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 The bill addresses problems that have built up over decades in the
nation's worst-funded state pension system, which is underfunded by
$100 billion. The vote comes despite union threats to challenge
pension reform in state court, based on claims it would violate a
state constitution provision that guards against cuts to pension
benefits.
Changes in the bill include reducing and suspending cost-of-living
increases, raising retirement ages, and limiting the salaries on
which pensions are based.
Championed by Democratic and Republican legislative leaders, the
bill passed the Senate in a 30-24 vote and the House in a 62-53 vote
after lengthy and at times emotional debate. It now heads to
Governor Pat Quinn, who told reporters he hopes to sign the bill
into law soon, although it will not take effect until June.
"I look forward to signing it," said Quinn, a Democrat. The vote in
both houses, which required support from both Democrats and
Republicans, was "a bipartisan victory for the state," he added.
Union opposition was a big obstacle to securing votes, said House
Speaker Michael Madigan, a Democrat. "This was difficult because of
the strength of the opposition and the intensity of the calls and
contacts generated by organized labor for the Democrats," Madigan
said.
With the state's finances buckling under a $100 billion unfunded
pension liability, House Speaker Michael Madigan and others said the
bill would save the state about $160 billion over 30 years and
immediately reduce the unfunded liability by at least 20 percent.
Madigan noted that pension contributions already are eating up 20
percent of Illinois' general fund revenue. The cash-strapped state
can no longer afford to pay for the retirement promises made to
teachers and state government, university and college workers, he
said.
Labor unions called on Quinn to veto the "unfair, unconstitutional
bill. If he doesn't, our union coalition will have no choice but to
seek to uphold the Illinois Constitution and protect workers' life
savings through legal action," the union group We Are One Illinois
said in a statement.
The measure will affect nearly half a million current and retired
public sector workers, according to a union spokesman. Unions argue
the law violates a state constitutional prohibition against
diminishing pension benefits.
Illinois will not be the first state to face a legal fight over
pension changes. Rhode Island, which restructured its state pension
system in 2011, is defending the move in state court.
CHICAGO NEXT?
Senate President John Cullerton said he welcomes any court
challenges to the constitutionality of the reform measures in the
bill.
Cullerton also said he is committed to passing reforms to ease the
pension burden on local governments in Illinois.
Chicago Mayor Rahm Emanuel has pushed for reforms of the state
pension system in the face of a looming state-mandated jump in
pension payments for two of Chicago's four pension funds. Emanuel
has indicated he cannot push forward with reform of Chicago's
pensions until statewide reform takes shape.
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"The pension crisis is not truly solved until relief is brought to
Chicago and all of the other local governments across our state that
are standing on the brink of a fiscal cliff because of our pension
liabilities," Emanuel said in a statement. "Without providing the
same relief to local governments, we know that taxpayers, employees,
and the future of our state and local economies will remain at
risk."
The affirmative vote on state reforms came after a failed effort in
the legislature's spring session, a summer of wrangling by a special
legislative committee, and weeks of closed-door talks among the
leaders. It also followed years of discussion and study, previous
reform measures that provided limited improvements or failed to
pass, and numerous downgrades of the state's credit ratings.
The measure offers some sweeteners for workers and retirees.
Employees would contribute 1 percent less of their salaries toward
pensions, while contributions from the state, which has skipped or
skimped on its pension payments over the years, would be enforced by
the Illinois Supreme Court. A limited number of workers would also
have the option to choose a 401(k)-like investment vehicle for
retirement.
In a preamble section, the bill lays out an argument seemingly
designed to thwart a potential constitutional challenge. The state's
finances are so squeezed by pension payments, the section argues,
that Illinois has been forced to cut funding for core services such
as health care and education. The preamble also alludes to Illinois'
structural budget deficit, fueled by billions of dollars in unpaid
bills spilling from one fiscal year to another.
Continued inaction on pension reform has hurt ratings on Illinois
debt, with credit agencies warning of further downgrades, and
investors in the U.S. municipal bond market are demanding higher
yields to hold the state's bonds.
"Having considered other alternatives that would not involve changes
to the retirement systems, the General Assembly has determined that
the fiscal problems facing the state and its retirement systems
cannot be solved without making some changes to the structure of the
retirement systems," the preamble states.
Some lawmakers during the floor debates worried that Illinois could
be in for another round of credit downgrades should the bill fail.
Its passage could brighten the prospects for a $350 million bond
sale Illinois has planned for next week.
"Any positive step will be embraced by the market," said Dan
Heckman, municipals strategist at U.S. Bank, adding Illinois may
still need more reforms or higher taxes.
[By Joanne von Alroth and Karen Pierog]
(Reporting by Joanne von Alroth in Springfield, Ill., and Karen Pierog in Chicago, Ill.;
additional reporting by Mary Wisniewski
in Chicago and Michael Connor in Miami; editing by David Greising,
Ken Wills, Leslie Adler and Eric Walsh)
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