UPDATE 1-Illinois House speaker offers tough pension reforms

Wed Feb 27, 2013 6:55pm EST

By Joanne von Alroth

SPRINGFIELD Ill. Feb 27 (Reuters) - Illinois House Speaker Michael Madigan lit a fire under the state's tepid public pension reform efforts on Wednesday, introducing measures that would mean harsh changes for public sector workers.

After weeks of silence from Madigan on the state's fiscal crisis, he offered measures that would demand bigger pension contributions from workers and raise the retirement age. He also proposed completely eliminating cost-of-living increases for retirees or tying them to the funding level of the state's pension system.

Illinois' pension system is the worst-funded among U.S. states at just 39 percent. One of Madigan's proposals would halt annual cost-of-living adjustments until the funding level is at 80 percent, which is considered healthy for retirement funds.

Madigan is widely considered the most powerful politician in Illinois, having been Speaker for nearly 30 years. He also holds the position of chairman of the state Democratic party.

Democrats, who hold majorities in both chambers of the legislature, have been wary of enacting cuts to pensions because they rely on public sector unions for substantial political and financial support.

But Madigan has gradually stepped up the pressure on unions. He did not attend a "summit" earlier this month called by unions to discuss the pension issue and sent them a letter saying they had failed to present serious proposals for pension reform.

"These bills are the next step in a job that has gone on for five years now," said Madigan spokesman Steve Brown. "We've tried to stabilize the pension systems and that's all we're trying to do. These (bills) are a series of changes and they're another step in the right direction."

Illinois has the lowest debt rating of any state examined by major agencies Moody's and S&P, partly because of inaction on the pension issue. The state was about $9 billion behind in paying its bills at the end of last year and the state comptroller has said the backlog is growing.

Nearly a month ago, Illinois Governor Pat Quinn, also a Democrat, called on the legislature to act quickly to reform pension systems, but many state politicians were waiting for Madigan to lead the effort.

The biggest union representing state workers immediately criticized Madigan's proposals.

Anders Lindall, a spokesman for American Federation of State, County and Municipal Employees Council 31, said they were "unconstitutional and unfair to workers and retirees."

A provision of the Illinois Constitution says that pensions cannot be diminished or impaired, which is a major obstacle to any pension changes that reduce benefits to retirees.

The speaker's move prompted speculation that he is testing support for various proposals in an effort to reach a comprehensive agreement.

"I think the speaker is really trying to figure out a path to solutions on this issue," said Elaine Nekritz, a Democratic lawmaker who has been a leader in pushing for pension reform.

She and Republican House Leader Tom Cross on Wednesday unveiled a revised version of their pension reform proposals that they said include ideas backed by business, labor, politicians and others.

Unions have said they are prepared to fight pension changes using the Illinois Constitution's strong protection for benefits.

The Illinois House of Representatives will debate pension reform in the full chamber on Thursday for the first time since a new legislature was sworn in last month. To date, the state's fiscal crisis has only been considered on the margins of the legislature or in committee sessions.