and ethical people know] public employees believed constitutional protection was necessary because the State had historically failed to make its required contributions and because employees felt that the State would renege on its obligations should a fiscal crisis arise…

“[Logical and ethical people know] the drafters of the ‘Pension Clause’ were aware of the concerns raised and requests made by public employee groups, the State’s failure to properly fund the pension system, and the difference in legal protection afforded to persons participating in a mandatory and optional pension plan. These concerns, in turn, prompted the drafters to include the ‘Pension Clause’ in the [1970] Constitution…

“[Logical and ethical people also know] the drafters intended for the ‘Pension Clause’ to (1) protect pension benefit rights in all pension plans as ‘enforceable contractual rights’ as of when a public employee became a member of a pension system, and (2) bar the legislature from later unilaterally reducing those rights…” (qtd. in Illinois Pension Clause’s Convention Debates, Text and Historical Background, Eric M. Madiar).

from Another Examination of the Illinois “Pension Clause,” or What Part of These Words Do They Not Understand? (July 13, 2014)

-Glen Brown