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July 24, 2015 

Mary Williams Walsh 

A judge in Chicago ruled on Friday that a plan to change city workers’ pensions was unconstitutional. The case is being closely watched for its effect on the city’s uncertain finances.

The judge, Rita M. Novak of the Cook County Circuit Court, said she was bound by the Illinois Supreme Court’s recent decision that state lawmakers are constitutionally barred from reducing public workers’ pensions.

“This principle is particularly compelling where the Supreme Court’s decision is so recent, deals with such closely parallel issues and provides crystal-clear direction on the proper interpretation of the law,” Judge Novak wrote. The Constitution of Illinois provides that public pensions “shall not be diminished or impaired.”

Pension costs in many American states and cities are growing much faster than the money available to pay them, causing a painful squeeze. Officials who try to restore balance by reducing pensions in some way are almost always sued; outcomes of these lawsuits vary widely from state to state.

Some of the worst problems have been brewing for years in Illinois, particularly in Chicago, where the city’s pension contributions have long been set artificially low by lawmakers in Springfield, the state capital. With more and more city workers now retiring, a $20 billion deficit has materialized, and Friday’s ruling is seen as a setback to Mayor Rahm Emanuel’s efforts to close this gap and rescue Chicago’s credit rating.

Officials in the mayor’s office said the city would appeal.

“While we are disappointed by the trial court’s ruling, we have always recognized that this matter will ultimately be resolved by the Illinois Supreme Court,” said Chicago’s legal counsel, Stephen Patton, in a statement. “We now look forward to having our arguments heard there.”

But Roberta Lynch of the American Federation of State, County and Municipal Employees called Judge Novak’s ruling “a win for all Chicago.”

“All city residents can be reassured that the Constitution — our state’s highest law — means what it says and will be respected, while city employees and retirees can be assured that their modest retirement income is protected,” said Ms. Lynch, the executive director of Afscme’s Council 31 in Chicago.

The city’s attorneys had tried to convince Judge Novak that the State Supreme Court’s decision, issued in May, did not apply to the pension litigation in Chicago, because Chicago’s pension changes had been agreed to through collective bargaining before legislators were asked to approve them.

In addition, Chicago said its pension overhaul would provide “massive net benefits” to workers if allowed to proceed. That was because the two pension funds at issue — one for laborers and one for general city workers — were heading toward certain insolvency. An insolvent system would be able to pay retirees only about 30 percent of their benefits. The cuts before the court were less drastic, and in combination with other changes, were supposed to leave the workers and retirees better off.

Over all, Chicago’s pension system is in increasingly precarious shape, and the two plans at issue are forecast to exhaust their assets in 10 to 13 years. The system includes other city plans for different labor groups, and local taxpayers are also responsible for funding a school district pension plan for teachers, among others. The system is so large that its financial condition can affect the economy of the whole city.

In May, Moody’s Investors Service lowered the city’s credit rating to junk status, saying that rising pension costs were “placing significant strain on the city’s financial operations,” and Mr. Emanuel appeared to have limited legal tools for dealing with them.

 

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