By Joanne von Alroth and Karen Pierog
SPRINGFIELD, Illinois Dec 3 Illinois'
Democratic-controlled legislature on Tuesday passed a landmark
pension reform bill, choosing to address the state's crumbling
finances over strong public labor union opposition to cuts in
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
"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
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.
Senate President John Cullerton said he welcomes any court
challenges to the constitutionality of the reform measures in
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.
"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
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.