CHICAGO -- A plan to ease Chicago's $20 billion public-worker pension deficit is illegal, an Illinois judge ruled, leaving the city vulnerable to another credit downgrade.
The Illinois Constitution bars the diminishing of public pensions, Associate Judge Rita Novak ruled Friday. The Illinois Supreme Court in May killed similar changes to the state's pension funds for the same reason.
Rejection of the state plan led to a downgrade of Chicago credit to junk status. Chicago's pensions will be broke in about 10 years without the plan, city lawyers argued before the ruling.
The city's pension plan and the one covering state workers envisioned cuts in future cost-of-living increases. Chicago argued that its plan was different from the state's because it increased city funding of pension funds and the Illinois measure reduced only benefits.
Novak rejected the city's arguments.
The state constitution "affords the participant protection against" cuts in benefits even if the General Assembly changes the pension code, the judge wrote in her 35-page ruling.
The city will appeal to the state Supreme Court, Chicago's lawyer said after the ruling.
The American Federation of State, County and Municipal Employees Council 31, one of the plaintiffs in the suit, urged the city in an emailed statement "not to take up further time and expend additional taxpayer dollars on an appeal of today's decision."
The court fight over pension changes occurs as the city and state face increasing financial pressure. Chicago's public school system is eliminating 1,400 jobs. Illinois' retirement fund has a $111 billion shortfall. And the state is operating without a budget because of a stalemate between Republican Gov. Bruce Rauner and the Illinois Legislature's Democratic leadership.
The pension system in Chicago is $20 billion short and is only 36 percent funded.
Chicago's measure, signed into law last year, restructured the pensions of laborers and municipal workers, requiring employees and the city to pay more into the plan while benefits are reduced. The pension plans for fire and police retirees weren't affected.
The city plan was developed in negotiations with 28 of 31 affected unions, Mayor Rahm Emanuel said in May. The employees had a "full funding guarantee," the city said. Union-backed beneficiaries sued on behalf of retirees and employees to block the changes.
The plan didn't have the support of pensioners, Charles Lomanto, a retired truck driver for the city of Chicago, told reporters.
Under the plan, which took effect Jan. 1, pensioners lost all but 0.85 percent of an expected 3 percent increase in benefits, Lomanto said. Meanwhile, his health insurance premium costs rose from $740 to $1,300 per month.
"Rahm never came to retirees and said, 'Hey, can we talk?'" Lomanto said. "Unions can't negotiate on behalf of retirees."
The rejection leaves Chicago with no viable plan to solve the pension deficit, said Sarah Wetmore, vice president and research director at the Civic Federation, a Chicago nonprofit that tracks municipal finance.
"Without these reforms, the city reverts back to an inadequate funding formula that has resulted in such severe underfunding that actuaries expect the Municipal and Laborers Funds will run out of money within the next decade -- an unthinkable prospect," she said.
Immediately after the ruling, Standard & Poor's said it probably would lower the city's rating again if a solution isn't found.
Moody's Investors Service called the ruling "credit neutral" for Chicago because of the expected appeal to the state Supreme Court.
The case is Jones v. Municipal Employees Annuity and Benefit Fund of Chicago.
Information for this article was contributed by Elizabeth Campbell and Tim Jones of Bloomberg News.
A Section on 07/25/2015