May 26, 2011


To the Honorable Representatives of the Personnel and Pensions Committee:  Kevin McCarthy, Chairperson; Elaine Nekritz, Vice-Chairperson; Raymond Poe, Republican Spokesperson;  and Members – Daniel Biss, Daniel J. Burke, Karen May, Thomas Morrison, Darlene J. Senger, Dave Winters.

Re:  House Amendment #1 to SB512

Dear Representatives McCarthy, Nekritz, Poe, Biss, Burke, May, Morrison, Senger and Winters:

The State Universities Annuitants Association (SUAA) is opposed to House Amendment # 1 to SB 512.

 

In our opinion, this legislation violates long-standing principles of contract law and the Illinois Constitution.  In the interest of time, John Carr, Attorney for SUAA will limit his remarks to interpreting Article XIII, Section 5 of the Illinois Constitution of 1970 as it relates to the rule of consideration in contract formation.

 

Section 5 is self evident and easily understood:

 

“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

 

At least four Illinois Supreme Court Cases have found a contractual relationship exists between the State of Illinois and its employees regarding pension benefits (See Felt v. Bd. of Trustees of the Judges Retirement Sys., 107 Ill. 2d 158, 481 N.E. 2d 698 (1985);  Buddell v. Bd. of Trustees of the State University Retirement Sys., 118 Ill. 2d 99, 514 N.E.2d 184 (1987);  McNamee v. State, 173 Ill. 2d 433, 672 N.E.2d 1159 (1996); People ex rel. Sklodowski v. State of Illinois, 182 Ill. 2d 220, 695 N.E.2d 374 (1998).

 

In a valid contract or situation that changes an existing contract, consideration must be part of the relationship between both parties.  According to Corbin on Contracts, consideration is defined as “reasons deemed sufficient to render a promise enforceable,” or a “bargained for exchange.” Corbin on Contracts, Revised Edition, VoL 2 §§ 5.1-7.21 Formation of Contracts, 2-3.  In other words, consideration is generally something that has value.

 

SB 512 as amended changes the terms of this contractual relationship between the State of Illinois and current employees by requiring them to substantially increase their pension contributions between 7.31 and approximately 17% of gross wages without giving the employee any consideration in return for his or her acceptance of these changes to Illinois pension law.  The bill also gives the right to modify these contributions every three years beginning on January 1, 2015.  In our opinion, because this amendment does not give employees any consideration for their increased contributions, it therefore violates the Illinois Constitution.

 

SUAA has heard a number of what we consider inadequate defenses of this amendment suggesting that affected employees do get consideration in return for their increased contributions.  The plain language of the amendment guarantees for fiscal years 2016 through 2045 that the State will fund the pension at 90% using “revenue provided by the individual income tax, sales tax, and corporate income tax assuming a 2.3% average annual growth rate in these revenues…” Similarly, members of this House have said existing state employees get “stability” and “longevity” in the state pension system because of this amendment.  Additionally, the Civic Committee of the Commercial Club of Chicago in its May 3, 2010 memorandum by Sidley and Austin argues erroneously that “continued employment is valid consideration for a contract modification.”   These vague promises of consideration—promises that can be modified every three years, or earlier, by the General Assembly— are illusory, are stacked against State employees, and are not enforceable.  House Amendment #1 to SB 512 is not a “bargained for” exchange required in a contract and is therefore prohibited under Article XIII, Section 5 of the Illinois Constitution of 1970. 

 

For these reasons SUAA respectfully requests you to vote “No” on this legislation.

With appreciation for your consideration,

Leo Welch, President, Southwestern Illinois College, Eastern Illinois Board of Trustees
Linda Brookhart, Executive Director
John Carr, Attorney
Dick Lockhart, Contract Lobbyist

Executive Committee Members:
Richard Johnson, University of Illinois - Chicago
Janet Cook, Illinois State University
Bruce Appleby, Southern Illinois University – Carbondale
Paul Dollins, University of Illinois Urbana Champaign
Ken Gunji, Parkland College
Bonnie Henry, William Rainey Harper College
Addison Woodward, Governor State University

Attachments included – referenced court cases