CHICAGO — A bill to overhaul the Cook County pension system died in the Illinois House late Friday.
Lawmakers have adjourned, and the legislation now can't be picked up until November at the earliest, when lawmakers return to Springfield.
The defeat for Cook County Board President Toni Preckwinkle came the same day that Fitch Ratings revised its outlook on the Cook County Forest Preserve District to negative from stable. Fitch warned that the district's "subpar pensions" are a key reason for the negative ratings action.
The Senate had approved the pension bill less than two hours after it was introduced on Wednesday. But it lacked sufficient votes in the House, where it was never called for a vote before lawmakers adjourned late on Friday.
Preckwinkle lobbied hard for the reform, saying it was necessary to shore up Cook's two troubled pension funds and stave off another downgrade from ratings agencies, which she said could come as early as this summer.
"Despite the belief by some that Cook County is not at a crisis point yet, we have been repeatedly warned by the ratings agencies that we're likely to face a downgrade in our bond rating this summer if reforms to address the $6.5 billion in unfunded pension debt are not passed," Preckwinkle said in a statement, noting that Fitch's negative outlook on the forest district came the same day lawmakers abandoned the county pension bill.
"Credit downgrades make it more expensive to borrow money and have a direct impact on the long-term financial stability of Cook County and the Forest Preserve District," the statement said. "Pension reform is critical to protect the retirement security of our workers, the county's bond ratings and the interests of taxpayers," she said. "I look forward to continuing to work with members of the General Assembly to adopt this sound plan of reforms later this year."
Cook, like its largest local government, Chicago, is struggling to address its poorly funded pension funds. The county's main pension fund is less than 60% funded and the forest preserve district fund is just over 60% funded. Like Chicago, the county needs the state to approve changes to its pension systems.
Fitch also has a negative outlook on the county's general obligation bonds. Fitch said it plans to assess within the year the impact of any pension reform for the county, the forest preserves, and other Chicago-area credits.
"Lack of meaningful solutions to both the near- and long-term problems presented by the poorly funded system would lead to a downgrade of the rating," said Fitch, which rates the forest preserve district's general obligation bonds AA, one notch higher than the county's GO rating. "Conversely, the adoption of a sustainable plan would provide some rating stability."
Analysts noted that even if state legislators approve county reform, it's likely to be challenged in the courts.
Fitch said that recent legislative approval of pension reforms for the Chicago Park District and two of the city of Chicago's funds may bode well for pension legislation addressing the county and the forest preserve. "The district's unfunded liability will remain a challenge to future operations until a sustainable funding plan is approved and implemented," analysts said.
The forest district is governed by the county but has its own taxing powers and is its own governmental entity. The funded ratio of the district's pension fund fell to 63% at the end of 2012 from 99% at the end of 2007, according to Fitch. It grew to 66% in 2013 amid strong investment returns.
Preckwinkle's proposal would have raised the county's contribution by $147 million a year starting in 2016 and raised employee contributions starting next year. It would have retained a compounding cost-of-living increase, which reportedly sparked opposition from some Republican representatives.
Preckwinkle touted the proposal as having the approval of 67% of the county's unions, representing 61% of the unionized workforce. One of the county's largest unions, American Federation of State County and Municipal Employees, said the union believed the proposal was unconstitutional, and would likely sue if it became law.
She said the reform would bring the funds to full solvency after 30 years.
Preckwinkle and county Chief Financial Officer Ivan Samstein refused to provide details on how the county would pay for the proposal, saying only that they planned to be "very creative" about making the $147 million increase starting in 2016.
Some lawmakers said they were worried the county would eventually be forced to raise property taxes to make the payment.
Cook's main pension fund has a funded status of 54%. The legislation would fully fund it and the county's forest preserve pension fund by 2043, the county says.
The legislation would have increased employees' contributions by 2 percentage points starting in 2015. It would have prohibited the county fund from future funding of other post-employee benefits, which would be funded with the separate county contribution to the health fund.
The reform would have reduced annual cost-of-living increases for current workers and freeze all COLAs for current retirees for one year in 2016, but would have kept the compounded structure of the payment. The bill would have raised the retirement age for most county employees by five years.
It included automatic adjustment measures that adjust benefits to ensure the funds remain well-funded. If the funded level falls below 59%, the COLAs would have been suspended. If the funding level exceeded 100%, the COLAs would have reverted to their current 4% a year compounded increases.
Moody's Investors Service rates Cook County A1 and Fitch rates the county AA-minus, and Standard & Poor's rates it AA. Like Fitch, Moody's also maintain a negative outlook on the county, chiefly due to underfunded pension obligations.
The Cook County Employees' Retirement Fund's unfunded obligation grew to nearly $6.8 billion from $5.83 billion in fiscal 2012 while its funded ratio dropped to 54% from 57%. That includes retiree health care liabilities.
