Illinois’ 2019 public safety consolidation heads to state Supreme Court

The Illinois Supreme Court will have the final say on the constitutionality of the state’s 2019 consolidation of suburban and downstate police firefighter pension fund assets.

A group of police funds challenged the legislation, which has so far cleared two legal hurdles. Kane County Circuit Court Judge Robert Villa upheld the law in May 2022 and an appellate court affirmed the decision earlier this year.

Lawyers for the plaintiffs petitioned the state’s high court to weigh in and the court agreed last week, granting leave to appeal in the case known as Arlington Heights Police Pension Fund et al., petitioners, v. Jay Robert “J.B.” Pritzker, etc., et al..

Nearly all firefighter funds have transferred their assets, but some of the police funds are holding out amid the litigation. To date, 332 of the 357 funds have transferred approximately $9.1 billion in assets to the consolidated police fund. Of the funds that still need to complete the asset transfer, 15 are the litigant funds that remain under the Kane County Circuit Court’s stay order.

“The Illinois Police Officer’s Pension Investment Fund is not surprised that the Illinois Supreme Court has agreed to hear arguments regarding the constitutionality of Public Act 101-0610,” the consolidated fund said in a statement. “As we await the Supreme Court’s decision, the IPOPIF team will remain a transparent, trusted and financially responsible steward of the pension assets entrusted to our care and we will diligently serve all our stakeholders.”

Gov. J.B. Pritzker won legislative approval in November 2019 to require the more than 600 local government police and firefighter funds outside of Chicago to transfer their assets to a single consolidated police fund and a single fire fund by July 1, 2022.

Backers say the change cuts costs, raises investment prospects, and should, in turn, reduce some of the unfunded liabilities that weigh on local government balance sheets. Benefits continue to be managed by local boards.

A group of police funds sued, arguing the law violated the state constitution on multiple fronts, including the airtight pension clause that protects pensions from being “impaired” or “diminished.”

Nearly $10 billion of police public pension assets are held by suburban and downstate governments. With local governments drowning in pension-related debt, the consolidation legislation set a deadline that has passed, but it does not impose penalties for missing it.

The Firefighters’ Pension Investment Fund reports that 99% of local firefighter pension funds have successfully completed the transition process. 

“Our research shows that firefighter pension funds are saving over $34 million per year in fee savings alone,” the firefighters’ fund said in a statement earlier this year after the appellate decision.

Daniel Konicek of Konicek & Dillon represents the police funds.

“We disagree from our standpoint that our people have a vested interest in this because their life savings are involved and they feel their right to vote and control” how their hard-earned contributions are invested is a protected benefit, Konicek said of the court rulings so far.

The plaintiffs argued that benefits are damaged because the law “strips plaintiffs of their autonomy and their authority” on investment decisions. The plaintiffs argued the law violates the pension protection clause, the contract clause and the takings clause of the state constitution.

The state countered that fund management doesn’t enjoy the same status as “benefits” with constitutional protections.

Circuit court Judge Villa, in his ruling, sided with the state, saying he could not extend the term benefits beyond the reach of prior Illinois Supreme Court cases to find the challenged legislation unconstitutional against the pension clause’s protections.

Villa’s ruling came in the form of a summary judgment on the pension protection and takings clauses. He dismissed all of the named funds for a lack of standing leaving individuals as the plaintiffs and dismissed the count alleging violations of the contract clause for failing to show a cause of action.

The plaintiffs appealed the summary judgment on the takings and pension protection clauses. The appellate court said it found “no error” in Villa’s decision on the pension protection clause.

“Where the methods of funding a retirement system are not governed by the pension protection clause, we cannot say that the right to choose who invests the funds of the system is more of a protected benefit. Thus, we conclude that the trial court did not err in granting summary judgment on this basis,” the decision read.

“Plaintiffs present no evidence that the act actually reduced the funding available for the payment of benefits,” the court said on the argument about the impact of the administrative fees.

The lawsuit had also argued that the legislation violates the constitution’s takings clause by taking or damaging plaintiff’s property without just compensation because the transition costs are being covered by loans through the Illinois Finance Authority, which must be repaid by the consolidated funds.

“As the ‘property’ at issue here is not the private property of the plaintiffs, the takings clause is neither relevant nor applicable here. Thus, we find no error in the trial court’s grant of summary judgment on count III,” the appellate court concluded.

Backers tout a reduction in administrative costs and higher-than-expected investment returns — all modest fiscal goals — but rating agencies consider it a positive credit step because municipal budgets are strained by rising payment demands that have forced tax hikes, service cuts, a string of pension obligation bond deals, and asset sales.

The unfunded liabilities of Illinois’ suburban and downstate public safety pensions rose to $13 billion in the last year of compiled results reported to the state, fiscal 2019 — up from $953 million in 1991 — underscoring the deep strains on local government budgets. The police funds ended 2019 at 54.98% funded and firefighters at 54.35%. The health of some individual funds, however, is far weaker with ratios only in the teens.

Police accounted for $7.5 billion of the total and firefighters $5.5 billion, according to the most recent report issued in late 2021 by the state legislature’s Commission on Government Forecasting and Accountability.