05/02/2013 04:21 pm ET Updated Jul 02, 2013

Illinois Pension Bill Approved In House: Sweeping Pension Fix OKed In Narrow Vote


By JoAnne von Alroth

SPRINGFIELD, Ill., May 2, (Reuters) - The Illinois House of Representatives in a 62 to 51 vote on Thursday passed a comprehensive bill aimed at addressing the nation's most under funded state pension plan, a major step after weeks of legislative maneuvering had made pensions the dominant political issue in the financially strapped state.

The bill, introduced only two days ago by the powerful Democratic House Speaker Michael Madigan, now goes to the state Senate. That chamber's president is preparing a competing plan that is viewed as more favorable to the state's public-employee labor unions.

The Madigan bill, which is designed to eliminate a $96.8 billion funding shortfall over 30 years, relies on changes to retirement benefits that unions say are a violation of the state constitution. Union leaders have said they will challenge the measure in court if it becomes law, and Madigan acknowledged during floor debate Thursday that implementation likely would not move forward until courts rule on the constitutional issue.

"In my judgment, this is a critical action that must be taken now. Must be taken for future budget making. Must be taken for the fiscal well-being and reputation of the state of Illinois," Madigan said during a floor debate prior to the bill's passage. Madigan won the votes of two-thirds of the Democrats, with 40 of them voting for it and 28 against, while Republicans split nearly evenly, 22 for and 23 against.

No actuarial analysis of Madigan's measure has yet emerged, but the speaker said it would fully fund the pension system by 2044 and reduce the state's pension payment by $1.5 billion in fiscal 2015.

Several law makers acknowledged struggling with how to cast their vote. "This state is in crisis," said Republican State Representative Dwight Kay. "What we're doing today is not an easy move."

The measure now moves to the state's upper chamber, where Senate President John Cullerton, a Democrat, is circulating a union-backed plan. Cullerton has not yet released details of the new plan, which he described as being "credible and constitutional" after emerging from a closed-door meeting with union leaders on Wednesday.

A spokeswoman for Cullerton said the Senate President plans to discuss both measures with his Democratic caucus on Tuesday. Still, Madigan was optimistic his plan would pass the Senate.

"We've taken that first step in the House. My expectation is that the Senate will approve this bill," Madigan told reporters after the vote.

The state's constitution prohibits any diminishment of benefits to current and retired workers, and Cullerton has stated he believes the union plan will meet any constitutional test. Cullerton previously said he does not believe Madigan's plan can survive a constitutional challenge.

The Senate's Republican Leader Christine Radogno said "a significant number" of lawmakers from her caucus were expected to support Madigan's bill.

Madigan's measure affects four of the state's five pension funds. The speaker said the bill exempts the judges' pension fund to eliminate conflicts of interest for judges who would hear likely legal challenges to the bill should it become law.

The Madigan measure sets a cap on salaries used to determine pensions, limits cost-of living adjustments on pensions for future retirees, increases retirement ages and hikes worker pension contributions. It introduces changes to calculating the state's annual pension contributions that are designed to come closer to the actual future cost, and also exempts pension changes from collective bargaining.

After the vote, a coalition of public labor unions blasted the bill as being unfair to workers who have paid into their pension funds while the state has skipped or skimped on its payments.

"On top of that, it is blatantly unconstitutional and thus saves nothing. It simply exacerbates Illinois' fiscal problems," said a statement from We Are One Illinois. The group added that it was continuing talks with Cullerton.

Illinois lawmakers, who are in the final weeks of their spring legislative session, are under pressure to deal with the worst-funded state pension system. Pension payments are squeezing out funding for core services, while the state's backlog of overdue bills has topped $9 billion.

Credit rating agencies, meanwhile have downgraded Illinois' debt rating to the lowest level among states, and a government watchdog group has reported that pension payments along with debt service on outstanding pension bonds will amount to almost 25 percent of the state's upcoming general fund budget.

Madigan's bill contains elements similar to those in another comprehensive bill that failed to pass out of the Senate in March.