The Illinois Supreme Court struck down a 2013 law that sought to patch the state's massively underfunded pension system. The unanimous decision now puts the state behind the eight ball, as pension costs will take an ever increasing share of the budget.

LA Times:

"The financial challenges facing state and local government in Illinois are well known and significant. In ruling as we have today, we do not mean to minimize the gravity of the state's problems or the magnitude of the difficulty facing our elected representatives," Justice Lloyd Karmeier said, writing for the court.

"It is our obligation, however, just as it is theirs, to ensure that the law is followed," he wrote. "That is true at all times. It is especially important in times of crisis when, as this case demonstrates, even clear principles and long-standing precedent are threatened. Crisis is not an excuse to abandon the rule of law."

The public pension problem has been well-documented and touches municipalities across the country. Local governments negotiated contracts including what conservatives say are overly generous benefits. As the economy contracted in recent years because of the recession, meeting state obligations became more difficult. Payments to the pension systems took up a larger and larger share of municipal budgets, cutting the funds available for other government needs like roads and police.

Nationwide, state pension plans are about 72% funded with about 6% of the municipal budgets going to pension systems, Aubry estimated. The total shortfall is believed to be about $1 trillion.

Illinois is in especially dire straits, facing a hole of more than $100 billion. To solve the problem, lawmakers pushed through a deal near the end of 2013 designed to save an estimated $160 billion over 30 years by changing the rules for current employees. The new pension plan included a lower future cost-of-living adjustment, an increase in the age when employees could retire and a cap on pension payments for those at the high end of the scale.

The deal was politically contentious in a state with strong unions that tend to support the ruling Democrats. Still, state officials argued that they had no choice.

The state's constitution specifically forbids the legislature from reducing or impairing the pensions of state workers. But the state argued it was exercising "police powers" in reducing the pensions of future retirees.

The justices weren't buying that argument. The constitution says what the constitution says and the justices showed no sympathy for lawmakers who find it impossible to cut the budget.

The Chicago Tribune looks at the long term:

If anyone doubted the truth of Gov. Bruce Rauner’s insistence that Illinois must radically restructure the costs and scope of government, Friday’s ruling settles that. The state with some 7,000 local governments, with the credit rating worse than its 49 peers, with unfunded pension liabilities above $100 billion and rising by more millions daily, with taxation at levels that already are driving businesses (and jobs) beyond its borders — that state has to overhaul its operations.

[...]

Friday’s ruling vastly complicates life for Chicago Mayor Rahm Emanuel, Cook County Board President Toni Preckwinkle and thousands of other local officials. They prayed that the court would uphold state attempts to curtail retiree benefits, or at least explain how future laws might be written to meet constitutional constraints. Friday’s decision offered neither. Maybe Emanuel et al. can offer the court more compelling arguments: Unlike the state, cutting benefits really is our last resort. But after Friday’s ruling, they’re running uphill. 

So the huge enterprise of government in Illinois now confronts a financial challenge unlike any it has known: The new taxation necessary to satisfy all of these state and local pension demands would make this a ghost state. 

Rauner, the state's new Republican governor, wants to pass a constitutional amendment that would make it possible to alter state pensions. But that's at least a year or two away. In the meantime, pension payments are eating away at the budgets of the state as well as the city of Chicago and other municipalities, crowding out funding for schools, police, and other vital services. Chicago alone has a $500 million pension payment due this year that Mayor Emanuel has no idea how he's going to pay for it. The state is already devoting nearly a quarter of its budget to pension payments. With Illinois already being one of the highest tax states in the nation. raising taxes simply isn't possible.

All that's left is to cut the budget elsewhere. This, Rauner is trying to do despite the howls of outrage that greeted his first budget plan. Now with this ruling, lawmakers are going to have to embrace the suck and cut into some of their cherished programs.