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State Supreme Court Rules Pension Reform Law UnConstitutional
Paragraph 47, page 21 of the Ruling...
Retirement annuity benefits are unquestionably a “benefit of contractually-enforceable relationship resulting from membership” in the four State-funded retirement systems. Indeed, they are among the most important benefits provided by those systems. If allowed to take effect, Public Act 98-599, would clearly result in a diminishment of the retirement annuities to which Tier 1 members of GRS, SRS, SURS and TRS became entitled when they joined those systems. As described earlier in this opinion, the new legislation directly reduces the value of retirement annuities for those members in no fewer than five different ways. While we presume statutes to be constitutional and must construe enactments by the legislature so as to uphold their validity whenever it is reasonably proper to do so (Wilson v. Department of Revenue, 169 Ill. 2d 306, 310 (1996)), there is simply no way that the annuity reduction provisions in Public Act 98-599 can be reconciled with the rights and protections established by the people of Illinois when they ratified the Illinois Constitution of 1970 and its pension protection clause. Those provisions contravene the clear requirements of article XIII, section 5, as set forth in the provision’s plain and unambiguous language and construed by the legion of cases we have just discussed. In enacting the provisions, the General Assembly overstepped the scope of its legislative power. This court is therefore obligated to declare those provisions invalid. Maddux v. Blagojevich, 233 Ill. 2d 508, 528 (2009).
ON THE QUESTION OF POLICE POWERS TRUMPING THE PENSION OBLIGATION
¶ 59 The State seeks to avoid this conclusion by arguing that because membership in public retirement systems is an enforceable contractual relationship under article XIII, section 5, it should be subject to the same limitations as all other contractual rights; that under “a century and a half of federal and state law defining contractual relationships,” these rights remain subject to modification—even invalidation—by the General Assembly through the exercise of the State’s police power; and that the reduction in retirement annuity benefits under Public Act 98-599 is a valid exercise - 25 - of police power because it is necessary and reasonable to secure the State’s fiscal health and the well being of its citizens.
¶ 60 This argument was rejected by the circuit court. We reject it as well. As a preliminary matter, the precedent on which the State relies does not involve the pension protection clause under article XIII, section 5. It arises, instead, under article I, section 16 (Ill. Const. 1970, art. I, § 16), and that provision’s counterpart in the United States Constitution (see U.S. Const., art. I, § 10, cl. 1). Those provisions, which are popularly referred to as the “contracts clause,” provide that the State shall not pass any “law impairing the obligation of contracts.” The State points out that case law interpreting these provisions has recognized that the prohibition against impairment of contracts is not absolute and “does not immunize contractual obligations from every conceivable kind of impairment or from the effect of a reasonable exercise by the States of their police power.” George D. Hardin, Inc. v. Village of Mount Prospect, 99 Ill. 2d 96, 103 (1983). The police power is “incapable of alienation” (City of Chicago v. Chicago Union Traction Co., 199 Ill. 259, 270 (1902)), the State observes, and it has long been recognized that it may, in the exercise of its police powers, enact “regulations reasonably necessary to secure the health, safety, morals or general welfare of the community, even though contracts may thereby be affected” (City of Chicago v. Chicago & North Western Ry. Co., 4 Ill. 2d 307, 317 (1954)).
Retirement annuity benefits are unquestionably a “benefit of contractually-enforceable relationship resulting from membership” in the four State-funded retirement systems. Indeed, they are among the most important benefits provided by those systems. If allowed to take effect, Public Act 98-599, would clearly result in a diminishment of the retirement annuities to which Tier 1 members of GRS, SRS, SURS and TRS became entitled when they joined those systems. As described earlier in this opinion, the new legislation directly reduces the value of retirement annuities for those members in no fewer than five different ways. While we presume statutes to be constitutional and must construe enactments by the legislature so as to uphold their validity whenever it is reasonably proper to do so (Wilson v. Department of Revenue, 169 Ill. 2d 306, 310 (1996)), there is simply no way that the annuity reduction provisions in Public Act 98-599 can be reconciled with the rights and protections established by the people of Illinois when they ratified the Illinois Constitution of 1970 and its pension protection clause. Those provisions contravene the clear requirements of article XIII, section 5, as set forth in the provision’s plain and unambiguous language and construed by the legion of cases we have just discussed. In enacting the provisions, the General Assembly overstepped the scope of its legislative power. This court is therefore obligated to declare those provisions invalid. Maddux v. Blagojevich, 233 Ill. 2d 508, 528 (2009).
ON THE QUESTION OF POLICE POWERS TRUMPING THE PENSION OBLIGATION
¶ 59 The State seeks to avoid this conclusion by arguing that because membership in public retirement systems is an enforceable contractual relationship under article XIII, section 5, it should be subject to the same limitations as all other contractual rights; that under “a century and a half of federal and state law defining contractual relationships,” these rights remain subject to modification—even invalidation—by the General Assembly through the exercise of the State’s police power; and that the reduction in retirement annuity benefits under Public Act 98-599 is a valid exercise - 25 - of police power because it is necessary and reasonable to secure the State’s fiscal health and the well being of its citizens.
¶ 60 This argument was rejected by the circuit court. We reject it as well. As a preliminary matter, the precedent on which the State relies does not involve the pension protection clause under article XIII, section 5. It arises, instead, under article I, section 16 (Ill. Const. 1970, art. I, § 16), and that provision’s counterpart in the United States Constitution (see U.S. Const., art. I, § 10, cl. 1). Those provisions, which are popularly referred to as the “contracts clause,” provide that the State shall not pass any “law impairing the obligation of contracts.” The State points out that case law interpreting these provisions has recognized that the prohibition against impairment of contracts is not absolute and “does not immunize contractual obligations from every conceivable kind of impairment or from the effect of a reasonable exercise by the States of their police power.” George D. Hardin, Inc. v. Village of Mount Prospect, 99 Ill. 2d 96, 103 (1983). The police power is “incapable of alienation” (City of Chicago v. Chicago Union Traction Co., 199 Ill. 259, 270 (1902)), the State observes, and it has long been recognized that it may, in the exercise of its police powers, enact “regulations reasonably necessary to secure the health, safety, morals or general welfare of the community, even though contracts may thereby be affected” (City of Chicago v. Chicago & North Western Ry. Co., 4 Ill. 2d 307, 317 (1954)).
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