Court issues tough blow to Chicago pension overhaul

CHICAGO — The debt-plagued city of Chicago was dealt a difficult blow Thursday when the Illinois Supreme Court ruled the city's plan to reduce its mammoth $20 billion public-worker pension deficit was illegal.

The plan, passed in 2014, sought to reduce pension benefits while requiring higher city contributions. But the state's high court ruled the changes violated the Illinois constitution's protection against reducing promised benefits.

The ruling mirrors a similar one made last year by the Illinois court over a plan to shore up the state's pension plan. The city of Chicago argued its plan was different because the city was increasing funding for some 61,000 municipal workers, even as it cut future cost-of-living raises. Lawyers for the unions representing the workers successfully argued any reduction in worker benefits was illegal under state law.

In its opinion, the court said "statutory funding provisions are not a 'benefit' that can be 'offset' against an unconstitutional diminishment of pension benefits."

"The City’s contention, if adopted by this court, would be inconsistent with the plain meaning of the pension protection clause, would undermine ... and would lead to an absurd and unjust result," the court added in the opinion.

The ruling further complicates the situation for Chicago, the nation's third largest city, as it grapples with one of the most difficult financial situations any municipality in the country faces. The problems come after Chicago underfunded its city pension plans for years under the administration of the previous mayor, Richard M. Daley.

Among big American cities, only Detroit has a lower credit rating.

City officials warned that pension plans could quickly become insolvent as a result of the ruling. Unfunded liabilities for will the city will increase by about $900 million annually, which means the pension fund for municipal workers would bust by 2026 and the laborer' fund by 2029 without a fix.

Mayor Rahm Emanuel called the ruling "disappointing," but said he was committed to finding a solution that would ensure city workers "have a secure retirement without placing the full burden on Chicago taxpayers."

Follow Paste BN Chicago correspondent Aamer Madhani on Twitter: @AamerISmad

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