                                       2016 IL 118422



                                         IN THE
                                SUPREME COURT
                                             OF
                          THE STATE OF ILLINOIS



                                    (Docket No. 118422)

      THE STATE OF ILLINOIS (The Department of Central Management Services),
           Appellant, v. AMERICAN FEDERATION OF STATE, COUNTY
             AND MUNICIPAL EMPLOYEES, COUNCIL 31, Appellee.


                               Opinion filed March 24, 2016.



        JUSTICE THEIS delivered the judgment of the court, with opinion.

        Chief Justice Garman and Justices Freeman, Thomas, Karmeier, and Burke
     concurred in the judgment and opinion.

        Justice Kilbride concurred in part and dissented in part, with opinion.



                                         OPINION

¶1        This case arises out of the entry of an arbitration award directing the State of
     Illinois to pay a 2% wage increase to state employees covered by a multiyear
     collective bargaining agreement between the State of Illinois, Department of
     Central Management Services (the State), and the American Federation of State,
     County and Municipal Employees, Council 31 (AFSCME).

¶2        For the reasons discussed below, we hold that the arbitration award violates
     Illinois public policy, as reflected in the appropriations clause of the Illinois
     Constitution (Ill. Const. 1970, art. VIII, § 2(b)), and section 21 of the Illinois Public
     Labor Relations Act (Act) (5 ILCS 315/21 (West 2014)). Accordingly, we reverse
     the judgments of the appellate court (2014 IL App (1st) 130262) and the circuit
     court of Cook County, and vacate the arbitration award.



¶3                                       BACKGROUND

¶4       AFSCME is the exclusive bargaining representative for approximately 40,000
     state employees working in more than 50 departments, authorities, boards, and
     commissions under the authority of the Governor (collectively, executive
     agencies). In 2008, AFSCME and the State negotiated a multiyear collective
     bargaining agreement governing those employees’ wages, hours, and conditions of
     employment. The agreement was effective September 5, 2008, through June 30,
     2012, spanning almost four fiscal years. 1 Article XXXII of the agreement provided
     for a general wage increase on January 1, 2009, and thereafter on every July 1 and
     January 1, with the final increase on January 1, 2012. The individual wage
     increases varied in amount, but over the life of the agreement the wage increases
     totaled 15.25%. The underlying dispute in the present case involves the 4% wage
     increase that was scheduled to go into effect on July 1, 2011.

¶5       In addition to the wage increases, the parties agreed, pursuant to article V of the
     collective bargaining agreement, to resolve certain disputes, including contract
     interpretation disputes, through binding arbitration. The parties also agreed, as set
     forth in article XXXIV, that the provisions of the collective bargaining agreement
     “cannot supersede law.”

¶6       In January 2010, in the face of declining state revenues owing to the Great
     Recession, and the potential layoff of 2,500 state employees, AFSCME and the
     State agreed to $300 million in cost savings measures. The parties’ written
     agreement limited the number of employees subject to layoff, limited facility
     closures during fiscal year 2011, deferred a portion of the wage increases scheduled
     to go into effect during fiscal year 2011, and set a target date for agreement on a
     voluntary furlough program.



         1
         The State’s fiscal year runs from July 1 through June 30. Thus, the 2012 fiscal year, for
     example, would run from July 1, 2011, through June 30, 2012.
                                                 -2-
¶7       In the fall of 2010, in recognition of the yet ongoing fiscal crisis facing the
     State, the parties entered into two cost savings agreements that established a $100
     million savings goal for fiscal year 2012. Among other things, AFSCME agreed to
     a partial deferral of the wage increase scheduled to go into effect on July 1, 2011.
     Rather than the 4% increase reflected in the collective bargaining agreement, a 2%
     increase would be implemented on July 1, 2011, with the remaining 2% increase to
     be implemented on February 1, 2012. The State, in turn, agreed that no layoffs or
     facility closures would occur through the end of fiscal year 2012. The cost savings
     agreements expressly provided that arbitrator Edwin Benn would be retained to
     decide any disputes relative to the agreements. 2

¶8       The Governor’s proposed budget for fiscal year 2012, submitted to the General
     Assembly in February 2011, sought appropriations that would have fully funded
     the wage increases reflected in the CBA. The General Assembly’s subsequent
     appropriation bills were, in fact, sufficient for that purpose with respect to the vast
     majority of executive agencies. As to 14 agencies, however, the Governor’s Office
     of Management and Budget (GOMB) determined that the legislative appropriations
     were insufficient to pay the 2% wage increase. 3

¶9       On July 1, 2011, immediately after adoption of the fiscal year 2012 budget, the
     acting director of the Department of Central Management Services (CMS) issued a
     memorandum advising agency directors, personnel and payroll managers, and
     labor relations administrators that, due to insufficient appropriations, the wage
     increase could not be implemented in those 14 agencies. The memorandum
     explained:

             “Pursuant to the Illinois Constitution, the General Assembly possesses the
         sole authority to make appropriations for all expenditures of public funds by the
         State. Additionally, [section 21 of ] the Illinois Public Labor Relations Act ***
         states, ‘[s]ubject to the appropriation power of the employer, employers and

         2
           For ease of discussion, we will refer to the collective bargaining agreement, together with the
     cost savings agreements, as simply the “CBA.”
          3
           These agencies were: the Department of Corrections, the Department of Juvenile Justice, the
     Department of Human Services, the Department of Revenue, the Department of Human Rights, the
     Department of Public Health, the Department of Labor, the Department of Natural Resources, the
     Human Rights Commission, the Criminal Justice Information Authority, the Deaf and Hard of
     Hearing Commission, the Guardianship and Advocacy Commission, the Prisoner Review Board,
     and the Historic Preservation Agency.


                                                    -3-
           exclusive representatives may negotiate multi-year collective bargaining
           agreements pursuant to the provisions of this Act.’

              The Governor’s proposed budget to the General Assembly sought to fully
           fund all collective bargaining contracts. However, the budget that was passed
           by the General Assembly and sent to the Governor DOES NOT contain
           appropriation authority to implement *** increases for employees [in 14
           agencies] covered by [the CBA].” (Emphasis in original.)

¶ 10       AFSCME thereafter initiated a labor arbitration before the parties’ designated
       arbitrator. The arbitrator directed the parties to brief the effect of section 21 of the
       Act on their dispute.

¶ 11        The State argued that section 21 mandates that expenditures by the executive
       branch pursuant to a collective bargaining agreement are contingent on the
       existence of corresponding appropriations by the General Assembly, and that this
       provision simply restates the mandate contained in the appropriations clause of the
       Illinois Constitution. The State further argued that section 21 of the Act was
       incorporated into the CBA by virtue of the parties’ express agreement, set forth in
       article XXXIV of the CBA, that “the provisions of this contract cannot supersede
       law.”

¶ 12      AFSCME argued that the very purpose of the Act was to expand the collective
       bargaining rights of public employees. Thus, section 21 should not be read to “cut
       back” on such rights by making collective bargaining agreements subject to the
       approval of the General Assembly.

¶ 13        On July 19, 2011, the arbitrator issued an award in favor of AFSCME. Based
       strictly on the four corners of the CBA, the arbitrator found that the State violated
       the CBA when it failed to pay the 2% wage increase on July 1, 2011. The arbitrator
       directed the State to begin paying the wage increase immediately and, within 30
       days from the date of the award, “to make whole” those employees who did not
       receive the wage increase on July 1, 2011. 4 As to section 21 of the Act, the
       arbitrator determined that he was without authority to interpret this statutory
       provision, that being a matter for the courts. The arbitrator also declined to consider

           4
            The State estimated that the cost of paying the wage increase to employees in the 14 affected
       agencies was $75 million.


                                                     -4-
       the State’s constitutional and public policy arguments, again citing his lack of
       authority.

¶ 14       The State filed a complaint in the circuit court of Cook County to vacate the
       arbitration award. AFSCME, in turn, filed a counterclaim to confirm the award.
       The parties stipulated that during the pendency of the case, the GOMB had
       determined that, “as a result of attrition, lower than anticipated overtime, and the
       shifting of some staff payroll from the General Revenue Fund to other funding
       sources,” 4 of the 14 agencies now had sufficient appropriations to pay the wage
       increases for fiscal year 2012 retroactive to July 1, 2011. Thus, the parties’ dispute
       focused on the remaining 10 agencies.

¶ 15       On July 9, 2012, the circuit court entered its order vacating the arbitration
       award in part. Although the circuit court agreed with the arbitrator that the State
       was under a contractual obligation to pay the wage increase, the circuit court
       determined that section 21 of the Act, when considered in conjunction with the
       appropriations clause, is indicative of a well-defined and dominant public policy
       that prohibits the expenditure of public funds where authority to do so, i.e., a
       sufficient appropriation, is lacking. The circuit court also determined that the
       applicability of this public policy was fact-dependent. That is, in order to excuse the
       State’s obligation under the CBA to pay the wage increase, the State must establish
       that the appropriations to the remaining 10 executive agencies were, in fact,
       insufficient. The circuit court remanded the matter to the arbitrator for such
       fact-finding. The arbitrator, however, declined to consider the matter further, and
       the parties agreed to proceed before the circuit court. Thereafter, four more
       agencies determined that they were able to pay the wage increase with their
       remaining appropriations. Accordingly, the parties proceeded to trial on the issue of
       whether the appropriations to the six remaining agencies were sufficient to pay the
       2% wage increase. 5

¶ 16       The State offered testimony from Robert Brock, budget director for the
       Department of Human Services; Rob Craddock, deputy director over the labor
       relations function for CMS; Marc Staley, associate director of the GOMB; and
       Bryan Geckler, chief financial officer for the Department of Corrections.

           5
            The six remaining agencies were: the Department of Human Services, the Department of
       Corrections, the Department of Juvenile Justice, the Department of Public Health, the Department
       of Natural Resources, and the Human Rights Commission.


                                                    -5-
       Additionally, the parties filed 326 joint stipulations, and numerous exhibits related
       to the legislative appropriations to the subject agencies.

¶ 17       After considering the evidence, the circuit court entered its written ruling on
       December 10, 2012. The circuit court found that the State had established that it
       “cannot pay the full amount of the wage increases at this time, but has not
       established that it cannot pay a lesser amount of the wage increases pursuant to its
       contractual obligations to do so.” The circuit court reinstated and confirmed the
       arbitrator’s award, with the exception that the State was “not required to pay all of
       the wage increases within 30 days.” The circuit court ordered that, to the extent
       expiring appropriations for fiscal year 2012 were not adequate to pay the wage
       increases in total, the State’s “contractual obligation remains unsatisfied and
       continues until paid in full.” The circuit court expressly stated that state employees
       who did not receive the 2% wage increase may file back wage claims from the
       “back wage fund” under applicable law. 6

¶ 18       The State appealed, seeking vacatur of the arbitration award; AFSCME
       cross-appealed seeking confirmation of the award in toto.

¶ 19      The appellate court held that the arbitrator’s award drew its essence from the
       CBA, rejecting the State’s argument that under section 21 of the Act, the CBA was
       subject to the appropriation power of the General Assembly. 2014 IL App (1st)
       130262, ¶¶ 30-34. The appellate court also held:

           “[T]he arbitrator’s award comports with the overriding public policy of
           permitting the State to negotiate enforceable multiyear collective bargaining
           agreements with unions of state employees, and the award furthers the express
           constitutional policy forbidding the General Assembly from passing any acts,
           including insufficient appropriation bills, that impair the obligation of
           contracts.” Id. ¶ 40.

¶ 20       The appellate court reversed the circuit court’s judgment insofar as the circuit
       court vacated the arbitration award in part and modified the arbitration award. The
       appellate court remanded the matter to the circuit court with directions to confirm
       the award. Id. ¶ 42.

           6
             The parties later stipulated that expiring appropriations were sufficient to pay the wage
       increases to employees in the Human Rights Commission, but that wage increases totaling $52.8
       million in the other five agencies remained unpaid.

                                                    -6-
¶ 21      We allowed the State’s petition for leave to appeal (Ill. S. Ct. R. 315 (eff. Jan. 1,
       2015)), and allowed Illinois AFL-CIO to file a brief amicus curiae in support of
       AFSCME’s position (Ill. S. Ct. R. 345 (eff. Sept. 20, 2010)).



¶ 22                                        ANALYSIS

¶ 23                                              I

¶ 24      Preliminarily, we address an issue raised sua sponte by the appellate court,
       namely, a potential conflict of interest. According to the appellate court:

          “Staff members working for all of the judges in this case belong to AFSCME,
          and the CBA at issue governs their relationship with the State. However, all
          judges in the state face the same conflict of interest. In this case, as in Jorgensen
          v. Blagojevich, 211 Ill. 2d 286, 298-99 (2004), ‘[w]ere we to recuse ourselves,
          the parties would therefore be left without a forum in which to review the
          circuit court’s judgment. Their right to appeal would be lost. Under these
          circumstances, the common law “rule of necessity” obligates us to proceed.’ ”
          2014 IL App (1st) 130262, ¶ 21.

¶ 25       The appellate court’s concerns about a conflict of interest were unfounded.
       Judicial branch state employees working in the appellate court, as well as this court,
       are not members of AFSCME, and the CBA at issue here does not govern their
       relationship with the State. Thus, appellate court review was not dependent upon
       the rule of necessity.

¶ 26      With this correction, we turn to the substantive issues before this court.



¶ 27                                              II

¶ 28       Judicial review of an arbitrator’s award is “ ‘extremely limited.’ ”
       Griggsville-Perry Community Unit School District No. 4 v. Illinois Educational
       Labor Relations Board, 2013 IL 113721, ¶ 18 (quoting American Federation of
       State, County & Municipal Employees v. State, 124 Ill. 2d 246, 254 (1988)
       (hereinafter AFSCME v. State)); American Federation of State, County &
       Municipal Employees v. Department of Central Management Services, 173 Ill. 2d
       299, 304 (1996) (hereinafter AFSCME v. CMS). Under this limited form of review,
                                           -7-
       “a court is duty bound to enforce a labor-arbitration award if the arbitrator acts
       within the scope of his or her authority and the award draws its essence from the
       parties’ collective-bargaining agreement.” AFSCME v. CMS, 173 Ill. 2d at 304-05.
       This standard respects the parties’ decision to have disputes settled by an arbitrator
       rather than a judge (Griggsville-Perry Community Unit School District No. 4, 2013
       IL 113721, ¶ 18), and gives effect to the intent of the legislature in enacting the
       Uniform Arbitration Act (710 ILCS 5/1 et seq. (West 2014)), namely, “to provide
       finality for labor disputes submitted to arbitration” (AFSCME v. CMS, 173 Ill. 2d at
       304). Whether an arbitrator’s decision fails to draw its essence from the collective
       bargaining agreement presents an issue of law. Griggsville-Perry Community Unit
       School District No. 4, 2013 IL 113721, ¶ 20.

¶ 29       The State argues that the arbitrator’s award did not draw its essence from the
       CBA because the arbitrator refused to give any effect to the parties’ express
       agreement that the provisions of the CBA “cannot supersede law.” The State posits
       that this provision limited the parties’ contractual obligations to what is permitted
       by Illinois law, and necessarily embraced principles relating to the General
       Assembly’s appropriation power, as set forth in section 21 of the Act and the
       appropriations clause. According to the State, the arbitrator improperly applied his
       own personal notion of fairness and justice in lieu of giving effect to the terms of
       the CBA.

¶ 30       AFSCME counters that the arbitrator based his decision upon well-established
       contract principles: the language in the CBA clearly set forth the wage increases
       that were required for fiscal year 2012; that language contained no contingencies
       based upon legislative appropriations; and, in the past, when the parties intended
       their agreement to be contingent on legislative appropriations, they had said so
       expressly.

¶ 31       To establish that the arbitrator strayed from his duty to interpret and apply the
       CBA and, instead, imposed his own notions of right and wrong, the State must clear
       “ ‘a high hurdle.’ ” Griggsville-Perry Community Unit School District No. 4, 2013
       IL 113721, ¶ 20 (quoting Stolt-Nielsen S.A. v. AnimalFeeds International Corp.,
       559 U.S. 662, 671 (2010)). The State must do more than demonstrate that the
       arbitrator committed an error, or even a “serious error.” Id. Rather, the State must
       show that “there is no ‘interpretive route to the award, so a noncontractual basis can
       be inferred and the award set aside.’ ” Id. (quoting Chicago Typographical Union


                                               -8-
       No. 16 v. Chicago Sun-Times, Inc., 935 F.2d 1501, 1506 (7th Cir. 1991)). We agree
       with AFSCME that the State has not cleared this high hurdle.

¶ 32       In crafting his award, the arbitrator relied on what he described as the
       “mandatory, clear, and simple terms” of the collective bargaining agreement:
       “Effective July 1, 2011, the pay rates *** shall be increased by 4.00%.” (Emphasis
       added.) “Shall,” the arbitrator stated, means “must” or “obliged to.” The arbitrator
       indicated that the cost savings agreements reduced the 4% wage increase to 2%, but
       did not change the mandatory nature of the State’s obligation to pay the increase.
       The arbitrator determined that in order to find that the State can avoid paying the
       2% increase, he would have to amend the language in the agreement from “shall” to
       “may,” or add language making the State’s payment of the wage increase
       contingent on legislative appropriation. Under article V of the CBA, however,
       “[t]he arbitrator shall neither amend, modify, nullify, ignore, add or subtract from
       the provisions” of the agreement. The arbitrator stated that “[w]hen parties to
       collective bargaining agreements agree that wage increases are contingent upon the
       existence of sufficient appropriations, they say so,” but “[t]here is no language here
       to that effect.”

¶ 33       With respect to section 21, the arbitrator noted that no reported case had
       interpreted this statutory provision, and this was a matter for the courts. His only
       authority, the arbitrator explained, was to interpret the parties’ agreement, and the
       parties had not specifically incorporated section 21 of the Act into the CBA. The
       arbitrator opined that even if he could interpret section 21, to do so in a fashion that
       would change the State’s obligation to pay the 2% wage increase would violate
       article V of the CBA expressly prohibiting him from amending the parties’
       agreement.

¶ 34       The arbitrator also considered the “cannot supersede law” language on which
       the State relied. This language, the arbitrator began, was part of a larger section in
       article XXXIV of the CBA titled “Partial Invalidity.” This section provides:

          “Should any part of this Agreement or any provisions contained herein be
          Judicially determined to be contrary to law, such invalidation of such part or
          provision shall not invalidate the remaining portions hereof and they shall
          remain in full force and effect. The parties shall attempt to renegotiate the
          invalidated part or provisions. The parties recognize that the provisions of this
          contract cannot supersede law.” (Emphasis added.)

                                                -9-
¶ 35      The arbitrator observed that it had not been “[j]udicially determined” that the
       2% wage increase was “contrary to law,” and:

          “That is what the State is asking me to do. But I am not a judge. I am an
          arbitrator bound by the negotiated terms of the Agreement and the Cost Savings
          Agreements which require the State to pay the 2% increase and prohibit me as
          an arbitrator from changing that obligation.”

¶ 36       Putting aside the lack of a judicial determination, the arbitrator next observed
       that, “[t]here is a fundamental rule of contract construction that specific language
       governs general language.” Although the arbitrator cited no authority for this rule,
       “[c]ourts and legal scholars have long recognized that, where both a general and a
       specific provision in a contract address the same subject, the more specific clause
       controls.” Grevas v. United States Fidelity & Guaranty Co., 152 Ill. 2d 407, 411
       (1992). The arbitrator found that under this rule, the specific language in article V
       of the CBA, providing that he “shall neither amend, modify, nullify, ignore, add or
       subtract from the provisions” of the CBA, governs the general language that the
       provisions of the agreement “cannot supersede law.”

¶ 37       Finally, the arbitrator concluded that he was without authority to consider the
       State’s constitutional and public policy arguments:

          “Questions of public policy—like statutory and Constitutional
          interpretations—are for the courts and not arbitrators. And that makes sense. As
          an arbitrator, I am a private citizen who holds no elected or appointed authority
          by the citizens of this state. Our elected and appointed officials including
          lawmakers, administrators and judges—and not me—should make public
          policy decisions.”

       We note that although an arbitrator must respect public policy concerns implicated
       by his remedy, “[q]uestions of public policy, of course, are ultimately left for
       resolution by the courts.” AFSCME v. CMS, 173 Ill. 2d at 318.

¶ 38       Based on our review of the arbitration award, we conclude that the arbitrator
       acted within the scope of his authority, and that his award was guided by contract
       principles and not his own notions of fairness and justice. Accordingly, we reject
       the State’s initial challenge to the arbitration award and hold, as a matter of law,
       that the award “drew its essence” from the CBA.


                                              - 10 -
¶ 39                                            III

¶ 40       The State next argues that the arbitration award must yet be vacated because it
       violates the public policy of this state.

¶ 41       An arbitration award which otherwise derives its essence from the collective
       bargaining agreement is not enforceable if the award contravenes paramount
       considerations of public policy. AFSCME v. CMS, 173 Ill. 2d at 306-07; AFSCME
       v. State, 124 Ill. 2d at 260. This public policy exception to the enforcement of
       arbitration awards finds its historical roots in the common law. AFSCME v. CMS,
       173 Ill. 2d at 307. “[J]ust as we will not enforce a private agreement which is
       repugnant to established norms of public policy, we may not ignore the same public
       policy concerns when they are undermined through the process of arbitration.”
       Board of Trustees of Community College District No. 508, County of Cook v. Cook
       County College Teachers Union, Local 1600, 74 Ill. 2d 412, 424 (1979). To vacate
       an arbitration award on this basis, a court first determines “whether a well-defined
       and dominant public policy can be identified” and, if so, “whether the arbitrator’s
       award, as reflected in his interpretation of the agreement, violated the public
       policy.” AFSCME v. CMS, 173 Ill. 2d at 307-08.

¶ 42       Because Illinois public policy finds expression, first and foremost, in our state
       constitution, we begin our analysis there, turning our attention to the appropriations
       clause. Set forth in the finance article, the appropriations clause provides in
       relevant part: “The General Assembly by law shall make appropriations for all
       expenditures of public funds by the State.” Ill. Const. 1970, art. VIII, § 2(b). “An
       appropriation involves ‘the setting apart from public revenue a certain sum of
       money for a specific object.’ ” Board of Trustees of Community College District
       No. 508 v. Burris, 118 Ill. 2d 465, 477 (1987) (quoting Illinois Municipal
       Retirement Fund v. City of Barry, 52 Ill. App. 3d 644, 646 (1977)). The power to
       appropriate for the expenditure of public funds is vested exclusively in the General
       Assembly; no other branch of government holds such power. McDunn v. Williams,
       156 Ill. 2d 288, 308 (1993). In the state budget-making process, for example,
       although the Governor is constitutionally required to set forth in his proposed
       budget “the estimated balance of funds available for appropriation” (Ill. Const.
       1970, art. VIII, § 2(a)), and statutorily required to set forth “the amounts
       recommended *** to be appropriated to the respective departments, offices, and
       institutions” (15 ILCS 20/50-5(a) (West 2014)), the General Assembly alone has
       the authority to make any such appropriations (Ill. Const. 1970, art. VIII, § 2(b)).
                                               - 11 -
¶ 43       In addition to our state constitution, Illinois public policy is shaped by our
       statutes, through which the General Assembly speaks. Illinois State Bar Ass’n
       Mutual Insurance Co. v. Law Office of Tuzzolino & Terpinas, 2015 IL 117096, ¶ 19
       n.2. Indeed, as between the judicial branch and the General Assembly, the latter
       “ ‘occupies a superior position in determining public policy.’ ” Id. (quoting Reed v.
       Farmers Insurance Group, 188 Ill. 2d 168, 174-75 (1999)).

¶ 44       The Act reflects the public policy of this state, as determined by the General
       Assembly, “to grant public employees full freedom of association,
       self-organization, and designation of representatives of their own choosing for the
       purpose of negotiating wages, hours and other conditions of employment or other
       mutual aid or protection.” 5 ILCS 315/2 (West 2012). This broad statement of
       public policy, however, is tempered by section 21 of the Act. 5 ILCS 315/21 (West
       2012). Section 21, which has been a part of the Act since its adoption in 1983 (Pub.
       Act 83-1012, § 21 (eff. July 1, 1984)), states in its entirety:

              “§ 21. Subject to the appropriation power of the employer, employers and
          exclusive representatives may negotiate multi-year collective bargaining
          agreements pursuant to the provisions of this Act.” (Emphasis added.) 5 ILCS
          315/21 (West 2012).

¶ 45       The term “employer,” as used in section 21, has always been expressly defined
       to include “the State of Illinois.” Compare Pub. Act 83-1012, § 3(n) (eff. July 1,
       1984), with 5 ILCS 315/3(o) (West 2014). Because, as discussed above, the
       appropriation power of the State resides with the General Assembly, under the
       plain language of section 21, multiyear collective bargaining agreements
       negotiated with the State, i.e., the “employer,” are subject to the State’s
       appropriation power, as exercised by the General Assembly. Section 21 is thus
       consistent with the appropriations clause of the Illinois Constitution, and reinforces
       the public policy of this state under which the power to appropriate for the
       expenditure of public funds is unique to the General Assembly.

¶ 46       The appellate court held, however, that because the statutory definition of
       “employer” expressly excludes the General Assembly (5 ILCS 315/3(o) (West
       2014)), multiyear collective bargaining agreements with the State are not subject to
       the General Assembly’s appropriation power. 2014 IL App (1st) 130262, ¶¶ 32-33.
       We disagree. This court has already recognized that the General Assembly’s
       appropriation authority does not make that body an employer of executive branch

                                               - 12 -
       employees. Orenic v. Illinois State Labor Relations Board, 127 Ill. 2d 453, 481
       (1989). Accordingly, exclusion of the General Assembly from the definition of
       “employer” under the Act does not take collective bargaining agreements with the
       State outside of the reach of section 21.

¶ 47       Moreover, when the legislature amended the Act in 1988 to exclude the General
       Assembly from the definition of “employer,” the legislature made plain its intent:
       “to specify that employees of the General Assembly of the State of Illinois *** are
       excluded from the Illinois Public Labor Relations Act” (Pub. Act 85-1032, § 2 (eff.
       July 1, 1988)), and thus excluded from the right of self-organization and collective
       bargaining (id. § 1 (amending Ill. Rev. Stat. 1987, ch. 48, ¶ 1606)). Although
       AFSCME argues that section 21 should apply only to collective bargaining
       agreements with local governmental employers such as municipalities and
       counties, no such limiting language appears in the statute.

¶ 48       Despite the clear expression of public policy set forth in the appropriations
       clause and section 21 of the Act, AFSCME urges this court to hold that the CBA
       was not subject to the appropriation power of the General Assembly. AFSCME
       argues that if funding for wage increases in collective bargaining agreements is
       ultimately dependent on the spending decisions of the General Assembly,
       collective bargaining with the State is rendered meaningless.

¶ 49       AFSCME’s argument is belied by its own bargaining history with the State. As
       AFSCME admits, some collective bargaining agreements have made wage
       increases expressly contingent on legislative appropriations. Thus, it is not the case
       that collective bargaining is rendered meaningless where the agreement is subject
       to the appropriation power of the General Assembly. The only difference between
       AFSCME’s prior agreements and the present one is that the appropriation
       contingency in the prior agreements was express, whereas the appropriation
       contingency in the CBA was implied by virtue of section 21 of the Act.

¶ 50       We disagree with AFSCME that collective bargaining will be rendered
       meaningless if the CBA is subject to the General Assembly’s appropriation power
       for the additional reason that this argument overlooks the difference between
       collective bargaining in the public sector versus the private sector. As our appellate
       court explained:

             “The courts have noted one important difference between collective
          bargaining in the public sector, as opposed to the private sector, is that in the
                                               - 13 -
          public sector, it is often necessary for a labor union to, in effect, obtain approval
          of a proposed contract by a legislative body through appropriation of the funds
          required to provide the wage and salary increases called for by the contract, in
          addition to obtaining the assent of the employing governmental agency or
          department to the terms of the contract. Thus, public employee unions, as a part
          of their collective-bargaining duties, must often engage in political activities in
          order to achieve what most private sector unions are able to achieve solely at
          the bargaining table.” Antry v. Illinois Educational Labor Relations Board, 195
          Ill. App. 3d 221, 270-71 (1990) (citing Abood v. Detroit Board of Education,
          431 U.S. 209 (1977)).

¶ 51       This court has similarly recognized that when labor representatives bargain
       with executive agencies, they do so with the knowledge that any agreement reached
       will be affected by the General Assembly’s appropriation power. Orenic, 127 Ill.
       2d at 481 (citing Jan W. Henkel & Norman J. Wood, Collective Bargaining by State
       Workers: Legislatures Have the Final Voice in the Appropriation of Funds, 11 J.
       Collective Negotiations 215, 217 (1982)); see also State v. Florida Police
       Benevolent Ass’n, 613 So. 2d 415, 417-20 (Fla. 1993) (recognizing differences
       between public and private collective bargaining, and holding that public sector
       agreement was subject to appropriation power of the legislature). Thus, giving
       effect to the General Assembly’s appropriation authority does not render collective
       bargaining with the State meaningless; rather, giving effect to the General
       Assembly’s role recognizes an inherent feature of collective bargaining in the
       public sector.

¶ 52       The appellate court expressed concern that recognizing the appropriation
       contingency in this case “would allow the General Assembly in every appropriation
       bill to impair the State’s obligations under its contracts,” in violation of the
       contracts clause of the Illinois Constitution (Ill. Const. 1970, art. I, § 16). 2014 IL
       App (1st) 130262, ¶ 39. The partial concurrence and partial dissent (dissent) shares
       the appellate court’s concern, suggesting that under today’s decision, the State may
       now avoid its contractual obligations simply by not making the necessary
       appropriations. Infra ¶ 69. This case, however, does not involve every species of
       contract with the State. Rather, this case involves a multiyear collective bargaining
       agreement that is, by statute, “[s]ubject to the appropriation power of the
       employer.” 5 ILCS 315/21 (West 2014). Accordingly, the pay raises in the CBA
       were always contingent on legislative funding, and the failure of that contingency
       to occur cannot “impair” AFSCME’s agreement with the State.
                                                - 14 -
¶ 53        The appellate court acknowledged that a contract with the State could be
       subject to legislative appropriation without offending the contracts clause. The
       appellate court concluded, however, that such a contingency must be explicit. 2014
       IL App (1st) 130262, ¶ 39. But under general principles of contract law, “statutes
       and laws in existence at the time a contract is executed are considered part of the
       contract,” and “[i]t is presumed that parties contract with knowledge of the existing
       law.” Braye v. Archer-Daniels-Midland Co., 175 Ill. 2d 201, 217 (1997); see also
       Local 165, International Brotherhood of Electrical Workers v. Bradley, 149 Ill.
       App. 3d 193, 211 (1986). Here, section 21 of the Act, which sets forth the
       appropriation contingency, has been in effect continuously since the Act’s
       adoption, and is thus part of AFSCME’s agreement with the State. That this is so is
       made all the more plain by article XXXIV of the CBA which expressly states that
       its provisions “cannot supersede law.”

¶ 54        Finally, we disagree with the dissent that our decision creates uncertainty as to
       the State’s obligations, generally, under its contracts. We reiterate that this case
       involves a particular contract: a multiyear collective bargaining agreement.
       Whether other state contracts with different provisions and different controlling
       law could also be subject to legislative appropriation without offending the
       contracts clause is not before us. The dissent’s attempt to address those issues is
       ill-advised. See People v. White, 2011 IL 109689, ¶ 153 (courts of review should
       exercise judicial restraint, particularly when constitutional issues are involved, and
       not make unnecessary law).



¶ 55                                     CONCLUSION

¶ 56       For all the reasons discussed above, we hold that section 21 of the Act, when
       considered in light of the appropriations clause, evinces a well-defined and
       dominant public policy under which multiyear collective bargaining agreements
       are subject to the appropriation power of the State, a power which may only be
       exercised by the General Assembly. We further hold that the arbitrator’s award,
       which ordered immediate payment of the 2% wage increase without regard to the
       existence of corresponding appropriations by the General Assembly, violated this
       public policy. Accordingly, we reverse the judgments of the appellate court and
       circuit court, and vacate the arbitration award.


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¶ 57      Judgments reversed.



¶ 58      JUSTICE KILBRIDE, concurring in part and dissenting in part:

¶ 59        I concur in parts I and II of the majority opinion. I disagree, however, with part
       III of the majority opinion. I would reverse the judgment of the appellate court and
       affirm the judgment of the circuit court. I would hold that the state employees’
       contractual rights to raises continues under the contract clause of the Illinois
       Constitution (Ill. Const. 1970, art. I, § 16), even if that obligation cannot
       immediately be enforced because of lack of appropriations, and that public policy
       strongly favors holding the State to its contractual obligations.

¶ 60       The State seeks to extinguish completely state employees’ contractual rights to
       their raises and not merely to establish that the contractual rights may only be
       enforced with sufficient legislative appropriation. I do not believe the
       appropriations clause of the Illinois Constitution (Ill. Const. 1970, art. VIII, § 2(b))
       may be used by the State to frustrate its contractual obligations.

¶ 61       The circuit court held that the State had put forth a potential valid defense to the
       contract: the Governor lacked the power to pay the wage increases unless the
       General Assembly appropriated the necessary funds. The circuit court heard
       evidence on the issue of the sufficiency of state appropriations for the wage
       increases in question and held that the State had proved it did not have sufficient
       funds available to provide all wage increases due under the contract. The circuit
       court, therefore, reinstated and confirmed the arbitrator’s award, with the exception
       that the State was “not required to pay all of the wage increases within 30 days.”

¶ 62       The circuit court ruled that the State had a continuing obligation to pay the
       wage increases under the contract and that it was required to pay those increases
       when it was able. The circuit court ordered that, to the extent the expiring
       appropriations for fiscal year 2012 were not adequate to pay the wage increases in
       total, the State’s “contractual obligation remains unsatisfied and continues until
       paid in full.” The circuit court expressly stated that state employees who did not
       receive the 2% wage increase may file back wage claims from the “back wage
       fund” under applicable law. Significantly, the parties later stipulated that the
       expiring appropriations were sufficient to pay the wage increases to certain state
       employees. I agree with the circuit court’s determination that the State’s obligation

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       to pay the raises is a continuing contractual obligation, even if it is not immediately
       enforceable.

¶ 63       The majority opinion ignores the circuit court’s specific factual findings and the
       parties’ stipulations. The majority opinion allows the State to extinguish state
       employees’ contractual rights to the raises, while ignoring AFSCME’s argument
       that the right to recover the negotiated raises at issue in this case is protected by the
       contract clause of the Illinois Constitution (Ill. Const. 1970, art. I, § 16).

¶ 64       This court has made clear that the contract clause provides a high level of
       protection to those who contract with and work for the State. See In re Pension
       Reform Litigation, 2015 IL 118585, ¶¶ 64-65 (hereinafter Heaton). In Heaton, this
       court recognized “that particular scrutiny of legislative action is warranted when, as
       here, a State seeks to impair a contract to which it is itself a party and its interest in
       avoiding the contract or changing its terms is financial” and that “it is manifest that
       the State could not, as a matter of law, clear the threshold imposed under
       contemporary contract clause jurisprudence.” Heaton, 2015 IL 118585, ¶¶ 63, 65.
       As this court pointed out in Heaton:

               “The circumstances presented by this case are not unique. Economic
           conditions are cyclical and expected, and fiscal difficulties have confronted the
           State before. In the midst of previous downturns, the State or political
           subdivisions of the State have attempted to reduce or eliminate expenditures
           protected by the Illinois Constitution ***. Whenever those efforts have been
           challenged in court, we have clearly and consistently found them to be
           improper.” Heaton, 2015 IL 118585, ¶ 53.

¶ 65       As AFSCME points out in its brief, if the legislature simply refused to
       appropriate funds to pay pension benefits to state employees, this court would
       presumably not conclude that the right of state employees to receive their full
       pensions had been eliminated by the General Assembly. Rather, the right to
       undiminished pensions would continue, and the obligation of the State to pay those
       pensions would continue, even if that obligation could not immediately be
       enforced.

¶ 66       Accordingly, I would find that the General Assembly’s failure to appropriate
       sufficient funds to pay all of the salary increases did not erase the underlying
       obligation of the State. I would hold that state employees’ contractual rights to

                                                 - 17 -
       raises continues under the contract clause, even if that obligation cannot
       immediately be enforced because of insufficient appropriations.

¶ 67       Many courts have recognized that while the lack of legislative appropriation
       may prevent enforcement of contractual rights against the government, the lack of
       appropriation does not eliminate the government’s underlying contractual
       obligation. See Salazar v. Ramah Navajo Chapter, 567 U.S. ___, 132 S. Ct. 2181
       (2012); Newman Marchive Partnership, Inc. v. City of Shrevport, 979 So. 2d 1262
       (La. 2008); White v. Davis, 68 P.3d 74 (Cal. 2003); AFSCME/Iowa Council 61 v.
       State, 484 N.W.2d 390 (Iowa 1992); Smith v. State, 222 S.E.2d 412 (N.C. 1976);
       Campbell Bldg. Co. v. State Road Comm’n, 70 P.2d 857 (Utah 1937); State v.
       Woodruff, 150 So. 760 (Miss. 1933).

¶ 68       Moreover, public policy strongly favors holding the State to its contractual
       obligations. AFSCME/Iowa Council 61, 484 N.W.2d 390, is instructive and
       persuasive on this point. In AFSCME/Iowa Council 61, the Iowa Supreme Court
       faced a similar argument on the need for appropriations for enforcement of a
       collective bargaining agreement. In that case, the legislature passed the necessary
       appropriations, but the governor struck the appropriation funding. The Iowa
       Supreme Court recognized that the State is bound by its contracts and that the State
       cannot use the lack of appropriation to frustrate its contractual obligations.
       AFSCME/Iowa Council 61, 484 N.W.2d at 392-94. The Iowa Supreme Court
       determined that, although the governor’s veto was valid, “the veto did not serve to
       erase the underlying obligation of the State.” AFSCME/Iowa Council 61, 484
       N.W.2d at 395. The Iowa Supreme Court aptly stated:

          “It would be no favor to the State to exonerate it from contractual liability. To
          do so would seriously impair its ability to function. A government must finance
          its affairs, must contract for buildings, highways, and a myriad of other public
          improvements and services. It would lead to untenable results if a government,
          after having contracted for needed things, did not have to pay for them.”
          AFSCME/Iowa Council 61, 484 N.W.2d at 394.

¶ 69       Similarly, when the State of Illinois does not fulfill its contracts, both
       employees and vendors suffer. There are sound fiscal reasons for holding the State
       to its contractual obligations. Stability in fulfilling state contracts benefits the
       citizens of this state. Indeed, allowing the State to extinguish contractual
       obligations by failing to appropriate funds is fiscally dangerous. I do not believe the

                                               - 18 -
       majority does the State any favor in exonerating it from contractual liability by
       simply failing to appropriate sufficient funds. This is especially true given the
       current budget crisis.

¶ 70       Today’s decision may, in fact, further impair the State’s ability to function. The
       State of Illinois must finance its affairs, purchase products and supplies, contract
       for public improvements, infrastructure and various services but, apparently, under
       the majority’s approach, the State has no obligation to pay for those products,
       improvements, and services. Unfortunately, I believe the majority opinion
       interjects uncertainty into the State’s responsibility for its contracts and will likely
       impair its ability to secure future contracts with its employees and vendors.
       Ultimately, the citizens, businesses, and taxpayers of the State will suffer the
       consequences.

¶ 71       For the foregoing reasons, I respectfully concur in part and dissent in part from
       the majority opinion.




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