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Analysis: Tough going ahead on path to Illinois pension reform

Michael Madigan, speaker of the Illinois Representatives, listens to the State of the State address in the House Chambers of the Illinois St
Michael Madigan, speaker of the Illinois Representatives, listens to the State of the State address in the House Chambers of the Illinois St

By Karen Pierog

(Reuters) - As Illinois lawmakers sift through the wreckage of a session that failed to produce major pension reform for their state, they are holding out hope that meetings in the coming days could lead to a resolution not achieved after months of political wrangling.

Governor Patrick Quinn, a Democrat, said late Friday he intends to summon legislative leaders to a meeting this week to seek a compromise solution. But significant political obstacles remain.

With the spring session adjourned, passing pension reform will require a three-fifths majority vote in the Legislature. And a wide gap still remains between plans offered by the two principal leaders - House Speaker Mike Madigan and Senate President John Cullerton, both Democrats. And while Quinn has called for a meeting, his ability to broker a compromise remains uncertain, given that his public role of late has been limited to his office issuing statements of dismay after each missed opportunity for reform.

But a 13th-hour push is on, with Illinois lawmakers keenly aware that inaction now could have severe repercussions. The $100 billion unfunded pension liability and large structural budget deficit fueled by a huge stack of overdue bills have come together to make Illinois' credit rating the lowest among U.S. states. And Moodys Investors Service on Friday reiterated a warning that a further downgrade is possible if Illinois fails to enact pension reform.

While all parties recognize the need for action, no one seems clear on what the next step should be.

"No idea," said State Representative Elaine Nekritz, the Democratic point-person on pension reform in the House, when asked what comes next.

Moments after the session adjourned, she expressed disappointment that lawmakers were not more focused on how inaction might affect the state's credit rating and the costs of borrowing money.

"It's critically important to the state of Illinois," Nekritz said. "But we haven't adequately conveyed that, and I'm not sure yet how we do that."

Laurence Msall, president of the Civic Federation, a Chicago-based government finance watchdog group, said any delay in fixing the state's pension problems simply raises the cost of a solution. Already, pension payments and debt service on outstanding pension bonds will top $7 billion, or 22 percent of the general fund budget passed last week by the legislature.

Msall blamed the failure to achieve pension reform on "a lack of political will and political consensus."

No path toward consensus has yet emerged. Madigan's plan, which would require retirees to accept smaller pension payments, would reduce the state's unfunded liability by an estimated $21 billion. But Cullerton has argued the plan violates a state constitutional provision that prohibits diminishment of pension benefits.

Cullerton's plan, backed by the state's public employees' unions, offers choices for workers. Those who agree to benefit cuts could receive state-funded health care in retirement, for example. But an actuarial analysis by the state's pension funds found the Cullerton plan reduces the unfunded liability by only $9.13 billion.

In remarks to reporters after the close of the session, Cullerton laid out a key political difficulty in finding compromise: The wide gap between demands from the business community, which has called for cuts in pension benefits, and the demands of labor groups that say they will sue on constitutional grounds to prevent any cuts.

"I had some Republican support for a while - until the business community said 'no.' You're fighting unions and you're fighting the business community at the same time," Cullerton said.

Madigan spokesman Steve Brown noted that union leaders will need to be part of any compromise solution. "The ball continues to be in everyone's court, including those representing pension recipients," he said.

A meeting of the governor and legislative leaders could be complicated by the clannish nature of Illinois politics. Madigan needs to be a key player in any solution, but his ability to work with Quinn may be compromised by the fact that state Attorney General Lisa Madigan, the speaker's daughter, is considering a run for the governor's office. Much of what unfolds in the coming days will be against the backdrop of a likely Quinn vs. Madigan primary in the 2014 gubernatorial race.

There are two schools of thought, said Christopher Mooney, a political science professor at the University of Illinois. One is that Madigan wants Quinn to look bad heading into the primary; the other is the speaker wants to resolve the pension crisis before his daughter takes office as the new governor.

"Are politics involved? You bet!" Mooney said.

A Cullerton spokeswoman suggested that the Senate president's bill should be the foundation for building a compromise. Madigan's measure barely passed the House and late last week suffered a resounding defeat in the Senate. Cullerton's bill won a large majority in the Senate, and was never called for a vote in the House.

Passage of any measure is more difficult now that a super-majority will be required. "Keep in mind Madigan's bill barely passed a simple majority threshold, while Cullerton already demonstrated that his bill can get a supermajority," said the spokeswoman, Rikeesha Phelon.

(Reporting By Karen Pierog in Chicago; additional reporting by Joanne von Alroth in Springfield; editing by David Greising and Gunna Dickson)

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