Chicago Gets Relief on Pension Funding Timetable

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CHICAGO – Illinois lawmakers gave Chicago some pension certainty over a long weekend that offered little indication that a solution is in sight for the state's own budget impasse.

State lawmakers Monday overrode a veto by Gov. Bruce Rauner to enact Senate Bill 777, allowing Chicago to re-amortize the funding schedule for its public safety pensions for short-term budget relief.

The bill trims $220 million from what the city owes this year to its police and fire retirement funds, and more than $800 million over the next four years. It stretches out to 2055 from 2040 the time the city has to reach a 90% funded ratio. The 90% funded ratio mandate by 2040 was enacted by lawmakers in 2010.

"This bill continues the irresponsible practice of deferring funding decisions necessary to ensure pension fund solvency well into the future," Rauner said in his veto message Friday.

But the override cleared the Senate in a 39-19 vote, three more than needed. In the House, which has failed on all but one previous occasion to override Rauner, success came later Monday with the help of three Republicans in a 72-43 vote, one vote more than needed. Supporters argued that the re-amortization represented a reasonable solution to ease the burden on Chicago taxpayers even though it adds to the overall cost of stabilizing the funds.

"Clearly, those who supported this measure haven't recognized what happens when governments fail to promptly fund pension obligations," Rauner spokeswoman Catherine Kelly said in a statement after the vote.

Chicago Mayor Rahm Emanuel issued a joint statement with police and firefighter unions praising lawmakers for the override.

Emanuel would have been hard-pressed to come up with the extra funds this year after winning city council support last fall to raise property taxes by $543 million annually over the next few years.

The stalemate that has left Illinois without a budget for 11 months and counting is expected to continue past the end of the regular session.

The Senate could vote Tuesday on the fiscal 2017 spending plan House Democrats approved last week, that the Rauner administration has warned faces a veto. Administration officials say it would put the state on course to spend $39 billion -- $7 billion more than the state expects to collect in revenue in the fiscal year beginning July 1. Republicans are also expected to press legislation funding K-12 education to ensure that schools open even without a full state budget in place. K-12 education was the only piece of the current-year budget that did get enacted.

After May 31 legislation must be approved by a three-fifths supermajority to take effect immediately, compared to the simple majority during the regular session.

The regular session closes Tuesday after the whirlwind Memorial Day weekend kicked off by Rauner's veto Friday night of SB 777. Rauner, a Republican, and Emanuel, a Democrat, exchanged sharp barbs on the legislation that was approved last year but only just recently sent to Rauner's desk. A Monday deadline on action loomed. The two were once considered friends.

"With a stroke of his pen, Bruce Rauner just told every Chicago taxpayer to take a hike," Emanuel said in a statement after the veto. "Bruce Rauner ran for office promising to shake up Springfield, but all he's doing is shaking down Chicago residents."

Rauner said the bill reflected the kick-the-can mentality that led Chicago into a fiscal crisis.

"By deferring responsible funding decisions until 2021 and then extending the timeline for reaching responsible funding levels from 2040 to 2055, Chicago is borrowing against its taxpayers to the tune of $18.6 billion," Rauner said in his veto message. "This practice has to stop."

The two public safety funds are among four funds that carry a collective $20 billion of unfunded liabilities that have dragged the city's credit rating as low as junk.

The phased-in property tax increase is designed to pay for the higher public safety contributions. Emanuel plans to use an existing emergency telephone surcharge to fund higher payments as part of an agreement with labor to rescue the city's laborers' pension plan from insolvency.

He has yet to come to a labor agreement and identify a revenue source for higher payments that will be needed to salvage its municipal employees' fund.

School funding and Democratic budget bills likely will take center stage Tuesday with neither issue moving the legislature any closer to bridging its political divide.

Rauner continues to push for what he calls a turnaround agenda on policy areas that include worker's compensation, tort reforms and local government collective bargaining curbs, which Democrats consider too favorable to business. Without passage of some items, Rauner won't support a tax hike to help balance the growing state deficit.

The state expects to collect only $32 million this fiscal year but is on course to spend at least $36 billion under continuing appropriations and court and consent agreements. The state is also on course without new revenue to possibly set a record $10 billion unpaid bill backlog by the fiscal year's end June 30.

After the veto override, legislative leaders met with Rauner on the budget.

"If there is no agreement tomorrow night, I would ask the governor to keep his working groups functioning on a regular schedule," House Speaker Michael Madigan, D-Chicago, said Monday after the meeting, adding that the House will remain in continuous session on Wednesdays.

Madigan said of the bipartisan legislative budget and reform working groups that "progress is being made," a departure from his previous comments.

Senate President John Cullerton, D-Chicago, said a vote could occur Tuesday on the fiscal 2017 budget plan approved last week by the House despite Rauner's threatened veto.

"The budget bill… was passed out of the House first but was negotiated by the speaker and myself together. And, especially, the education part of the budget, which increased the education funding by $760 million, that was totally signed off on by myself and we're working that issue in our caucus," Cullerton said.

When asked about Republican comments that K-12 funding could be held "hostage" by Democrats, Cullerton shot back that not passing a budget for two years in a row over "nebulous business-friendly reforms" is more akin to hostage taking.

The Senate late last week passed an education funding package with $700 million in additional funding to benefit high poverty districts. It provides more aid for the severely distressed Chicago Public Schools in grant funding and $205 million in pension help. It's linked to the House budget plan.

If Rauner ends up vetoing the entire budget, including the education funding because of the higher level of spending, he risks schools not opening.

Senate Minority Leader Christine Radogno, R-Lemont, called that level of new funding "pie in the sky" given the state's budget deficit and said Republicans will press for a vote on a bill introduced Monday with about $100 million more in funding.

The Senate school funding package -- in HB813 -- also paves the way for Chicago to reinstate a roughly $175 million property tax levy to help pay for CPS pensions. It's part of CPS' plan to help erase a $1.1 billion deficit that also relies on spending cuts, ending the district's coverage of 7% of teachers' 9% pension contribution, and more help from the state.

On Friday, state budget director Tim Nuding held a conference call to discuss what he called dire consequences on state services, higher education, and the state's credit rating if the state enters a second fiscal year without a budget in place. "I am very concerned about our credit rating" because further erosion would drive borrowing costs up, he said.

Illinois is already the lowest rated among states.

The administration envisions a grand bargain budget agreement that would include authorization for the state to borrow to pay down its bill backlog. It's unclear how large a financing would be sought.

Nuding also dismissed the notion pushed by Democrats that Rauner can simply use his line-item veto powers to fashion a budget the state can afford from what is sent to him by Democrats. "It's just not feasible," Nuding said. That's because big chunks of the state's general fund spending are dictated by set appropriations like debt and pension payments which would leave areas like education, human services, and corrections funding to take drastic hits.

Nuding said he would consider some debt restructuring but it would require legislative approval as current statutes limit the ability to refinance debt for anything but traditional economical savings. The state owes $2.4 billion in debt service next year.

"We need cooperation from the legislature," he said.

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