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 The ruling is a setback for Mayor Rahm Emanuel who has repeatedly
said he will not raise taxes without pension reforms. It also gives
Illinois' public labor unions more leverage to resist pension cuts.
In a written opinion, Cook County Circuit Court Judge Rita Novak
rejected Chicago's arguments that the 2014 law results in a net
benefit because it will save the municipal and laborers' retirement
systems from insolvency and that the law was backed by a majority of
affected labor unions. She also took issue with Chicago's contention
that it was not legally on the hook to pay pensions.
"The city's argument, premised on the notion that participants have
no right vis a vis their employer to expect payment of their pension
benefits, is fundamentally at odds with the supreme court's
teachings," Novak wrote.
Pension payments are devouring bigger chunks of budgets for Illinois
and Chicago and both face crippling spending cuts or big tax
increases if those payments are not reduced. Illinois has the
worst-funded pension system among U.S. states along with a $105
billion unfunded pension liability, while Chicago's unfunded
liability for its four systems is $20 billion.
 The city contended that without the law, the two pension systems
would run out of money within 10 to 13 years and that under Illinois
law, payments to retirees would be the obligation of the pension
funds, not Chicago. Labor unions and retirees who sued over the law
claimed it violated the state constitution's pension clause.
Chicago will appeal Novak's ruling up to the Illinois Supreme Court,
according to a statement from the city's top staff attorney.
“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 Stephen Patton.
SECOND WIN FOR UNIONS
The law, which took effect on Jan. 1, requires Chicago and affected
workers to increase their pension contributions and replaces an
automatic 3 percent annual cost-of-living increase for retirees with
one tied to inflation. Those increases are also skipped in some
years.
Novak's ruling also cited the Illinois Supreme Court's sweeping
decision in May that found public sector workers have iron-clad
protection against pension benefit cuts. That decision came in
litigation over a 2013 law that reduced benefits for workers in
state retirement systems.
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Anders Lindall, a spokesman for the American Federation of State,
County and Municipal Employees Council 31, called Friday's ruling a
victory for city workers and retirees who receive pensions of
$32,000 a year on average.
Some of the $345 million of tax-exempt bonds Chicago sold last week
traded lower in the wake of the ruling, widening the spread over
Municipal Market Data's benchmark triple-A yield scale to a hefty
275 basis points for bonds due in 2039 from an original spread of
253 basis points.
In documents for that bond sale, Chicago warned that the city's
already-low credit ratings could fall further if the law is voided.
Moody's Investors Service in May lowered the city's rating to
"junk." Standard & Poor's earlier this month cut the rating to the
low investment-grade level of BBB-plus because of a chronic
structural deficit.
S&P said on Friday it will "likely" lower Chicago's rating within
the next six months "if the city fails to incorporate pension
contributions in a structurally balanced manner."
Arlene Bohner, a Fitch analyst, said a ruling by the state supreme
court ultimately tossing out the law "could very well lead to a
downgrade." Moody's called Novak's ruling "credit neutral" at this
point.
(Additional reporting by Karl Plume in Chicago; editing by Chizu
Nomiyama and Matthew Lewis)
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