Senate skips pension borrowing vote

By Jamey Dunn

The Senate wrapped up some major issues before leaving Springfield today but avoided one of the largest components of the budget framework approved by the House this week.

And it seems that if a bill to borrow more than $4 billion to make the required employee pension payment is going to pass, Gov. Pat Quinn will have to do some hard lobbying of senators.

The legislature has already passed its “Emergency Budget Act,” which gives the governor more power to shift money and make cuts. The spending bill that lawmakers sent to Quinn makes lump-sum appropriations to agencies, giving him the responsibility to dole out the money as he chooses. Democratic leaders hinted today that if the borrowing doesn’t pass, the governor could have to make do without the cash and make the payments anyway.

Senate President John Cullerton said his chamber did not take up the borrowing proposal today because it lacked the votes to pass. He said the Senate would likely come back to the Capitol to approve it in two or three weeks if a few senators change their minds on the issue. Cullerton made it clear he expects bipartisan support. Since borrowing bills require a three-fifths majority to pass, the constitutional Monday adjournment deadline would not affect the number of votes needed.

“We don’t have any Republican votes like they did in the House,” he said. He added that two Republican votes probably would be necessary to pass the bill. Cullerton said he would not be the one trying to persuade members on either side of the aisle. “[Gov. Pat Quinn] is going to be the one that helps convince them the importance of having this money for their districts.”

House Speaker Michael Madigan said the issue of making the pension payment for the next fiscal year is, in essence, Quinn’s problem. He said if borrowing doesn’t pass, “it makes life more difficult for the governor and the comptroller.”

Madigan said he would wait to see what the Senate does on the matter before committing to an alternate plan, such as passing a bill that would allow the state to skip the pension payment.

However, he added that even if the Senate doesn’t pass borrowing, it is not guaranteed that a “pension holiday” vote would follow. He said Quinn and Comptroller Dan Hynes, Quinn’s opponent earlier this year in the hard-fought Democratic primary for governor, might just have to manage what would essentially be a $4 billion demand on general revenues.

“Without the borrowing to make the pension payment, pension payments get in line with everybody else [owed money by the state], and they became a matter for the governor and the comptroller in terms of managing the cash flow,” Madigan said.

Senate Minority Leader Christine Radogno said she is not pressuring her side of the aisle to vote against borrowing. “Members are coming to the independent conclusion this is a bad deal.”

She said some Republicans voted to borrow for the payment last year, only to find that nothing has changed this time around. “It didn’t work last year, and in fact, all it did was encumber the revenue we needed to pay bills this year. It’s precisely what’s going to happen again because there’s no overall plan to deal with this. It’s just borrowing again — no way to pay it back.”

Radogno said she thinks Quinn will offer members of her caucus “perks” and projects for their districts to try to get “yes” votes for borrowing, and such tactics would put him on “very shaky” legal ground. “What’s going to be going on in the next few weeks are promises to get people to vote for things.”

Radogno said Quinn’s administration contacted Republican Sens. Larry Bomke from Springfield, David Luechtefeld from Okawville and John Jones from Mount Vernon about their votes. All three confirmed speaking with the governor’s people and flatly denied that they had been offered anything for their votes.

The Senate passed all the other components of the House’s budget:

Senate Bill 3660 is the “Emergency Budget Act.”

SB3677 is a “tax amnesty plan.”

House Bill 859 is the spending bill.

SB3662 is the budget implementation bill.

A couple of issues backed by Quinn took some big hits today, and almost everyone had something to say about it except the governor himself. He ducked reporters after leaving the Senate floor upon adjournment.

Quinn did issue a written statement late this evening. In it, he said: “Our task is not complete, and there’s more that must be accomplished before this session officially ends. I remind members of the General Assembly that the people of Illinois are depending upon their elected officials to promptly and squarely address the serious fiscal issues confronting our state."

The chambers adjourned today to “the call” of the House speaker and Senate president. So, legislators could be called back to Springfield at any time to wrap up loose ends and address the pension payment.

Budget off to rocky start

The broad strokes

By Jamey Dunn

House Democrats appear to be crafting a budget without a tax increase, without borrowing to make the annual pension payment and without Republican support.

In a House committee this morning, Majority Leader Barbara Flynn Currie, a Chicago Democrat, laid out some possible pieces of the budget. The committee approved an amnesty plan for delinquent taxpayers that Currie said could bring in about $250 million.

She later voiced support for a $1-a-pack cigarette tax increase that passed in the Senate last session. Currie estimated it would bring in about $320 million. A plan to “securitize” the state’s chunk of the national tobacco settlement would bring in more than $1 billion for next fiscal year.

“All of these things are part of a final budget mix, and we’ll see where we go,” Currie said.

But by far the biggest component was a plan to borrow almost $4 billion to make the pension payment. It passed in the committee along partisan lines.

On the House floor, the borrowing amendment, which is similar to the tactic the state employed to make the pension payment last fiscal year, was called for a vote to add it to existing legislation, and it received the simple majority it needed. However, the full bill will require a three-fifths vote to pass on to the Senate.

With Wednesday's vote, the Democrats were testing the waters for pension borrowing, and the response was a resounding “no.” There wasn’t even unanimous support on their side of the aisle. Of course, the bill can always be called for another vote later, and time will tell if Democrats can find the 10 or so votes they would need for it to garner the three-fifths majority.

“It’s the same old thing. We’re just continuing to look at a budget as an instrument of debt rather than a balanced instrument that’s supposed to have real revenue for the expenses,” said Rep. Roger Eddy, a Hutsonville Republican.

Eddy added, “I think unless and until there is a real commitment to talk about some of the reforms that we feel are necessary for a responsible approach to budgeting, nobody’s really interested in borrowing more as the answer. ... When you think about the cost that has been piled onto the pension system in the last seven or eight years with various schemes and payments not being made, we’re paying hundreds of millions of dollars in interest.”

Currie said that while cuts may be necessary, Republicans couldn’t produce a list of $4 billion in cuts that would be politically tolerable or sustainable for the state.

After the committee meeting this morning, she had hinted that the borrowing might not find the support it needed. Currie said that without borrowing, “we’re going to have to scuttle about and figure out what our other options might be.”

Gov. Pat Quinn’s budget director David Vaught said of the pension bonds this morning, “This bill is about cash—we don’t have any, so we’d like to use bonds, issue bonds and sell some bonds, to pay the pension funds.”

If pension borrowing cannot pass in the House, it begs the questions: Where will the “cash” come from? Or will it come at all?

State Police Funding

By Rachel Wells

Illinois State Police may get their funding, but local governments won’t be happy about it.

The Illinois Senate approved a measure today that would provide an estimated $22 million to the state law enforcement agency, which under proposed cuts would otherwise lay off about 460 sworn officers and close five regional offices.

Some of that funding will come from additional $1 to $15 fines imposed during court proceedings, but others would apply to mail-in bonds, such as those associated with some speeding tickets, that by Supreme Court ruling cannot be raised above $75. In those cases, counties and municipalities would have to share the $75 fee with the Illinois State Police, shrinking local government’s cut.

Lawmakers aren’t sure how much Senate Bill 3695 would take from local governments statewide, but Kip Kolkmeier of Metro Counties said Lake County government had estimated annual losses at about $160,000, with municipalities in Lake County losing about $180,000.

“I’m not trying to diminish that, that just doesn’t seem like a whole lot at risk compared to the employment of 460 officers and us losing five of our regional offices to protect us,” says Senate sponsor Kimberly Lightford, a Maywood Democrat.

“If the state police are to lay off 464 officers and close five districts, the director has already testified in committee that we will become a reactive agency and no longer be proactive out writing citations,” said State Police Capt. Tim Becker. “In 2009, our 540,000 citations generated $16 million for the counties. That’s $16 million they will not be getting if we’re not out writing tickets.”

Opponents voiced concerns that the money could be swept into the general revenue fund and may not go toward state police funding in the end

“[It’s] going to take a big slice out of municipal and county law enforcement officials’ money. So in the end, we’re robbing Peter to pay Paul,” said Rep. Dale Righter, a Mattoon Republican.

The measure, already approved by the House, now heads to the governor.

Note a possible pension plan

By Bethany Jaeger
Watch for a new pension proposal that could help buy some time for the state to recover from the economic slump and free up about $2 billion during the next cash-strapped year.

Gov. Pat Quinn’s administration could propose issuing pension obligation notes, which differ from pension obligation bonds. A note is a form of short-term borrowing that would have to be repaid within five years. The state does short-term borrowing all the time. The notes could carry a lower interest rate than pension obligation bonds, which are repaid over much longer periods of time.

The idea was talked about at a recent meeting of a new pension reform task force. Rep. Roger Eddy, a Hutsonville Republican, serves on that panel of legislators, labor organizations, unions and business groups. “This has some hope,” he said.

The idea could come up this week, when the governor called legislators back to Springfield for a special legislative session.

The legislature is scheduled to return Tuesday, seven days before Illinois’ new fiscal year starts. Quinn’s special session proclamation says he urges the legislature to consider measures, particularly an income tax increase, that would result in a balanced budget, as well as measures needed to implement a major construction program and a constitutional amendment to allow voters to recall elected officials. Quinn and Senate President John Cullerton specifically mentioned House Bill 174, the education-funding bill formerly known as a “tax swap,” as a potential solution for the state to generate revenue and knock down some of the deficit and to provide some property tax relief.

House Democrats didn’t have enough votes needed at the end of May, which means it could be even harder to acquire an extra majority of votes needed now that the legislative session has stretched into June. An extra majority would require at least some Republicans. GOP leaders, however, have strongly opposed the idea of a tax increase until they see progress on government reforms, including cheaper models of Medicaid health insurance programs and ways to reduce the state’s long-term pension debt.

One of the largest pressure points on the state budget for the next fiscal year is the contribution to the public employee pension system. Illinois is supposed to pay about $4 billion. Quinn proposed skipping next year’s payment to free up about $2 billion to help fill what his office estimates will be an $11.6 billion deficit. The legislature rejected the idea of skipping the payment; however, the Democratic-approved budget only authorized $1.5 billion for the state’s contribution into the pension system. If enacted, money would have to be skimmed from other state programs to cover the full $4 billion payment, which is required by law.

The idea to issue pension notes could take some pressure off to find the extra money needed to make the full payment, according to Eddy.

With the $1.5 billion already approved, one idea would be to issue about $2.2 billion in pension notes. That would get the state to about $3.7 billion, leaving only about $300 million that the state needed to find to get all the way up to $4 billion.

Eddy added that once the economy recovered and revenue started flowing into the state again, the state would be better able to cope with the annual contributions.

Any money freed up by the pension notes could help ease some pressure to cut human services, as well as buy some more time for the pension reform task force and a separate Medicaid reform task force to recommend ways to save money. The pension panel is supposed to issue a report to the General Assembly November 1, which is just before the regularly scheduled fall veto session. The panel is scheduled to meet once a month through October, and all meetings are public and subject to the Open Meetings Act and the Freedom of Information Act, which Eddy said prevents a 200-page report being dropped on legislators’ desks 15 minutes before they’re supposed to vote on it.

“This is not how we approached the problem before,” which is a good thing, he said, adding, “Any hint that we’re going to become serious about pension modernization, Medicaid reform, looking at job creation, all those are good signs that we’re really moving off the dime.”

The strategy of issuing pension notes differs from when former Gov. Rod Blagojevich’s administration issued an unprecedented $10 billion in pension obligation bonds in 2003. He and the legislature skipped that year’s payment and planned to use the interest earned on the investments to repay the debt. The strategy backfired when the economy tanked last fall. Pension notes, on the other hand, would be obligated directly to the state pension fund rather than to an investment bank.

Brady and Quinn touch on budget ideas during debates

By Jamey Dunn

Both Gov. Pat Quinn and his Republican opponent for governor, Sen. Bill Brady, have avoided sharing many specific details of their budget plans during the recent debates. However, they each briefly mentioned some compelling ideas for tackling the state’s broken finances.

When asked about the possibility of borrowing up to $50 billion to help pay down the state’s unfunded pension liability, Brady touched on a borrowing plan to pay off Illinois’ growing stack of past due bills.

“Once we solve the pension crisis, there are some who have suggested that the marketplace may make it more affordable to pay back the backlog of unpaid bills that Gov. Quinn and Gov. Blagojevich have racked up,” Brady said at the recent debate in Elmhurst. “The crisis is so bad we have to consider all options.”

Brady has not ruled out the $50 billion in pension borrowing, which he has said would go toward the unfunded liability not the annual payments. Brady has also characterized the idea as one of many possible plans floating in the ether.

Patty Schuh, a Brady spokeswoman, said borrowing to pay down the deficit or fund the operating budget is out of the question. She said Brady “will not borrow to fill the structural debt.”

However, she added that Brady would not rule out borrowing against a “dedicated revenue stream” as part of a payment plan to address the backlog of unpaid bills.

Brady does not support $4 billion in borrowing, which the Senate plans to take up shortly after the election, to make this fiscal year’s pension payment “I’m opposed to that. Because [Quinn] does not have a plan to pay it back. You cannot borrow for structural operating deficits,” he said.

Quinn — who at the Elmhurst debate referred to his role in the budget crisis as the “cleanup man” — scoffed at Brady’s take on borrowing. “The state of Illinois is not going to borrow $50 billion. That is the most ridiculous thing you could possibly do.”

A statement Brady made to reporters after the debate implied solving the state’s deficit would take priority over the backlog. “We have to eliminate the structural deficit year one and then pay back the backlog of unpaid bills.”

However, Schuh said today that Brady plans to tackle both issues “in tandem” adding “those unpaid bills are out there” and cannot be ignored.

Meanwhile, Quinn has been touting the “Budgeting for Results” provision, which was rolled into the approved budget bill last spring, in recent debates. Check out tomorrow’s blog for a closer look at what it is and what role it could play in the budgeting process for next fiscal year.

Pension borrowing appears stalled

By Jamey Dunn

Gov. Pat Quinn said again today that he expects senators to return to the Capitol and pass a borrowing plan before July.

“We have until the end of the month for the Senate to gather their resources and their energy. But that’s what they’re paid for. The citizens of Illinois expect members of the Illinois Senate to vote on bills that affect the common good. So I am going to keep saying what needs to be said, that it’s important for the Senate to do what’s fiscally responsible and help the people of Illinois to save money,” Quinn told reporters after a Chicago news conference.

Quinn said yesterday that he thinks there is enough support in the Senate for a plan to borrow about $4 billion for the state’s required fiscal year 2011 pension payment.

Senate President John Cullerton made it clear when the Senate left town at the end of May that he expected Quinn to be the one to bring more votes onto the plan. He said the bill would not pass without bipartisan support and that it would take at least two Republican votes.

House Speaker Michael Madigan said on the same day that the pension borrowing was not absolutely necessary for the budget to work.

Quinn was able to wrangle at least one of the two Republicans who supported the bill in the House. Elmhurst Rep. Robert Biggins first voted no on the measure but changed his mind after speaking with the governor’s office while the rest of his party was in a caucus meeting. He has since faced backlash and a demotion, as has the other Republican to vote “yes,” Danville Rep. Bill Black. Both are leaving the legislature after this session.

Lynwood Democratic Rep. David Miller, who is also the Democratic candidate for comptroller, changed his mind about borrowing after speaking with Quinn on the House floor soon after casting his original “no” vote.

But two public appeals in two days may be a sign that the governor is having no such luck in private talks with Senate members.

When asked whether he would resort to calling a special session to get the chamber back for a vote Quinn said, “I would hope that wouldn’t have to happen. But we’ll do whatever necessary to make sure the process is working for the people … who deserve an Illinois Senate that listens to them.”

Cullerton spokesperson Rikeesha Phelon said there is no immediate plan for bringing legislators back to Springfield. “The Senate will be back in session when there is evidence of a positive roll call for the borrowing plan,” Phelon said in a written statement.

It is possible that when the budget arrives on Quinn’s desk—he says that will likely happen in the last days of the month—it will not contain a specific plan on how to make the pension payment.

Quinn says he will have to “act promptly” to make cuts when he gets the budget because the new fiscal year begins July 1.

After two credit downgrades in a week, Quinn calls special session

By Jamey Dunn

Gov. Pat Quinn has called a special legislative session later this month after Moody’s Investor Services made good on its threat to downgrade the state’s credit rating.

Quinn is calling for a special session starting on June 19. “Here we go again. Will two downgrades in one week be enough to convince the General Assembly that our pension crisis can't be ignored anymore? Time and time again over the past two years, I have proposed, asked and pushed members of the General Assembly to send me a comprehensive pension reform bill. Time and time again, failure to act by deadlines has resulted in the bond rating agencies lowering our credit rating, which hurts our economy, wastes taxpayer money and shortchanges the education of our children,” Quinn said in a written statement this afternoon. “Legislators and their leaders know what they need to do to return Illinois to sound financial footing.”

Today, Moody’s knocked the state’s rating for general obligation bonds down to A3 from A2 and gave the state a negative future outlook. Before the downgrade, Illinois already had the lowest rating of any state in the nation. Fitch Ratings dropped the state’s bond rating earlier this week. Both rating downgrades were spurred in part by the legislature’s failure to pass comprehensive changes to the state’s pension systems for public employees before the spring session adjourned last week. Lower bond ratings means the state may pay more interest for future borrowing.

Moody’s does not expect that a pension solution will be approved soon and doubts the General Assembly’s ability to make fiscal reforms in preparation of the scheduled roll back of the temporary income tax increase, which will begin in 2015 unless a vote is taken to stop it. “The Illinois General Assembly on May 31 concluded its session without addressing the severe pension liabilities that are the state's greatest credit challenge. Our rating now assumes the government will not take action to reduce the state's pension liabilities any time soon,” said an analysis from Moody’s. “The legislature's political paralysis to date shows not only the magnitude of Illinois' unfunded benefit liabilities but also the legal and political hurdles to legislation that would make pensions more manageable long term. Without significant reforms, substantial growth in both unfunded liabilities and in annual funding burden are likely in coming years. This trend may coincide with the expiration of most of the income tax increases the state imposed in fiscal 2011 to help cover pension costs.”

Moody’s announcement of the rating decrease was especially harsh on Illinois lawmakers. “An A3 rating, while very low for a U.S. state, is consistent with the General Assembly's inability to steer the state from a path to fiscal distress.”

Quinn’s call for special session comes with no indication that leaders have reached a compromise on pension reform. House Speaker Michael Madigan and Senate President John Cullerton fundamentally disagree on how to go about changing the pension systems for public employees. Madigan’s Senate Bill 1 was soundly rejected by the Senate during the last week of session, and the House did not take a vote on Cullerton’s SB 2404 before adjournment. Supporters of Cullerton’s plan say that model, which offers employees a choice in their benefits reduction, is constitutional. They argue that Madigan’s plan, which would unilaterally cut benefits, is not. Backers of SB 1 say Cullerton’s plan would not save enough to stabilize the pension systems, which have an estimated $100 billion unfunded liability. The House also approved a bill to gradually shift future pension costs to universities and community colleges, which the institutions agreed to. But the proposal failed in the Senate on the last day of session.

Republican legislative leaders are generally on board with Quinn’s call for a special session. “Our pension crisis is so severe that Illinois’ credit rating has been downgraded twice in one week,” House Minority Leader Tom Cross said in a prepared statement. “The sooner the Illinois General Assembly returns to Springfield to get the job done on pension reform, the better,” Senate Minority Leader Christine Radogno said she “appreciates” the call for session, but she has some reservations. “The governor did call today to tell me his intentions to call a special session. I appreciate the call — but I’m not sure what dynamics have changed in this pension reform discussion. Clearly there is a rift amongst Democrat leaders. Despite their supermajority status, they missed a prime opportunity to enact comprehensive pension reform. We hope that opportunity will still be there now that it will take a supermajority vote in each chamber to pass. Senate Republicans remain willing to work on advancing a pension reform plan that substantially solves the problem.”

When Quinn called a special session on pensions last summer, lawmakers came to the capital for one day, and no compromise pension reform plan materialized. Quinn then vowed to launch a “grassroots” campaign for pensions changes that produced an Internet ad campaign and the much-derided pension reform mascot, Squeezy the pension python. 

Democratic legislative leaders had less to say about the announcement. “The Senate president’s office is notifying members of the governor’s request to return to Springfield on June 19th,” said a statement from Senate President John Cullerton’s office. “Moody’s provides more damning evidence that we can’t afford a continual stalemate on pensions. It’s time to identify a reasonable compromise that can pass both chambers with a three-fifths vote.” Madigan spokesman Steve Brown said he has seen nothing that points to a new development on pensions. Madigan did not attend a meeting on pensions held by Quinn earlier this week. “The House will convene,” Brown said. “The House has passed two pretty decent bills: one that has pretty significant [pension] saving and one that ends the free lunch [of the state picking up pension costs for schools].” He said that it would be unlikely that the House would consider legislation that “does anything less” than the bills the chamber has already passed.

Union officials are pushing for Cullerton’s bill. “Moody's rating downgrade makes clear that the House of Representatives must act swiftly to finish the work of sound pension reform the Senate has initiated. Moody's has concerns over ‘legal and political hurdles’ and calls for a ‘credible, comprehensive long-term pension funding plan’ to be implemented. They have laid out the path that should be followed, and it clearly leads to SB 2404. SB 2404 is the only legal, comprehensive, and responsible pension funding solution. It will restore fiscal stability and solvency to the state’s pension systems,” said a statement from the We Are One Coalition.

During the special session, lawmakers may also address concealed carry legislation if Quinn decides to veto House Bill 183, which was approved last week. It is possible the governor would use his veto pen to write in gun control measures that were not passed, such as a high-capacity magazine ban or a ban on assault weapons. Legislators would likely vote to override such a veto.  And of course, as happens with many special session, the specters of a host of issues that did not pass during the regular session will likely be raised. Keep an eye out for a renewed push for the legalization of same-sex marriage and a new version of a gaming expansion proposal. However, Quinn could limit the session to a specific topic. Any legislation passed at this point would require a three-fifths majority in both chambers to go into effect before next year.

Pieces to the puzzle

By Bethany Jaeger, with Hilary Russell and Jamey Dunn contributing
The House easily approved a short-term borrowing scheme to fully pay the state’s pension contribution and to prevent about $2 billion in cuts to human services, but not all services will be saved from significant funding cuts. The measure, SB 415, now heads to the Senate. The House also sent to the governor a $29 billion capital construction program that was approved in May but withheld because the governor said he wouldn’t sign the package until he received a balanced operating budget on his desk.

With less than 30 hours before a new fiscal year begins, Gov. Pat Quinn still doesn’t have a balanced operating budget on his desk. House Democrats could argue that the series of budget bills already approved by that chamber would be enough to fund about 93 percent of the governor’s proposed spending plan, “which, in this economy, is not too terrible,” said Rep. Lou Lang, an assistant majority leader from Skokie. But without enough votes to approve an income tax increase, as preferred by Quinn, the House appears poised to send to the governor four basic budget bills and wouldn’t come back to the Capitol until the money ran out.

Three existing basic budget bills include SB 1197, a lump sum spending plan; SB 1433, authority to sweep money from dedicated funds; SB 1609, ability to refinance state debt, which the governor already signed into law. The short-term borrowing plan, SB 415, would be the fourth bill in a bare bones spending plan.

“I think it reflects exactly the money that we have, and I think that’s a responsible thing to do,” said Rep. Frank Mautino, an assistant majority leader from Spring Valley. “If there’s more money [down the road], you can allocate more spending.”

The House tonight approved the borrowing plan and specified that the $2.2 billion freed up from the short-term borrowing would have to fund community-based human services (see Amendment 4).

“This is not the total package,” Rep. Kevin McCarthy, an Orland Park Democrat sponsoring the measure. “This is not going to eliminate all the pain out there, but it is a step forward.”

If approved by the Senate, the plan would allow community-based services to be funded at 70 percent of the level sought by the governor, according to House Democrats. Some legislators said that’s better than the 50 percent funding level projected without new revenues to pay for it.

“It's still 70 [percent] is better than 50 [percent] on across the board,” Mautino said.

But not all providers would reach the 70 percent funding level, according to Mautino. The 70 percent would be an average. And the governor would have significant latitude to spend the money within human services, potentially directing the money toward services that would recapture the largest amount of federal matching funds. The governor also would still have to cut at least $1 billion to get closer to a balanced budget that suffers from a deficit ranging from $7 billion to $9 billion, depending on whom you ask.

And some services, including financial aid for needy college students and funding for Amtrak rail services, still would see significantly reduced funding levels. The knock to transportation services also could jeopardize federal stimulus funds, said Rep. Elaine Nekritz, a Northbrook Democrat.

Yet, the bill passed with 101 voting in support and seven voting in opposition, but many said the borrowing plan is only a short-term fix that doesn’t address the need for long-term reforms of everything from tax policy to pension benefits.

“This is one of many puzzle pieces that we need to put together, but it’s not a long-range solution to a problem we’ve had in this state,” said Rep. Sara Feigenholtz, a Democratic leader on human services, adding that this year’s budget and economic downfalls are more complicated than in the past. “It is the 9-11 of state budgets. It’s a very fragile situation. It’s more responsible for us to fix how we spend, fix how we collect revenue.”

Rep. Dave Winters, a Shirland Republican who voted against the borrowing plan, said although the pension obligation bonds would allow the state to make its full $4 billion pension payment in the new fiscal year, the state would still have to find more than $4 billion for the next year’s payment, too. In addition, the state would have to start repaying $500 million for the bonds. So that would mean the General Assembly would have to find about a $4.7 billion in general funds to make next year’s contribution, according to Winters’ math. House Democrats said the borrowing plan would cost about $257.4 million in interest over five years.

“Borrowing is not the answer,” Winters said during floor debate. “It is simply digging a hole that we’re going to be stepping in next year.” And that hole will be bigger than the hole dug this year.

The GOP leader, however, said even if borrowing isn’t an ideal way to cope with the budget gap, Republicans at least want the revenue to specifically save providers of human services to the most vulnerable citizens. “We have a responsibility to work with [Democrats] and get this resolved and diminish or minimize the potential pain,” House Minority Leader Tom Cross said during floor debate.

Rep. Jim Durkin, an assistant minority leader from Western Springs, added before the vote that most Republicans thought it was the “fair” and “moral” thing to do to help prevent such drastic cuts to community-based service providers. “We’ve received some pretty tough letters from these providers over the past few weeks,” he said. “And I don’t appreciate the most vulnerable in our society being used as pawns — which they are being used as at the moment — in this budget process, but it’s reality.”

Capital bill sent to the governor
Rep. Lou Lang, a Skokie Democrat, said he released four pieces of the $29 billion construction program to fix the state’s infrastructure and to put people to work. The bipartisan plan was approved with the understanding that Gov. Pat Quinn would sign them into law, Lang said. But the governor changed his tune shortly after the vote. “The fact is that the governor gave us his word that he would sign those bills.” And when he did not sign those bills, Lang filed motions to reconsider. “We had just gone through six years of a governor who didn’t tell it to us the way it was,” Lang said, referring to former Gov. Rod Blagojevich. Lang added that he felt that if the bills were not going to be signed immediately, better to be in the control of the legislature than in the hands of someone who had said he would sign them but then reneged on his word.

“I don’t know what he’s going to do with those bills,” Lang said, “but we have thousands and thousands and thousands of Illinoisans out of work.”

Quinn’s office said the governor had wanted Lang to lift the holds on the construction bills so he could examine them when they landed on his desk.

Senate again skips pension borrowing vote

By Jamey Dunn

Although the Illinois Senate returned today to discuss a $4 billion pension borrowing plan, legislators failed to take a vote on the issue.

Senate Minority Leader Christine Radogno said she saw no reason for the Senate to be in legislative session today because the situation surrounding the bill had not changed. She said she thought it was a waste of money to bring lawmakers back to Springfield. “I think it’s unfortunate that we’re here.”

Some Republicans supported a similar borrowing plan last fiscal year to make the state’s required pension payment, but Radogno said they will not consider backing it again this year until they see evidence of cuts and reforms to the budgeting process.

Senate President John Cullerton said the face-to-face negotiation that can come out of bringing the chamber together was a positive aspect of having a session day. He also reiterated the need for bipartisan support on the bill.

Cullerton said he wants to work in coming weeks with Republicans to pinpoint some cuts that can be agreed on, and he hopes to pass the borrowing during the legislature's veto session, which begins November 16.

In the meantime, state pension systems are selling off assets to make benefit payments. Steve Zahn, a lobbyist for the State University Retirement System (SURS), said SURS and the Illinois State Board of Investment, which make up about 40 percent of the state retirement system, would have to sell off an estimated $2.3 billion in assets if the state cannot find a way to make its payment.

Options for a pension reform Plan B may be limited

By Jamey Dunn

The Illinois Supreme court issued a ruling Thursday on state employee health care that bodes ill for supporters of the recently passed cuts to public employee retirement benefits.

The court ruled that health care benefits for retirees fall under the pension protection clause—the very sentence of the state’s Constitution that many supporters of pension reform had hoped the justices would be willing to overlook. The pension clause states: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

The ruling indicates that the justices are inclined to side with public employees and retirees. In the 6-1 opinion, Justice Charles Freeman wrote: “Under settled Illinois law, where there is any question as to legislative intent and the clarity of the language of a pension statute, it must be liberally construed in favor of the rights of the pensioner.” Justice Anne Burke wrote the dissenting opinion. In it, she did not question the protection of the pension clause, but she argued that retiree health care benefits did not fall under that protection.

Some lawmakers seem to see the ruling as writing on the wall for the pension reform law, which is still working its way through the legal system. “Today, the Illinois Supreme Court made it very clear that the Pension Clause means what it says,” Senate President John Cullerton said in a prepared statement. “The court cannot rewrite the Pension Clause to include restrictions and limitations that the drafters did not express and the citizens of Illinois did not approve. The clause was aimed at protecting the right of public employees and retirees to receive their promised benefits and insulate those benefits from diminishment or impairment by the General Assembly.” Cullerton added: “If the court’s decision is predictive, the challenge of reforming our pension systems will remain. As I have said from the beginning, I am committed to identifying solutions that adhere to the plain language of the constitution.”

Kent Redfield, an emeritus professor at the University of Illinois Springfield, said that while the ruling pertains to a different case, the language used is clear. “You could find some way to parse some of it, but it’s really, really difficult. There’s no logical way to get to upholding Senate Bill 1 (the pension reform legislation) based on the clear content of this ruling and the way they’ve construed the pensions clause.”

Others disagree that the ruling is a harbinger of the pension law’s death. Rep. Elaine Nekritz, who was key player in getting SB 1 passed, said that the justifications the law makes for reducing benefits were not part of the retiree health care case. She said that the court has yet to consider those points. The law lays out the dire fiscal situation that the state is in and claims that state elected officials need special powers to curtail the estimated $100 billion unfunded liability and save the state from a budget disaster. However, one line in today’s decision seems to blow a hole in that argument. “In light of the constitutional debates, we have concluded that the [pension] provision was aimed at protecting the right to receive the promised retirement benefits, not the adequacy of the funding to pay for them.” 

Supporters also claim that a reduction in the amount that employee would pay into the system represents a consideration they are being given for a change to the contract that is their membership in a pensions system. Nekritz said that the ruling is clear that benefits are protected, but she says it is unclear if that protection is absolute. “Does it really mean that we can do nothing, or are there some things that we can do based on the legal arguments that we make under Senate Bill 1?”

Those arguments aside, if the Illinois Supreme Court rejects the new pension law, what options do legislators have?

Cullerton had proposed offering employees a choice between receiving subsidized health care coverage or keeping their current pensions benefits. If they had chosen health care, they would have seen a reduction in their retirement income including a cut to the expensive compounded interest cost of living adjustments (COLAs) retirees currently receive. Cullerton said that this scheme could potentially fulfill a legal standard of giving employees consideration for a reduction in benefits. The Senate approved the plan, but it was never called for a vote in the House.

However, that plan was based on the idea that health benefits were not protected by the Constitution—a concept that runs counter to today’s ruling. “The concept of consideration is still viable. The court has not rejected it or defined what the limits are. It’s just hard to see what you can give up in exchange,” Redfield said. “It’s hard to see what other major carrot you can offer to people in terms of giving up their COLA.”

Skokie Democratic Rep. Lou Lang introduced legislation that would extend the current income tax rates, which are due to start rolling back on January 1, to pay down the unfunded liability.

But Lang’s plan also calls for larger contributions from employees and an increase in the retirement age. Both of these provisions could be seen as a reduction in benefits by the court. Much of the revenue from the temporary income tax increase has gone toward making the required annual pension payment after lawmakers voted to skip payments and short payments for several years in the past.

There have also been proposals to change the pension payment schedule to even out the cost of the annual payment. The state is currently on a system that resulted in large balloon payments, much like a subprime mortgage. Some such plans also call for funding the system at 80 percent as opposed to 95 percent or 100 percent. Redfield said that a proposal that changes the payment structures would need to be combined with changes to the state’s revenue structure, such as expanding the sales tax base to some services, budget cuts or both. “As a stand alone, then it looks like an excuse to keep doing what we’re doing,” he said.

Republican candidate for governor Bruce Rauner has advocated for moving employees’ future benefits to a system that looks more like a 401-K. That plan would go even further than SB1, so it is unlikely that it would be upheld if SB 1 were rejected. But it is possible that the court’s ruling might strengthen his case for offering a defined contribution plan to newly-hired employees. “It may embolden Rauner to say well we’ve got to get everybody going forward into a defined contribution [plan],” Redfield said. However, such a proposal would have no impact on the unfunded liability for current employee and retiree benefits. It also means the state would likely have to start contributing to Social Security benefits for positions that do not currently offer them.

Meanwhile Gov. Pat Quinn is emphatically sticking by his opinion that SB 1 is constitutional. “We believe the pension reform law is constitutional. This landmark law was urgently needed to resolve the state’s $100 billion pension crisis. It was also urgently needed to ensure that teachers, university employees and state workers who have faithfully contributed to the pension system have retirement security,” said a written statement from his office. “We’re confident the courts will uphold this critical law that stabilizes the state’s pension funds while squarely addressing the most pressing fiscal crisis of our time by eliminating the state's unfunded pension debt.”

Redfield said that there will likely be many suggestions for a Plan B on pension reform in the coming months. “I think people will be floating lots of ideas that probably aren’t feasible and really won’t address the short-term problems—between now and November,” he said. “There’s nothing politically to be gained by standing up and saying ‘you know, we really, really screwed up, and we have no options but to raise your taxes.’”

 But he said that new revenues and cuts to state services to cover the cost of the pension systems might be the only real option available to address the problem if the court rejects SB 1. If that happens, the state will almost certainly face another credit downgrade if it fails to act to address the liability. The current budget is based on $650 million in borrowing that has to be paid back. In Fiscal Year 2016, the tax rate will be lower for the entire fiscal year instead of just half of it. FY16 could turn out to be one doozy of a budget for lawmakers and whomever is the governor to sort out. “You want to be around for a historic session for the General Assembly? I think everybody has a front row seat,” Redfield says.

House passes a budget

By Jamey Dunn and Rachel Wells

Legislators voted tonight to borrow billions to the make the pension payment for next fiscal year and to give Gov. Pat Quinn “emergency powers” to shift funds and cut the budget.

A group of House Democrats presented the budget ideas they came up with while the General Assembly was out of session for two weeks. But by the end of the day, the plan that passed out of the House was similar to the one that emerged earlier this month.

Earlier in the day, Democrats voted down or withdrew proposal after proposal, including $300 million in cuts to K-12 education, $100 million in higher education cuts and a plan to make state retirees pay health care premiums, which would have saved an estimated $100 million.

The largest and most contested component of the budget, $4.09 billion in borrowing to make the pension payment, narrowly passed this evening. It failed by one vote the first time it was called today. After some arm twisting by Democratic leadership and Quinn, Lynwood Democratic Rep. David Miller, one of two members in opposition from his party, changed his vote.

Elmhurst Rep. Robert Biggins, one of only two Republicans to vote against his party, said he decided to support pension borrowing, Senate Bill 3514, after speaking with the governor’s office while the rest of the House minority party met in private. “I thought about all the people in Illinois. This is the responsible thing to do,” said Biggins, who had voted against borrowing earlier in the evening. “This is a much less expensive way to go.” Biggins, about to retire from the General Assembly, said he did not ask the governor for anything, nor was he offered a job in return for his support. Danville Rep. Bill Black, another Republican who is retiring after the current session, voted consistently in favor of borrowing.

Other Republicans who had agreed to borrow for last year's payment after being promised cuts they say never materialized did not support a similar plan this year because they said Democrats haven’t done enough to trim the budget and encourage job creation.

“[Republicans] participated in that process to help [Quinn,] in his first term, try to address some issues,” Minority Leader Tom Cross said. “Many would say it was a mistake. … We get, this year, the downside of not making a payment, and we are not saying, ‘Don’t make a payment.’ We’re saying we want to fundamentally change the way we run government in Illinois,” However, House Majority Leader Barbara Flynn Currie of Chicago, the sponsor of the plan, said members on both sides of the aisle do not have the will to make cuts that would add up to the money needed for the payment. “You need 60 people to vote ‘yes’ to pass cuts of this magnitude, and [those people] are not in this chamber,” she said.

The House also passed its version of the “Emergency Budget Act,” introduced earlier in the month, with some new cost-saving measures tacked on. Senate Bill 3660 would:

• Extend the time the state has to pay any overdue FY2010 bills from August 31, 2010, to December 31, 2010.
• Require lawmakers, constitutional officers and executive agency directors to take 12 furlough days.
• Create an independent state agency called the Railsplitter Tobacco Authority. The state would transfer its future payments from a national tobacco settlement to the agency, which would issue $1.7 billion in bonding, with the settlement money pledged to pay off the borrowing.
• Allow the governor to borrow from special funds for the General Revenue Fund and Common School Fund. That money would have to be put back into the special funds 18 months after it was borrowed.

The new cuts in the bill would:

• Require state agencies to review contracts for opportunities to renegotiate, terminate or re-bid. House Democrats estimate that could save $300 million.
• Eliminate cost of living increases for legislators, state’s attorneys, constitutional officers and some state agency employees and members of boards of commissions for FY 2011.
• Reduce the per diem payments legislators get on session days from $139 to $111 and reimbursement for car travel from 50 cents a mile to 39 cents a mile.

A “tax amnesty” bill the House passed today would bring in an additional estimated $250 million.

SB 377 would allow anyone owing past due taxes between 2002 and 2009 to pay them during a tax amnesty period without penalties and interest. State agencies would also be allowed to enter into deferred payment agreements, settle debts at no less than 80 percent of the amount due and use private debt collection agencies to obtain owed money. Anyone who fails to take advantage of the tax amnesty period, from October into November 2010, would be charged double the penalties.

The House passed the Senate’s spending bill, HB859, which would cut 5 percent from agency operating budgets. Other than those cuts, the measure appropriates lump sums equal to last year’s spending to Quinn, giving him the power to cut where he sees fit.

Currie said that the education funding in the bill hinges on the House passing a $1-a-pack cigarette tax increase that the Senate approved last session. If not, she says at least $327 million in cuts to K-12 would be the alternative. The proposal lacked the needed votes in the House earlier this month.

The Senate is back in session tomorrow, and House members plan to be in at least through Thursday. The House passed the basic structure of a budget today, but changes could still be in the works. Check back for updates.

The blame game

By Jamey Dunn and Rachel Wells

It seems everybody had someone to blame today after a budget failed to pass both chambers of the General Assembly.

Senate Democrats, with no Republican backing, passed a plan and are now looking to the House to finish the job. “The action is over in the House. We have passed a budget. We have passed the revenues necessary to fund the budget, and it’s up to the House,” Senate President John Cullerton said.

The Senate passed:

House Bill 2428 which is similar to the House “Emergency Budget Act” that emerged last night. It requires legislators, state constitutional officers and agency executives to forfeit one day's pay each month during the fiscal year. It also extends the “lapse period,” the time when the state can pay off its bills from the previous fiscal year, from August 31 to December 31. It also gives Gov. Pat Quinn the power to borrow from special funds and includes the tobacco settlement “securitization.”

HB543 would let the state skip its employee pension payment until Quinn can find the nearly $4 billion needed.

HB991 would appropriate the money from a $1-a-pack cigarette tax increase, which passed in the Senate last year, to K-12 education, assuming that the increase, Senate Bill 44, passes in the House.

The Senate passed a spending bill early this morning. That plan would require Quinn to make about $2 billion in cuts from last year’s spending.

Although the Senate passed several major budget components, the House failed to pass any budget legislation or take up the bills the other chamber approved.

“[House Speaker Mike Madigan] doesn’t have the necessary votes to pass the bills that we have passed here,” Cullerton said. However, he added that budget negotiations frequently take longer than originally planned. “Every once in a while this happens at the end of the year.”

Needing Republican votes to pass a borrowing plan to finance the annual pension payment, Rep. Barbara Flynn Currie from Chicago, the House majority leader, pointed to the minority party for failing to propose a real alternative. “Borrowing for the pension payment is not a great thing to do, but it is, I think, the only thing to do, since no one has proposed a $4 billion cut in state spending.

“More than half of you supported a substantial borrowing program for the state universities as recently as yesterday, and you supported a plan like this just one year ago. So what’s changed?” Currie asked.

But, as Currie blamed Republicans for the possibility that the state might skip a pension payment, which would cost more money in the long run, House Minority Leader Tom Cross blamed Quinn for repeatedly disappointing them.

“A year ago, we said to you, ‘Yes, we will participate in a borrowing plan,’” Cross said. “The problem of today versus a year ago is we said to the governor, ‘Governor, we’re going to give you a chance, we have a new governor, a fresh start, we have some problems.’” But Quinn didn’t live up to House Republicans’ expectations, Cross said. “Our governor needs to lead. Leaders lead. He needs to cut; he needs to control spending; he needs to pay his bills; he needs to provide for job growth and Medicaid reform.”

The bill, SB 3514, only received 59 votes, 12 short of the number required for a borrowing measure.

Democrats then moved on to SB 1211, a spending bill that called for cuts equal to what the pension payment would be. The reductions were aimed at primary and secondary education, an unpopular area to cut. The measure failed by a wide margin, but House Speaker Michael Madigan challenged the minority caucus to file amendments detailing other cutting options.

Sen. Donne Trotter sees the troubles in the House as a chronic problem. “The House, I believe, has dropped the ball for the past two years in trying to be a partner and trying to make Illinois whole again. And it’s not easy, the economy is still bad, but there are certainly things that can be done that make it better than what it is now.”

Trotter said he doesn’t blame Quinn, and in the end the legislature has a duty to legislate. “He’s not our daddy,” Trotter said.

That may be the biggest passing of the buck to come out of the negotiations. Like last year, the General Assembly plans to give Quinn lump-sum appropriations and expects him to make what are sure to be unpopular cuts instead of negotiating a budget that doles out money by line item.

Cullerton blamed the recent financial crisis and lack of Republican support for pushing legislators to what he called the “dubious honor” of letting the governor make the spending decisions.

“In order to pass a budget when you have to cut so much, you have to get 30 and 60 people to agree to these cuts, and when the other party is saying no to everything, it makes it very difficult to pass,” he said.

Cullerton said Democrats "have worked on many, many things with the Republicans here. The one area where they just basically have just said we’re not going to help you is the budget, and that obviously is major area.”

But the deadline that the General Assembly missed today was really only one that they imposed on themselves.

As lawmakers left the Statehouse on Friday, on the day leaders had for months said would be the final day of their spring session, Rep. John Fritchey, a Chicago Democrat, said the self-imposed deadline didn’t matter. He said any budget deadline other than the constitutionally established date of May 31 is “arbitrary.”

Cullerton said both chambers will be returning before the end of the month.

Bond rating upgrade may be good for Quinn's budget plans

By Jamey Dunn

In the wake of the state income tax increase, one bond-rating agency has upgraded Illinois’ rating, which indicates the state’s ability to pay back its borrowing.

Fitch Ratings gave Illinois an “A” for $3.7 billion in bonds, which will be used to make the state's pension payment for the current fiscal year and are expected to sell in February. It also upgraded Illinois from a “negative” outlook to a “stable” one on $24.5 billion worth of bonds already issued. The group cited the recent income tax increase and pension reforms as improvements to the state’s fiscal stability.

David Vaught, Quinn’s budget director, predicted in January that rating companies would downgrade the state’s bond rating to “junk” if legislators did not raise the income tax rate. Lawmakers voted later that same day to increase the personal income tax rate from 3 percent to 5 percent and the corporate tax from 4.8 percent to 7 percent for four years.

“Following several years during which the state was unwilling to take action to restructure its budget to achieve balance and increased reliance on borrowing to close budget gaps, the tax increase and enacted spending limits close a significant portion of the structural gap in the state's budget through fiscal 2014,” Fitch’s researchers said in a written report.

A more favorable bond rating means lower interest rates on borrowing, which could be a positive for Gov. Pat Quinn. According to three-year projections released by his budgeting office, Quinn is still counting on the approval of $8.75 billion in loans to pay down the state’s backlog of unpaid bills. Legislators voted down the borrowing twice earlier this month. Sen. President John Cullerton has introduced a new borrowing bill, Senate Bill 3, and Republicans have expressed willingness to support some version of the plan. They say, however, that they want less borrowing and some reforms, such as changes to the state’s worker’s compensation system.

Quinn’s plan also includes a $1-a-pack tax increase on cigarettes, which failed to pass in the closing days of last legislative session, and revenues from the temporarily boosted income tax.

Fitch’s report predicts trouble on the horizon under the plan: “The Governor's projected spending plan, which incorporates the additional tax revenues and spending limits, continues to rely on borrowing for operations in fiscal 2012 to accommodate the loss of federal stimulus funds. Further, the tax increases are temporary and will begin to phase out in 2015. Even if the state has achieved budget balance by that point, it will once again be faced with a significant budget balancing decision to make severe expense reductions that it has been unwilling to make up to this point, identify new revenues, or make permanent the tax increases. In addition, the state's ability to reduce its accounts payable backlog in a meaningful way relies on debt issuance that has yet to be authorized.”

When asked if the governor's office has a backup plan if the legislature does not approve the borrowing or cigarette tax, Kelly Kraft, spokesperson for Quinn's Office of Management and Budget said in a written statement, "These projections, along with continued economic growth, represent the Governor's plan to address the state's fiscal challenges."

The group’s research found that Illinois’s current borrowing debt is 6.3 percent of 2009 personal income, which the authors describe as “moderate but above average.” Under Quinn’s plan, it would be nearly 9 percent of 2009 personal income, which is described as a “high level.” However, the report said, “The ability of the state to bring its payment obligations more current in a timely manner will be limited without the borrowing [in Quinn’s proposal].”

No concession means confusion

By Jamey Dunn

With neither candidate conceding in the governor’s race, Illinois legislators will return to Springfield tomorrow under a cloud of uncertainty.

Gov. Pat Quinn led Republican opponent Sen. Bill Brady by more than 16,000 votes this evening (numbers in the link will change as results are updated). Brady, who won the Republican primary by fewer than 200 votes, said that he wants to see the process through until a winner is certified by the Illinois State Board of Elections. The board has until December 3 to certify the results, though it could announce an official winner before then.

“Having been through this process before, I know the importance of making sure every voice is heard and every vote is counted. I believe we will win,” Brady said at a Bloomington news conference.

However, Quinn has said he is confident he won the race. “The Quinn [and Lt. Gov. nominee Sheila] Simon campaign wants every vote to be counted. We want to make sure the voice of every voter in the state of Illinois is duly counted and heard,” Mica Matsoff, a Quinn campaign spokesperson said in a written statement. “The ballots left to be counted appear mostly to come from Cook County, where the governor held a large margin over Senator Brady. We expect to hold our lead and may increase it. We do not see a path to victory for Bill Brady.”

Longtime Statehouse observers say it would be premature for Brady to concede early in such a close race, with absentee and military ballots still uncounted. “I think he owes it to himself and to his supporters to have all the votes be counted. … There are a lot of votes that have yet to be counted,” said Ron Michaelson, who was executive director of the Illinois State Board of Elections from 1976 to 2003. Michaelson added that if it becomes clear Brady is not the winner, he should step aside and not “hold out just to hold out.”

Kent Redfield, an emeritus professor at the University of Illinois Springfield and director of the Sunshine Project, said he doesn’t expect Brady to hold on until the certification deadline if votes start to stack up for Quinn. “I suspect that if the numbers continue to grow that we can expect a concession out of Brady over the next couple of days.”

Mike Lawrence, longtime journalist and former spokesman for then-Gov. Jim Edgar, was sympathetic to how hard it can be to give up on a close race. “He’s worked for this thing for eight years, and it’s hard to let go. … I can’t fault him at all.”

Meanwhile. the Illinois Senate is scheduled to return tomorrow — at Quinn’s request — to vote on $4 billion in borrowing so the state can make its required pension payment.

As for how the unsettled governor's race may affect the borrowing vote — and possibly the veto session — Lawrence said it might be hard to gauge. “One of the things I have learned through the years is that it is very difficult to predict what the legislature will do or not do.”

However, he added, “Quinn’s going to be somewhat distracted, and I think the members of the legislature will be as well.”

Lawrence, who is also a former director of the Paul Simon Public Policy Institute, pointed to the 1982 governor’s race, when Republican candidate Jim Thompson led Adlai Stevenson III by a little more than 5,000 votes. Stevenson asked for a recount, which was denied by the Illinois Supreme Court and led to a rewrite of the law. “The people in the Statehouse did not focus on the state’s fiscal problems until the question of who was going to be governor was resolved,” Lawrence said. He thinks the legislature will not be interested in considering budget issues beyond pension borrowing until they know the winner of the race.

Redfield said that time is running out for the General Assembly to continue stalling on the budget crisis. “They’ve got to start taking some tough votes in order to do some of the short-term and long-term things that they need to do.’

He said he thinks the legislative leaders know something has to be done about the state’s budget woes. “[House Speaker Michael] Madigan and [Senate President John] Cullerton are very smart people, and they know that there’s a limit to how often you can finesse this situation. … They know that the state has to be in a lot better shape two years from now, when their members run for reelection.”

Cullerton spokesperson John Patterson said that regardless of the outcome of the race, Quinn is governor and continues to be governor through the coming session days.

Both Democratic leaders lost some seats to Republicans but hung onto control of their chambers. According to Sarah Wojcicki, a spokesperson for House Minority Leader Tom Cross, Republicans had claimed seven House seats with two races still unresolved as of this afternoon. Patterson said Democrats lost two seats with one race still to be decided. This means Cullerton has lost his super-majority and the ability to borrow without Republican votes. However, he repeatedly stated before the election that Democrats had no intention of passing pension borrowing on their own.

The Senate is scheduled to return to Springfield tomorrow at 1 p.m. Check back for information on the session, as well as more election analysis.

House approves higher threshold for pension increases but not tax hikes

By Jamey Dunn 

The Illinois House approved a measure today that would make it more difficult to increase pension benefits, but Republicans argue that the same threshold should be set for tax increases.

There was no opposition in the House to a proposed constitutional amendment that would require that any increase in pension benefits for public workers to receive a three-fifths majority vote to pass. Currently, such increases require a simple majority. “There’s a lot of tough medicine in this resolution. I think the tough medicine is needed,” said House Speaker Michael Madigan, who sponsored HJRCA 49.Under the measure, an increase to salary or wages would not constitute a pension benefit increase, unless the raise was excessive. Madigan said that lawmakers could set the parameters for “excessive” pay increases.

The amendment would up the required support to override a veto of a bill containing pension benefits to two thirds of each chamber. Currently, only a three-fifths majority is required to override a veto. It also calls for increased benefits for municipal public workers to be approved by a three-fifths majority of a local board or council.

Union officials say that the state’s billions in unfunded pension liability was caused by lawmakers and governors opting to skip annual pension payments, not by increased benefits. “This change to the Constitution would not address the true crisis threatening Illinois public retirement systems, which is the habitual failure of politicians to adequately fund the modest pensions earned by public employees. We continue to believe that this funding crisis can only be solved by all parties working together in good faith, and our union remains committed to doing so,” said Anders Lindall, spokesman for the American Federation of State County and Municipal Employees Council 31.

A recent report from the Commission on Government Forecasting and Accountability found that the bulk of the shortfall is a result of underfunding.

Lindall also argued that the reduced pension benefits that went into effect last year do not meet federal requirements for employees, such as teachers, who will not receive Social Security benefits for the time they work for the state. “The lower pension tier forced on newly hired public employees must be fixed to avoid severe federal penalties. It is unwise to make such needed amendments more difficult to achieve,” Lindall said.

However, Madigan said that support for sweetening the benefits of those hired under the new pension benefits system is part of his motivation for supporting the amendment. “I’ve already been in conversations where people are saying that the tier two — that was created a few years ago and is in place for those hired to public jobs after Jan 1 of 2011 — is not sufficient. That it has to be improved. That we have to make it better,” Madigan said. “So that’s another reason to support this resolution and raise that vote count because those that even in the current crisis think that we ought to be improving pensions are here at the Capitol building already laying the seeds for what will be their efforts very shortly to again improve pension benefits.” Madigan said that the amendment is not meant to put a stop to benefit increases, but it would make it more difficult to pass them. “If you are an individual here, or if you are a member of a group in the legislature who wishes to work against these bills, this will advantage your position. … You’ll have a better chance.”

Rep. Darlene Senger, a Naperville Republican, said that the measure is “a step in the right direction” but does not solve the state’s pension problems. “I do want everyone to know that when you see this on the ballot in November, there’s a lot more work that has to be done before then in regards to reforming pensions,” she said. “This does not change anything in regards to the debt for the unfunded liabilities … and it does nothing currently to the crisis we have in regards to our state budget with trying to fund pensions and Medicaid.”

Springfield Republican Rep. Raymond Poe said that the amendment should also protect against lawmakers voting to skip pension payments by setting the threshold to skip a payment at a three-fifths majority. “We also need a safeguard in there that you can’t short those payments in the future,” Poe said. The measure contains no such provision. The issue of guaranteeing future payments into the pension system will likely play into the ongoing negotiations over other pension reforms that may include reductions in benefits for workers hired before lower benefits for new employees went into effect last year.

 After Madigan’s amendment was approved, Republicans moved to have two constitutional amendments that are languishing in the rules committee called to the floor for a vote. The amendments would require the approval of a three-fifths majority to increase taxes in the state. “Let me commend Speaker [Madigan] for realizing that some votes in this chamber carry heavier consequences and deserve a little bit of extra scrutiny. He is right that decisions that have great impacts on the fiscal health of Illinois residents and the state as a whole should have to meet a higher standard and require a greater threshold,” said Arlington Heights Rep. David Harris, who is listed as a sponsor on both amendments. Harris argued that such a higher threshold should also apply to tax votes. “This is nothing significant or new. We already require a higher voting standard for borrowing, for laws that would preempt home rule and to overturn the governor’s veto. The next logical steep would be to require the very same threshold for bills that would make Illinois residents have to pay more taxes.” The Republicans’ efforts were blocked and the measures did not come up for a vote.

If the Senate approves HJRCA 49, it would appear on the ballot in the November general election. To be included in the state’s Constitution, it would require the support of either three-fifths of those who choose to vote on the question or the majority of those voting in the election .

Legislative leaders take issue with Quinn's numbers

By Jamey Dunn and Lauren N. Johnson

Gov. Pat Quinn emphasized the need for economic development and avoiding large education cuts in his budget address today. However, his proposal contains deep cuts to some social services and health care and hinges on a borrowing plan that Republicans say they will not support.

Quinn focused on the need to cut the budget in his speech to lawmakers. According to his staff, there are no new programs in his proposal, which they say cuts spending by nearly $1 billion. However, he did propose spending increases in existing programs. All state spending in the proposal totals $52.7 billion. Republicans claim that figure represents a $1.7 billion increase from last year’s spending. However, Quinn’s staff insists that last year, the state did not make some required payments in full and did not pay the required $4 billion pension fund payment from general revenue funds. So, they say, last year’s numbers do not represent a realistic budget.

“Our commitment to taxpayers is simple: We will only use tax dollars to provide necessary state services,” Quinn said in his address. “All unnecessary state spending will be eliminated.”

The governor’s plan includes a jump in general state aid funding to schools from $4.6 billion to $4.86 billion. This increase would bring the foundation level — the funding the state gives schools per student each year — up to $6,267 from $6,119. But Quinn also called for eliminating all state dollars spent on regional superintendents’ offices. He said the almost $14 million in savings from that cut should go toward schools. His plan also cuts $95 million from state support for transportation costs spent on busing students to schools. Quinn also called for consolidating school districts, a plan that he said would realize $100 million in future savings. He did not explain how the consolidations would be accomplished, but he did say he plans to create a commission to took into the matter.

The governor called for a $25 million increase in the Monetary Award Program, which provides college scholarships to students in economic need, and an end to scholarships doled out by legislators. “College scholarships paid for by the taxpayers of Illinois should go only to those that have true financial need for them,” Quinn said.

Quinn proposed cutting the rates that health care providers are paid to treat Medicaid patients, a move he said could save $550 million in the first year. In recent years, providers have claimed that the rates they are paid to provide health care, coupled with the state’s slow payment of bills, has caused providers to opt not to treat Medicaid patients. In some cases, that has led to Medicaid patients having trouble finding treatment close to home. “Making such deep cuts will pose serious challenges to many financially fragile hospitals, which are already struggling to survive. With hospitals being squeezed between higher costs – for labor, new technology and medical liability – and inadequate revenues during the current economic downturn, their ability to continue to perform the critical role of serving their patients and their communities will be seriously jeopardized by Medicaid rate reductions,” Danny Chun, a spokesperson for the Illinois Hospital Association, said in a written statement.

State funding for addiction treatment and prevention services that are not covered under Medicaid—which brings in federal matching funds—was cut completely. According to Sara Moscato Howe, a spokesperson for the Illinois Alcoholism and Drug Dependence Association, the proposed $53 million in cuts to substance abuse programs would mean almost 19,000 people would lose access to treatment. Howe said about 80 percent of those in state-funded addiction treatment today are not eligible for Medicaid. “We have a lot of the working poor … so they’re stuck in the middle.”

Howe added that Illinois could lose federal funding for those programs if it does not chip in because the state is required to meet certain “effort of maintenance” standards to get the federal dollars that Quinn has written into his budget.

The plan also calls for cuts to mental health services not backed by Medicaid dollars, as well as eliminating programs that help seniors pay for medication and costs associated with owning a home.

“This is my 50th year of lobbying on behalf of persons with disabilities in Illinois, and I have never witnessed a proposed human service budget that would be more devastating to the health and welfare of this vulnerable population,” Don Moss, coordinator for the Illinois Human Services Coalition, said in a written statement. “There is no segment of human service needs that is left unscathed by the draconian cuts put forth by the governor.”

Quinn emphasized economic development and cooperation with the business sector. He touted his recent efforts to bring more business to the state, called for reforms to the workers’ compensation system and announced the creation of an Illinois Innovation Council — aimed at promoting economic growth. He also called for $1.4 billion in new capital construction spending to catch up on maintenance at universities and state facilities that has been put off in recent years because of budget constraints.

“I’m glad we got his attention,” said Jeff Mays, president of Illinois Business Roundtable. Mays said Quinn has become more proactive about concerns the business community has raised in the last month. He said it is a good start, but he hopes to see more policy changes directed at the needs of Illinois businesses.

Quinn renewed a call for $8.75 billion in borrowing to pay overdue bills, which he said are six to eight months late, owed to vendors, social services providers and schools. He called on Republicans, who shot down that proposal yesterday, to present alternative proposals. “Billions of dollars of existing bills will not go away by magic. … If you do not agree with our debt restructuring plan, tell us which [programs] you would eliminate to pay $8.7 billion in overdue bills today.”

Senate Minority Leader Christine Radogno, a Lemont Republican, said although well delivered, she thought Quinn's address did not offer much information about what she called key factors of the budget. “The concepts he talked about — needing to cut, needing to pay bills, needing to focus on job development — are all on target. Unfortunately, we didn’t hear a lot about the numbers,” Radogno said.

Radogno and Senate President John Cullerton, a Chicago Democrat, said Quinn’s numbers do not add up. They say he would spend more than the expected revenues for the next fiscal year, and they are concerned that he plans to use some of the money from the proposed borrowing to fund his budget. “The governor's estimated revenues in [Fiscal Year] 12 are $1.45 billion less than his proposed spending. At first glance, the governor’s budget appears to rely on debt restructuring that has not been secured. I am among those with questions about how the governor plans to use these dollars if they are approved. I urge the governor to provide the details needed to advance his proposal,” Cullerton said in a written statement. He canceled a scheduled news conference after the governor’s address because he said he still has questions about the proposal and needs more information from Quinn.

Radogno accused Quinn of doing a “sloppy” job of explaining where the borrowing dollars would go. “Borrowing has been proposed to pay bills, yet the budget document itself demonstrates that some of that borrowing is used in order to prop up the level of spending that can’t be sustained with the revenue that’s coming in aside from the borrowing.”

A spokesperson for Quinn’s budget office said all the money from the borrowing plan would go toward paying off the old bills.

House Speaker Michael Madigan said on the PBS television program "Illinois Lawmakers" that he thinks Republicans will come around to a borrowing plan, but it will probably be smaller. The Chicago Democrat said in early negotiations, lawmakers were discussing borrowing about $6.2 billion. Like Radogno and Cullerton, Madigan took issue with Quinn’s numbers. He said Quinn was counting on $720 million from two plans — one that would cut state payments to the fund for corporate income tax refunds and another that would split state tax practices from a federal plan — which have not been approved by legislators. Madigan said that under new budget reforms, Quinn cannot base his budget on money the state doesn’t have. “That will be the first point of difference with the governor and the legislature.” He pointed out that the governor’s proposal is just the beginning of the budgeting process, and any disputes could potentially be worked out through negotiations.

Madigan, Cross and Radogno all said changes to pension benefits for state workers, as well as charging some retired state workers more for their health care coverage, should be on the table. They say they are not proposing taking away any pension benefits employees have already earned, but they are open to changing future benefits for current employees. Cullerton agreed that some retired workers should pay more for insurance. However, he maintained his stance that any changes to pension benefits for current employees would be unconstitutional.

Madigan said of the budgeting process that was kicked off today: “There is going to be a whole series of tough decisions to be made on issues, such as unemployment insurance workers’ compensation, support for health insurance programs for retired teachers … all of that in addition to working our way through a budget making process where we acknowledge that we owe $6 [billion] to $8 billion in unpaid bills.” (For more on the Unemployment Insurance Trust Fund and the associated budget problems for Illinois, see Illinois Issues, November 2010.)

Quinn pushes pension changes in somber budget speech

By Jamey Dunn

Gov. Pat Quinn laid out some concepts for changes to the state's underfunded pension systems in a budget that he says is the “most difficult” he has presented to lawmakers. However, the House has already decided that when a final budget is enacted, it will contain less spending than Quinn’s plan.

“This is the most difficult budget that I have ever submitted to you,” Quinn said in his budget address today. “But this is also an honest budget that reflects our fiscal challenges, pays down the backlog of bills and addresses funds that have been under-appropriated for too long, There are no gimmicks or fake numbers in this budget,”  He said the difficulty was a product of the legislature’s “inaction on pension reform.”

Pension Changes
Quinn took a stern tone when calling on lawmakers to pass a pension proposal that would change benefits for state workers, teachers outside of Chicago and university and community college employees. “Today, our budget is being squeezed more than ever, and that will continue until we put a stop to it. The most important thing we can do to repair Illinois finances right now is to reform our public pension systems,” Quinn said. “ We all know that we must reform the Illinois public pension systems. So, members of the General Assembly, what are you waiting for?”

Quinn said he was willing to work with lawmakers, but he emphasized that there is only so much he can do. “I stand ready to sign comprehensive pension reform immediately. Today. But I cannot sign what I do not have on my desk. The people of Illinois need your immediate action.”

“I thought he was pretty firm in his tone,” said House Minority Leader Tom Cross. He likened Quinn’s address to a parent giving a lecture. “His tone was fairly strong, and I think he focused on where he need to on the need to reform the pensions system. It is the issue of the day. ... I think he was right in making that the focus of his speech. I agree with him.” Senate Minority Leader Christine Radogno said that she “agreed with the governor” that it is “time to vote” on changes to the pension system. However, she said it was unfair of Quinn to lay the blame on lawmakers. “Most of the work that has been done on pensions has come out of the General Assembly, and not out of the governor’s office,” she said.

Union leaders said that creating an impression that the only choices out there are deep education cuts or reductions to retiree benefits is dishonest. “It is unfair for Gov. Quinn to present this false choice between pensions or pencils. Springfield lawmakers created the massive pension debt by skipping payments and borrowing more. To call that debt an education expense is not only a gimmick, but an insult to teachers everywhere. We are not to blame, and our students shouldn't suffer,” Illinois Federation of Teachers President Dan Montgomery said in a prepared statement.

Quinn laid out some concepts that he said should be part of a pension reform plan. He said he wants a funding guarantee that would require the state to make the annual contribution to the pension systems. He also wants money that is currently being used to pay off pension bonds, which were issued to make past payments, to go toward the unfunded liability once the bonds have been paid off. Such a move would direct almost $1 billion annually to the liability once the bonds expire in 2020. He said the plan should include an increased pension contribution from employees, but he did not give a specific figure on the increase. He also called for a freeze on cost of living adjustments for “those with higher pensions.” He called the current 3 percent compounded COLAs “unsustainable for taxpayers.”

Quinn also said lawmakers should “consider additional solutions to break the gridlock.” He said he would support a gaming bill with “tough ethical standards” and a ban on campaign contributions from casino operators. He has vetoed two gaming bills that he said did not have strong enough protections against corruption. Quinn has demanded for some time now that any money from gambling expansion be spent on education, but for the first time, today he brought up the idea of using gaming revenues on pension costs. “Any enhancement that we enact to gaming revenues this year should be dedicated to education, which could include teachers' pensions.”

Senate President John Cullerton said he plans to push members of his chamber to present pension reform proposals. “This reality reinforces why pension reform remains my top priority this session. For that reason. I have notified all pension reform Senate sponsors to present their bills before the Senate Executive Committee within a week,” Cullerton said in a prepared statement. “I am also working to identify new revenue sources for education and priority programs. I believe that a gaming plan that is structured to address the ethical and regulatory concerns of Governor Quinn can be part of a new revenue mix. I look forward to working with each caucus to advance more solutions for our funding shortfall.” A Senate committee approved a gaming bill after Quinn’s speech. According estimates from Senate Democrats, the proposal could bring in $200 million to $400 million in revenue for schools, more than $50 million each year for pension costs and almost more than $300 million in upfront licensing fees that could be spent on overdue bills. The plan calls for a ban on campaign contributions from gaming licensees. The proposal is also a massive expansion that would create five new casinos, allow slot machines at horse racing tracks and airports and create an online gambling system under the Illinois Lottery. Under the so-called i-gaming proposal, residents could bet online. In the past, Quinn has recoiled at large expansions. A spokesperson said that he is “reviewing” the proposal.

Northbrook Democratic Rep. Elaine Nekrtiz, who has been spearheading the pension issue in her chamber, said: “There’s a lot of finger pointing and blame game going on in this whole discussion, and we just need to stop all that and just get about the business of solving it.” She said she thinks that has happened in the House, where she and Cross have presented legislation. She noted that the changes Quinn said he would like to see in the pensions systems are in that plan. “Those are the pieces that are in the Cross-Nekritz bill. By no means are they in every proposal out there. I was very pleased to see that.”

Cuts
Quinn is proposing a $400 million cut to education, which includes K-12 and higher education. Under the proposal, K-12 spending would be cut by more than $275 million. The bulk of the reduction would fall on general state aid to schools, which would be reduced by $150 million. General aid was cut by $161 million under the current state budget. Higher education would take an $83 million hit. In his speech, Quinn did not focus on the details of what the reductions would mean for schools.

Children’s advocates were disappointed with the proposal. “Gov. Quinn’s budget proposal demonstrates that Illinois’ fiscal crisis is far from over and that children, families and communities continue to pay the price for a history of unwise fiscal decisions made by our elected officials. Nearly every area of the budget that impacts children has been subject to deep cuts over the past few years,” Gaylord Gieseke, president of Voices for Illinois Children, said in a prepared statement.

Quinn's plan would not cut early childhood education or Monetary Assistance Program (MAP) grants for low-income college students.

But the cuts may be even deeper in the plan that is ultimately approved by lawmakers because Quinn and the House started their budget planning from two different points. The governor’s budget office estimated the state would have $35.6 billion to spend, but the House yesterday approved a resolution intended to cap spending at $35.08 billion. Quinn’s plan also calls for lawmakers to reassess automatic transfers out of the General Revenue Fund “Our revenue estimates are based on real numbers. ... They’re based on facts. They’re based on evidence. They’re cautious numbers. They take a pragmatic and reasonable approach, and I don’t know where the governor’s numbers come from,” said Marion Democratic Rep. John Bradley, who chairs the committee that produced the House’s estimate.

Quinn’s budget staff said he plans to call on lawmakers to scrutinize money that is automatically transferred out of the General Revenue Fund before the budgeting battle begins. The largest transfer distributes income-tax revenues to local governments. Other transfers are spent on mass transit or are the result of budget deals made in past years. “We haven’t even considered that,” Bradley said. “When you talk about the transfers out, what you’re really talking about is the local government distributive fund. Fifty percent of the transfers out go to local governments, and the other [large] percentage of that goes to mass transit, both upstate and downstate. So that’s going to be a fight between him and the city of Chicago, and Cook County and all the local municipalities throughout the state.”

The idea has been floated in the past by Senate Democrats, and some support it again this year. “Nobody wants to see a $400 million reduction in education. ... We can’t let that happen,” said Park Ridge Democratic Sen. Dan Kotowski, who chairs a Senate budgeting committee. “People come to our state for a number of reasons, not just because we have good roads, because we have great schools. No business in their right mind will want to come to the state of Illinois if we don’t fund education at the level it should be funded. If we were to tell people out there in the general public that there’s $1 billion that’s out there that’s automatically spent, and it's not reviewed, and it doesn’t face the same kind of scrutiny as education, health care, human services and public safety, people would say, ‘That’s crazy.’ Well it is. And it needs to be fixed. It’s wrong. It’s broken.”