CHICAGO — The prospects for passage of comprehensive legislation to overhaul Illinois' faltering pension system before lawmakers adjourn Friday dimmed after the Illinois Senate overwhelmingly rejected a House-sponsored reform package estimated to save the state $187 billion in the coming decades.

Gov. Pat Quinn, who has called pension reform the top priority for the spring session, issued a terse statement after the 42-16 vote against Senate Bill 1 late Thursday and urged the Senate to reconsider. "The people of Illinois were let down tonight. Every lawmaker in the capitol knows what needs to be done," he said. "Failure to send me a comprehensive pension reform bill hurts our economy and costs Illinois taxpayers $17 million a day."

Friday marks the last scheduled day of the General Assembly, with investors and rating agency analysts watching. Several rating agencies have warned the state could face further credit deterioration unless lawmakers tackle the state's pension crisis. Investors demand steep interest rate penalties on state general obligation sales due to its financial woes led by $95 billion of unfunded liabilities.

The state's five pension funds are just 40% funded and payments will rise by nearly $1 billion to consume $6 billion of a $35 billion general fund budget in fiscal 2014.

A rival plan that has passed the Senate — Senate Bill 2404 sponsored by Senate President John Cullerton, D-Chicago — sits in a House committee. House Speaker Michael Madigan, D-Chicago, who sponsored the package rejected by the Senate late Thursday, has not indicated whether he would call it up for a vote Friday. The House plan offers significantly greater savings to the state.

Three individual reforms — that limit cost-of-living increases, raise retirement age, cap pensionable salaries — were previously passed by the House and could be called for a vote in the Senate Friday but it's unclear whether they could muster sufficient support.

During debate Thursday, opponents of the House plan decried it as unconstitutional and a slap in the face to state workers. The state constitution affords strong protections to pension benefits which cannot be impaired or diminished.

State Sen. Linda Holmes, D-Aurora, called the House package "fundamentally flawed" and a "bad bill" that imposes steep cuts in promised benefits.

It's a "bill that we know in our hearts is not constitutional. We're hoping ….that the courts will say go ahead and do this — cheat the people who you made promises to because, yeah, you are sort of in a fiscal mess," she said, urging a House vote on the Senate plan.

Some Republicans offered kinder words on the package calling it the best option on the table to address a problem that threatens the funds' solvency and the state's fiscal stability.

"It's the only bill that will save the pension systems. Retirees are worried, and they should be, that if we don't take care of this problem, they may go to the mailbox one day and not have a check they were expecting," said Senate Minority Leader Christine Radogno, R-Lemont. If the session closes in a stalemate Republicans will put the blame squarely on Democratic leadership.

The House plan imposes direct limits to cost of living increases, raises the retirement age, and phases in a 2% hike in employee contributions. Unions have blasted it as unconstitutional. It's projected to trim about $187 billion off total payments owed over the next three decades to bring the system to a fully funded level. Supporters believe it could stand up to a legal challenge based on the argument that the pension system is already impaired and the state can't afford to fund pensions without deep cuts to core services.

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. Supporters contend it could better withstand a legal challenge because employees will be asked to choose the lower benefit levels.

The plan was negotiated with unions that have said they would not mount a legal challenge although a group of retired teachers have threatened to sue. The latest estimate on the Senate plan showed $57 billion in savings to bring the system to a 90% funded ratio.

The House plan would bring down the state's $95 billion of unfunded liabilities by $21 billion and the Senate plan $9 billion. The House plan would cut $1.9 billion off the state's annual payments and the Senate plan about $850 million. The Senate plan also would trim billions off the state's liabilities for retiree healthcare subsidies as some retirees would choose not to accept the benefit cuts.

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.

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