Tuesday, March 10, 2015

Excerpts from Brief of Plaintiffs-Appellees (State Universities Annuitants Association, et al.)





“…The Pension Clause's goal of guaranteeing pensions, indeed its entire existence, will become meaningless if the State is permitted to apply the police power to diminish pensions. Illinois' public pension systems have been underfunded for nearly a century…

Today the State blames its problem not on its lack of fiscal discipline, but on its feigned surprise that, after an economic boom in the 1990's and early 2000's, it faced a ‘Great Recession’ from 2008-2010. It even goes so far as to suggest in its Statement of Facts that ‘the Act reduces future COLA's only to recover a portion of the liability attributable to the Great Recession’ (St. Br. at 10), as though retired State employees are somehow responsible for the State being caught unaware that the economy has cycles...

[T]he police power — reserved sovereign power — is not applicable where the State acts in its role as a contractor as opposed to acting in its role as the sovereign… The State is attempting to breach contracts and unilaterally change their terms to obtain a better financial deal, something no court would permit of a private party. The State is therefore engaging in commerce, rather than acting as the sovereign, and it therefore cannot invoke the police power… Public Act 98-599… is not severable…

“[A]ll pensions deserve the respect of enforceable contracts. Second, it creates absolute certainty that pension members will receive their contracted benefits by barring the State from diminishing those benefits, whether by use of the State's police power to diminish those benefits… [P]ensions have additional protections above and beyond those provided by the Contract Clause…

“[Pension] benefits came into existence upon the formation of the pension contract — they do not disappear because the State exercises its police power in an effort to abrogate the contract. To the contrary, the words ‘shall not be diminished or impaired’ must reflect a constitutional protection against the State's use of the police power to ‘diminish or impair’ pension benefits…

“By making the Pension Clause separate from the Contract Clause, the delegates added the concept that the benefits of pension membership would not be ‘diminished,’ something that Justice Freeman notes is above and beyond what is found in the Contract Clause. Sklodowski I, 162 Ill. 2d at 147…

“‘[T]he benefits shall not be diminished or impaired’ is disjunctive — there are two different conditions that must not be permitted… ‘Diminish’ and ‘impair’ are not redundant words in a phrase. They are, as Justice Freeman in Sklodowski I, and Delegate Kinney in the Convention debates, note, two separate words with two different meanings, each of which creates its own prohibition on the State… (Police power ‘must not conflict with the constitution.’)…

[P]rohibitory clauses, like the Pension Clause, which are devoid of a reference to reserved police power are clearly not intended to be subject to it. For example:

“Article I, Section 10: Self-Incrimination and Double Jeopardy: ‘No person shall be compelled in a criminal case to give evidence against himself nor be twice put in jeopardy.’

“Article I, Section 11: Limitation of Penalties After Conviction: ‘... No person shall be transported out of State for an offense committed within the State.’

“Article I, Section 17. No Discrimination in Employment and the Sale or Rental of Property: ‘All persons shall have the right to be free from discrimination on the basis of race, color, creed, national ancestry in the hiring and promoting practices of any employer or sex in the sale or rental of property.’

“Article I, Section 18. No Discrimination on the Basis of Sex: ‘Equal protection of the laws shall not be denied or abridged on account of sex…’

“Article I, Section 19. No Discrimination against the Handicapped: ‘All persons with a physical or mental handicap shall be free from discrimination in the sale or rental of property and shall be free from discrimination unrelated to ability in the hiring and promoting practices of any employer.’

“The Pension Clause, like these clauses, is a prohibitory clause devoid of any reservation and therefore is not subject to the State's police power…

“Records indicate that the pension systems were underfunded as far back as 1917. (REPORT OF THE ILLINOIS PENSION LAWS COMMISSION OF 1916, at 272 (1917).

“By 1970, these concerns were serious enough to cause the Pension Clause to be added to the Constitution. The Convention delegates appear to have anticipated the four decades of litigation that would follow. As this Court noted in Kanerva:

“‘Delegates were also mindful that in the past, appropriations to cover state pension obligations had ‘been made a political football’ and ‘the party in power would just use the amount of the state contribution to help balance budgets,’ jeopardizing the resources available to meet the State's obligations to participants in its pension systems in the future...

“PUBLIC ACT 98-599 IS NOT A PROPER EXERCISE OF POLICE POWER.
The State argues in Section III of its brief that ‘The United States Constitution Does Not Permit a State to Abdicate Its Police Powers.’ (St. Br. 40) This argument confuses the prohibitions of the Federal Contract Clause on relinquishing regulatory power and the Illinois Pension Clause's prohibition against violating a debt contract, specifically pensions… [T]his case is not about the Contract Clause of the U.S. Constitution. It is about the Pension Clause of the Illinois Constitution… Pension contracts are debt contracts that must be paid...

“THE SOVEREIGN ACTS DOCTRINE BALANCES THE STATE'S REGULATORY AND BUSINESS FUNCTIONS: The U.S. Supreme Court carefully explained the sovereign acts doctrine in U.S. v. Winstar Corp., 518 U.S. 839, 895 (1986). ‘The sovereign acts doctrine thus balances the Government's need for freedom to legislate with its obligation to honor its contracts by asking whether the sovereign act is properly attributable to the Government as contractor.’

“To be clear, the sovereign powers are those necessary ‘to protect the public health, or public morals.’ New Orleans Gas-Light Co. v. Louisiana Light Producing and Manufacturing Co., 115 U.S. 650, 669 (1885). For that reason, the Supreme Court in Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 439 (1933) noted that ‘This principle precludes a construction [of the police powers doctrine] that would permit a state to adopt as its policy the repudiation of debts or the destruction of contracts or the denial of a means to enforce them.’ Id. And yet, that is precisely what Public Act 98­599 does.

“THE GOVERNMENT ACTING AS SOVEREIGN CAN EXERCISE THE POLICE POWER; THE GOVERNMENT ACTING AS CONTRACTOR CANNOT. The Pension Clause elevates pensions to contractual status. But pension contracts are debt contracts. In other words, in making a pension contract, the State itself is engaging in commerce as opposed to regulating the activities of others. Put another way, it is acting as a party contractor rather than as a sovereign lawmaker. In diminishing those contracts through the passage of Public Act 98-599, the State is acting to limit its own commercial liability. This is very different from an act of sovereign regulation…

“There is therefore a dichotomy between the government as a contractor and the government as a sovereign. The latter may exercise a sovereign power, the former cannot. Yankee Atomic Electric Co. v. U.S., 112 F.3d 1569, 1575 (Fed. Cir. 1997) (‘The Government-as-contractor cannot exercise the power of its twin, the Government-as-sovereign, for the purpose of altering, modifying, obstructing or violating the particular contracts into which it had entered with private parties. Such action would give the Government-as-contractor powers that private contracting parties lack.’).

“For this reason, the Federal Court of Claims in Cuyahoga Metropolitan Housing Authority v. U.S., 57 Fed. Cl. 751 (2003) concluded that the sovereign power does not apply ‘when the Congress ... targets the government's contractual obligations in an effort to obtain a better deal.’ Id. at 774. But that is precisely what P.A. 98-599 does. Section 1 of P.A. 98-599 specifically notes first that ‘Illinois has both atypically large debts and structural budgetary imbalances that will, unless addressed by the General Assembly, lead to even greater and rapidly growing debts and deficits.’ It claims that the State has already taken action to address its fiscal troubles ‘including, but not limited to, increasing the income tax and reducing pension benefits for future employees.’

“[T]he State is specifically targeting pension contracts to address its own fiscal concerns. That is Government-as-contractor, not Government-as-sovereign. The State cannot apply sovereign powers (police power) to pension contracts made as a contractor…

When one considers the statements in the record of the Bill's Chief Sponsor, Senator Kwame Raoul, it is powerfully clear that the various provisions of the bill were ‘considerations and compensations for each other’:

“‘Ladies and Gentlemen of the Senate, with this Conference Committee Report to the Senate Bill 1, the General Assembly can finally break the political stalemate that has held up changes to the pension systems, not only between the House and the Senate, but also between competing views within each one of the four caucuses.

“‘Each provision of this bill has been heavily negotiated by the conference committee members and the four Legislative Leaders. Some provisions were sought by House Democrats, some were sought by House Republicans, and some sought by the Senate Democrats. All told, the provisions in this bill are all part of an integral bipartisan package.’ (Illinois General Assembly Transcript, Illinois Senate 2d Legislative Day, December 3, 2013, 1st Special Session, 3-4 (emphasis added.)

“Senator Raoul's comments that the ‘legislative stalemate’ was finally broken by including all of these ‘heavily negotiated ... integral bipartisan’ provisions is powerfully demonstrated by the fact that the bill was passed by the thinnest of margins, garnering only the thirty votes required for passage in the Senate and passing the House by a mere two vote margin. It would seem highly unlikely that the bill would have passed had any provision been excluded, but here, the core pieces of the statute — pieces even the State concedes are ‘important elements’ — are unconstitutional.

“Put another way, ‘if all [parts of the bill] could not be carried into effect the legislature would not pass the residue independently’ — it would have lacked the necessary votes. (See Illinois General Assembly — Bill Status for SB0001, attached as Ex. A hereto.)



“Faced with this clear statement that the Act is ‘an integral bipartisan package’ and the narrow vote margins that prove the statement, the State complains that these indicia of what the legislature would have done is mere ‘political handicapping’ (St. Br. at 48), and that the test for severability ‘is 'essentially one of statutory construction.' Id.; citing Springfield Rare Coin Galleries, Inc., v. Johnson, 115 Ill. 2d 221, 237 (1986). But even Springfield Rare Coin follows its statement with the comment that it is analyzing statutory construction for the purpose of ‘ascertaining and giving effect to the intent of the legislature.’ Springfield Rare Coin, 115 Ill. 2d at 237. In that case, the legislature's intent was indicated by a very clear severability clause noting that the invalidity of any provision ‘shall not affect the other provisions.’ Id.

“In this case, Senator Raoul's comments and the vote margins are the best indicia of the legislature's intent and they speak volumes. This statute is inseverable and should be stricken in its entirety.”


From Brief of Plaintiffs-Appellees State Universities Annuitants Association, et al.



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