CHICAGO — Illinois lawmakers return Tuesday for their annual veto session facing a crowded agenda topped by a revamped gambling expansion bill, budget changes, pension reforms and ongoing talks over whether the state should borrow to pay down its bills.  

Senate President John Cullerton, D-Chicago, is expected to seek a vote on a revised gambling bill that addresses concerns raised last week by Gov. Pat Quinn, who threatened to veto the legislation approved by lawmakers last spring.

“I believe the current bill is top-heavy with too many new gambling locations. I will only support a smaller, more balanced and modest expansion,” he said.

In order to appeal to a broad range of lawmakers and win approval in May, the authors of SB 744 offered up a broad expansion menu allowing for five new casinos, slots at Chicago’s airports, the state fair, and racetracks.

Quinn supports the new casinos, including one in Chicago, but is opposed to gaming at the state fair, racetracks and airports.

The Democratic governor also wants greater oversight included in the bill and reductions in tax breaks provided to existing casinos. He seeks to raise the state’s share of gambling taxes, and the state would also receive its one-time licensing fees more quickly.

The measure’s sponsors originally said it would generate an estimated $1.5 billion in up-front licensing fees and about $500 million in annual revenue. Without some of the expansion measures, sponsors of the legislation have warned the new bill will fail, punting the ball back to Quinn to strike a compromise.

State lawmakers face increasing pressure to act on pension reforms after unions blocked passage of benefit cuts earlier this year. Retiree health care reform that also stalled in the General Assembly’s regular session could resurface.

The reforms in failed SB 512 would protect the accrued benefits already earned by current employees, but going forward Illinois would offer a three-tiered system.

Current employees could pay more to keep their current pension benefits, keep more of their salary in exchange for reduced benefits, or shift to a defined contribution 401(k)-like investment plan. It would require the state to pay down its current unfunded liabilities over time based on a constant percentage of state tax revenues.

Unions argue the changes violate state constitutional protections afforded to pensions, which cannot be impaired or diminished — a position supported by Senate Democratic leaders.

Backers in the Illinois House and business believe the reforms pass legal muster because they don’t affect accrued benefits, only those benefits not yet earned by employees. Illinois holds the distinction among states of having a retirement plan with the lowest-funded ratio, 45.4%, with $75.7 billion of unfunded liabilities.

The reforms have bipartisan support, although it’s not clear it’s sufficient to win passage, especially among Senate Democrats. Most also expect that the reforms will face a legal challenge. Quinn is a Democrat and the party holds a majority in the General Assembly.

A spokeswoman for Senate Minority Leader Christine Radogno, R-Lemont, said the her caucus backs the reforms. “Sen. Radogno’s position is let’s get the reforms going so we can move forward to save the systems,” said Patty Schuh.

Lawmakers may discuss whether to borrow to pay down a backlog of bills. Quinn has offered up several plans over the year, ranging from several billion to $8.7 billion, to pay down bills. All have failed to generate much support among lawmakers. 

Social service organizations, transit agencies, schools, and others that rely on state payments have decried the impact of delayed payments on their ability to operate. Illinois closed out the first quarter of fiscal 2012 with $3.8 billion in overdue bills.

“We are making progress” in discussions with lawmakers, said state budget spokeswoman Kelly Kraft, adding there is no formal proposal in bill form or a sponsor.

Borrowing authority requires a super-majority three-fifths vote and Schuh said without other fiscal reforms Republicans won’t support it. It’s unclear whether lawmakers will address changes Quinn has made to the $33.2 billion fiscal 2012 operating budget. The governor wants them to uphold $376 million in vetoes he made over the summer and shift the funds to keep various state facilities open.

After a lull in borrowing, Illinois will take competitive bids on Tuesday on $300 million of Build Illinois sales-tax backed bonds. The state will follow that offering with a competitive issue of general obligation bonds and a negotiated sale for total issuance of about $1 billion before the end of the year.

The General Assembly’s annual fall veto session runs for three days this week and continues into next week

The state’s general obligation bonds are rated A1 by Moody’s Investors Service, A-plus by Standard & Poor’s and A by Fitch Ratings, while Fitch rates the Build Illinois bonds AA-plus and S&P rates them AAA.

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