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Illinois Senate Passes Pension Reforms

CHICAGO – The Illinois Senate approved a pension reform package Thursday after Democrats argued it stands a better chance at surviving a legal challenge than a rival House bill and Republicans panned it as insufficient to fix the state’s dire pension mess.

Senate Bill 2404, sponsored by Senate President John Cullerton, D-Chicago, passed in a 40-16 vote.  It heads to the House, which last week adopted its own package of reforms in a sharply different bill sponsored by House Speaker Michael Madigan, D-Chicago.

“We feel this bill… has strong, sound constitutional principles. Other versions of pension reform are riskier,” Cullerton said. The state constitution gives pension benefits contractual status and protects them against being impaired or diminished.

The Senate plan asks employees and retirees to accept various changes in their cost-of-living calculations and other benefits in exchange for preserving state retiree health care subsidies. The plan has the backing of key state unions but a group of retired teachers have called the plan unconstitutional and threatened to sue.

In presenting the bill ahead of the vote, Cullerton said it would save the state between $45 billion to $51 billion in payments owed to the system over a 30-year funding schedule before reaching a 90% funded level.

It would trim about $11.5 billion off the state’s $95 billion of unfunded obligations which are only about 40% funded and would cut the scheduled fiscal 2014 payment of $6 billion by $845 million. Another $150 million to $200 million would be saved next year in reduced health care subsidies for those retirees who refuse to change plans.

The House plan imposes direct limits to the COLA, raises the retirement age, and phases in a 2 % hike in employee contributions. It would make a significantly bigger dent in future pension payments, trimming them by an estimated $140 billion to reach full funding in 30 years. It would eliminate $30 billion from the state’s unfunded liabilities.

Madigan believes his plan could withstand the constitutional challenge unions have threatened based on the position that the pension system is already impaired and the state will be unable to fund basis services and programs amid rapidly rising payments unless action is taken.

Republicans praised Cullerton for his work on the bill, but then proceeded to slam it as falling woefully short of what’s needed. They favor the House plan.  They also didn’t buy Cullerton’s arguments on the legal challenge, citing a range of legal opinions, and warned that it’s risky to predict how the Illinois Supreme Court would rule.

“The big problem with this bill is that it doesn’t solve the problem” and will force lawmakers eventually to return to the pension “nightmare” again, said state Sen. Matt Murphy, R-Palatine.

“It is not our job to be the judiciary. There are good legal arguments on both sides,” said Senate Minority Leader Christine Radogno, R-Lemont, who favors the House bill because of its greater savings.  Cullerton did win over a handful of Republican votes, and two Democrats voted against the bill. Both plans cover four of the five state’s pension funds.

It’s unclear where the two sides can now compromise given the differences in the bills and it’s uncertain whether either plan can pass in the opposing chamber. The General Assembly is scheduled to adjourn at the end of the month and rating agencies have warned that without action further credit deterioration is likely.

Standard & Poor’s rates the state’s $27 billion of GOs A-minus and assigns a negative outlook, making it the lowest-rated state. Fitch assigns an A rating to the state’s $27 billion of GO debt and has the credit on negative watch. Moody’s rates Illinois GOs A2 with a negative outlook.


(1) Comment



Comments (1)
Just another indication Illinois is dysfunctional. Any plan favored by the public employee unions will be as effective as sandbags were to hold off Hurricane Sandy. This tsunami will overwhelm Illinois, its bondholders, taxpayers and retirees unless they face the music and make real cuts!
Posted by mdwjr | Friday, May 10 2013 at 12:30PM ET
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