UPDATE 2-Illinois lawmakers send Chicago pension bill to governor

Tue Apr 8, 2014 6:24pm EDT

(Recasts with passage of bill by Senate, comment from governor's office)

CHICAGO, April 8 (Reuters) - A bill aimed at boosting funding for two of Chicago's retirement systems breezed through the Democrat-controlled Illinois House and Senate on Tuesday and now heads to Governor Pat Quinn, who has not yet taken a position on the measure.

The legislation, which requires bigger pension contributions from the city and from its workers, passed the House in a 73-41 vote and Senate in a 31-23 vote after it was amended late on Monday to remove any mention of new or higher taxes to fund Chicago's pensions.

Chicago's payments to its municipal and laborers' retirement systems would increase over five years beginning in 2016 under the legislation. Worker's current contributions of 8.5 percent of earnings would rise to 11 percent over five years. Instead of retirees getting an annual 3 percent cost-of-living increase, the increase would be tied to inflation and skipped in certain years.

But Mayor Rahm Emanuel's plan to lock in a hike in property taxes of $50 million a year over five years for pensions met with resistance in the legislature and from the Democratic governor, who told reporters on Monday that he could not support a move to heap more taxes on Chicago residents. His spokeswoman said on Tuesday that Quinn will review the bill.

Under the final version of the bill, Chicago officials will have to determine how to come up with money for the higher payments.

Severe pension funding problems have led Moody's Investors Service to cut Chicago's credit rating four notches since July to Baa1, and some lawmakers worry that Illinois' biggest city might follow the path of Detroit and other fiscally distressed municipalities that have filed for bankruptcy.

"The great international city of Chicago simply cannot go the way of Detroit or Harrisburg or Vallejo or any other city that has declared bankruptcy," said State Representative David Harris, a suburban Chicago Republican. "It is too significant a city for us to let that happen."

But Senate Republican Leader Christine Radogno argued against addressing Chicago's pension problems in a piecemeal fashion, noting that the city soon faces a $600 million state-mandated funding boost for its two other retirement systems covering public safety workers.

"It's irresponsible on our part to rush in and take action when we don't have the full picture," she said during the Senate debate on the bill.

While proponents said that many of Chicago's public labor unions supported the bill, a labor coalition, We Are One Chicago, issued a statement following the Senate vote, urging Quinn to veto the measure, which it called unconstitutional and "nothing more than another attempt at pension theft." The state constitution prohibits the impairment of retirement benefits for public sector workers.

House Speaker Michael Madigan, a Chicago Democrat who sponsored the bill, said it was meant to pass constitutional muster. Senate President John Cullerton said he has his own constitutional concerns about the bill that will ultimately be addressed by the state courts.

The bill requires Chicago to pay what it owes annually to the funds or the state would withhold money due the city. The bill also gives pension funds the ability to sue the city over payments.

Emanuel's office has warned that the municipal and laborers' systems face insolvency within nine to 17 years unless changes are made. The funding shortfall is $8.4 billion for the municipal system and $1 billion for the laborers system, according to city documents. (Reporting by Karen Pierog; Editing by James Dalgleish, Peter Galloway and Ken Wills)