Illinois governor calls for pension fix, offers no new plan

SPRINGFIELD, Illinois Wed Feb 6, 2013 4:20pm EST

Governor of Illinois Pat Quinn addresses the first session of the Democratic National Convention in Charlotte, North Carolina, September 4, 2012. REUTERS/Jessica Rinaldi

Governor of Illinois Pat Quinn addresses the first session of the Democratic National Convention in Charlotte, North Carolina, September 4, 2012.

Credit: Reuters/Jessica Rinaldi

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SPRINGFIELD, Illinois (Reuters) - Illinois Governor Pat Quinn said the state is at a "critical juncture" over the massive underfunding of its pensions for public workers in his state-of-the state speech on Wednesday, but he offered no new proposals.

Quinn endorsed a bill from state Senate President John Cullerton that would cut some benefits to retirees and require government workers to pay more of the cost in a 38-minute speech that also called for gun control, a higher minimum wage, legalization of gay marriage, and online voter registration.

"This is a choice about whether we will make the tough decisions necessary to balance our budget by reforming our public pension systems or whether we will let our jobs, our safety and our schools be squeezed out by skyrocketing pension costs," Quinn said.

Illinois state pensions are in the red by a staggering $97 billion, more than $20,000 for every household in the state. The pension systems have the lowest level of funding of any U.S. state at 39 percent; 80 percent is considered healthy.

Illinois has contributed less than the amount needed to restore its public pension systems to health in nine of the last 10 years, according to a state report.

Some critics said Quinn should have focused more on pensions and economic problems in his speech.

"This fiscal calamity hovers like a storm cloud over the state of Illinois," said Comptroller Judy Baar Topinka, a Republican. "We cannot afford tangents or distractions -- we have to address our finances, and time is of the essence."

The state's leaders have stalled for years in fixing the pensions shortfall, in part because of fierce opposition from public sector labor unions. Democrats have a stranglehold on state government and depend on unions for significant political and financial support.

"This problem cannot be delayed, deferred or delegated to the next session or to the next generation," Quinn said.

Attempts by Quinn to get lawmakers focused on pension reform have been widely criticized as not effective. Those attempts have included promoting a cartoon snake called "Squeezy" to illustrate how pension costs are squeezing out other social spending.

While the state is supposed to have a balanced budget requirement, Illinois has delayed paying its bills. The state has an estimated $9.3 billion in unpaid bills, of which 40 percent is for basic health services such as care for the poor.

Investors in its bonds are demanding high interest rates to the extent that Illinois was forced to postpone a $500 million bond sale to fund construction last week. Illinois has the lowest ratings of any state from two major credit rating agencies.

Many analysts view Illinois House Speaker Michael Madigan, who has held that office for 28 of the last 30 years, as the most powerful politician in the state and look to him for leadership on pension reform. Madigan, who seldom speaks publicly, rushed out of the chamber after the speech on Wednesday and was not immediately available for comment.

Asked when the legislature might vote on pension reform, Republican House Leader Tom Cross, said: "No one knows what the speaker wants to do and until we all do, it's going to be difficult to figure out where we're going with pension reform."

The pension proposal endorsed by Quinn, who is the most unpopular governor in the nation, according to Democratic polling firm Public Policy Polling, would increase the contributions of government workers to pay for pensions, increase retirement ages, delay cost of living increases in benefits and gradually shift some of the cost of pensions to local communities from the state.

A provision of the Illinois Constitution guarantees that pension benefits to retired workers cannot be reduced. Unions have threatened to challenge any pension reforms in court, and lawmakers fear the unions would win in court.

The bill Quinn supports has a backup provision that if the courts rule any reforms unconstitutional, government workers would be given a choice of either accepting the reduced pension benefits or they would not be covered by the state retirement health plan. Lawmakers hope that giving workers a choice would resolve the constitutional question.

(Reporting By Joanne von Alroth; Additional reporting by Karen Pierog; Editing by Greg McCune, Andre Grenon and Leslie Adler)

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