Judge says 2014 Chicago pension overhaul unconstitutional

A judge will rule Friday on the constitutionality of a state law aimed at stabilizing two of Chicago’s struggling pension funds.

A big difference from the May ruling: While Mooody’s downgraded Chicago’s debt to junk status following the May state court decision, shocking many municipal bond market investors, this time the rating agency says the ruling is “credit neutral”. He says the city looks forward to having its arguments heard by the Illinois Supreme Court.

On Friday, Cook County Judge Rita Novak overturned the city’s reforms to its large and underfunded pension plans.

Opponents cited a state Supreme Court ruling from a similar case in May. “For years, local politicians in the US have been able to grant public-sector workers and labor unions retirement benefits that are generous by private-sector standards”, The Christian Science Monitor reported in April.

Mayor Rahm Emanuel had planned to use the changes to roll back benefits for two of the city’s four funds in order to save money.

The judge also said Chicago’s argument that a majority of affected unions in a working group backed the law fell flat, given that there was no evidence union members agreed to the benefit cuts in exchange for something of value. But the actual funding of the pensions could put a strain on Chicago’s financial system. City officials also have said residents will likely see huge tax increases without pension reform. Detroit was forced to go to court last year to reform its pension system, which had previously prohibited reductions in benefits.

Jubilant city workers and a representative from AFSCME high-fived and congratulated themselves outside the courtroom just after the decision came down at 10:30 am.

The city’s pension plan and the one covering state workers both envisioned cuts in future cost-of-living increases. And the state is operating without a budget because of stalemate between Republican Governor Bruce Rauner and the Legislature’s Democratic leadership. Anders Lindall, a spokesman for the American Federation of State, County and Municipal Employees Council 31, called the ruling a victory for city workers and retirees who receive pensions of only $32,000 a year on average.

And it’ll make aldermen bite the bullet even harder in terms of raising taxes or reducing city services.

The mayor’s office did not immediately issue a statement.