CHICAGO — The Illinois Supreme Court agreed Thursday to hear a direct appeal of a Circuit Court decision leaving intact a state overhaul of retiree health care benefits after concluding constitutional protections afforded to pension benefits don't extend to the health care perk.

Both the Illinois attorney general's office and the plaintiffs in a series of complaints challenging the law agreed to ask the state's high court to directly hear the appeal of Sangamon County Circuit Court Judge Steven Nardulli's decision handed down last month.

The lower court's ruling dismissing the consolidated lawsuits represented a blow to public unions and a rare bit of good fiscal news for the state.

Agreement on pension reforms to restrain skyrocketing annual pension payments and chip away at $95 billion of unfunded liabilities has eluded the General Assembly and Gov. Pat Quinn, but lawmakers were able to pass legislation revamping the state's other post-employment benefits last year.

Under the new plan, retirees will pay a greater share of the premium costs based on their income. Four lawsuits were filed, asserting that the changes violated provisions of the state constitution protecting pension benefits and granting them the status of an enforceable contract.

Nardulli sided with the state, finding that health insurance benefits are not guaranteed pension benefits protected by the state's Pension Protection Clause. Based on his finding, the judge said he did not need to render a decision on whether the law impaired a contract as argued by the plaintiffs.

The state subsidies carry a price tag of more than $877 million in the current fiscal year as the state funds its OPEB on a pay-as-you-go basis. Unfunded liabilities total about $33.3 billion and the changes could trim $9 billion off that figure. The state's newly ratified union contract shaves $900 million off the state's bill for retiree health care over its three-year term. Moody's Investors Service recently issued a report calling the judge's ruling a positive credit factor for the state.

The state's mammoth pension obligations and its backlog of overdue bills are the central strains on the state's credit that have driven downgrades and investor demands for steep interest rate penalties.

A House committee on Wednesday advanced a new proposal to borrow $2.5 billion to pay down the up to $9 billion backlog. Under the legislation, the state would issue five-year general obligation-backed bonds to pay down Medicaid and health care provider bills.

Key lawmakers and officials said they don't expect to see the proposal advance ahead of pension reforms. Comptroller Judy Baar Topinka's office has a current backlog of 176,000 of bills, according to its website. Lawmakers have repeatedly floated proposals to pay down the vouchers but they have never mustered sufficient support to pass the General Assembly. Republicans are opposed. Democrats have a sufficient majority to win passage but not all Democrats are on board.

House leaders said the measure is aimed at assisting state vendors struggling to deal with late payments and they touted it a means to lower the state's interest because the borrowing rates would cost the state less than late payment penalties.

"This is an option that would help address the backlog and at a lower interest rate," said Steve Brown, a spokesman for House Speaker Michael Madigan, D-Chicago.

The state Senate leadership said the chamber's focus remains on pension reforms ahead of consideration of any new borrowing for bill payments. Rikeesha Phelon, a spokeswoman for Senate President John Cullerton, D-Chicago, said: "Once that is done, we will begin to become less reliant on the idea of borrowing for operation expenses."

The governor's office said passage of pension reforms remains the priority. Quinn aides last month said there was no plan to renew a previous push to borrow to pay down bills. The state sold $800 million of long term GOs last month and plans to sell another $1 billion in the coming months for it ongoing capital program.

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