02/06/2013 07:10 pm ET Updated Apr 08, 2013

Illinois Pension Fix: Gov. Quinn Urges Action, Offers No Plan In State Of The State

By Joanne von Alroth

SPRINGFIELD, Ill., Feb 6 (Reuters) - Governor Pat Quinn said on Wednesday that Illinois is at a "critical juncture" over the massive underfunding of pensions for public workers, but offered no new remedies to deal with the crisis.

In his annual state-of-the-state speech, Quinn endorsed a bill from state Senate President John Cullerton that would cut some benefits for retirees and require government workers to pay more of the cost. He 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. Eighty percent is considered healthy.

Illinois has contributed less than needed to restore its public pension systems 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."

Attempts by Quinn to get lawmakers to focus on pension reform have been widely criticized as ineffective. The attempts have included promoting a cartoon snake called "Squeezy" to illustrate how pension costs squeeze out other social spending.

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

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.

"Governor Pat Quinn presented a false choice today between funding pensions or funding vital services like education and public safety," a coalition of Illinois unions said in a statement. "Public workers and retirees alone cannot solve decades of the state's pension under-funding."

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 are for basic health services such as care for the poor.

Bond investors are demanding high interest rates to the extent that Illinois was forced last week to postpone a $500 million bond sale to fund construction. 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 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 Quinn's speech and did not 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 proposal endorsed by Quinn - the most unpopular governor in the nation according to Democratic polling firm Public Policy Polling - would increase contributions by government workers to pay for pensions, cap the salaries on which benefits are based and delay cost of living increases for benefits.

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

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