Illinois lawmakers unlikely to fix pension mess at Friday session

SPRINGFIELD, Ill. Fri Aug 17, 2012 5:14pm IST

SPRINGFIELD, Ill. Aug 17 (Reuters) - Illinois lawmakers, meeting during a special session on Friday in a bid to fix the state's ailing public pension programs, are unlikely to produce an overhaul of the nation's most underfunded state retirement system, lawmakers and lobbyists said.

Governor Patrick Quinn, who called legislators back to the state capital of Springfield, said the state must reform the creaking system, which has unfunded liabilities of $83 billion.

But few lawmakers or lobbyists believe substantive action will be taken during Friday's session, which will consider one small pension bill, and could adjourn a few hours after it convenes.

The predicament of Illinois is the latest example of a nationwide problem of ballooning costs of pensions for government workers such as teachers as the population ages.

Illinois' financial condition is among the worst in the nation, on a par with California where three large cities have filed for bankruptcy protection citing out-of-control pension costs. The nation's most populous state and the fifth most populous have some of the lowest debt ratings among the states.

Democrats, who hold the governor posts and legislative majorities in both states, are between a rock and a hard place. Voters are demanding curbs on pension abuses and skyrocketing costs, while change is fiercely resisted by public sector unions, the traditional paymasters of the Democratic party.

On Wednesday, Democrat Quinn got a taste of union anger when he was heckled at a state fair by several thousand unionized state workers - a group that helped narrowly elect him in 2010.

The Illinois pension system is the most underfunded in the country, according to Moody's Investor Services.

Unlike California, where Governor Jerry Brown is seeking tax increases to help plug a budget hole, Illinois already has played this card, sharply raising both business and personal state income taxes in 2010 with little financial improvement.

In April, Quinn proposed a pension fix that he said would save taxpayers up to $85 billion over 30 years and result in a fully funded system by 2042. The plan called for higher employee contributions, lower cost-of-living adjustments and a phased-in retirement age of 67 in exchange for access at retirement to state-subsidized healthcare.

Quinn also wants obligations for teacher pensions, which account for the bulk of the state's unfunded retirement liabilities, shifted to local districts from the state.

That has put him at odds with minority Republicans and with leaders of his own Democratic Party, including the longtime and powerful House Speaker Mike Madigan.

Republicans fear a voter backlash if teacher pension costs are shifted to school districts, which could prompt higher property taxes in their stronghold of the Chicago suburbs.

Madigan, who is also chairman of the Illinois Democratic Party, fears alienating Democratic union backers who are loyal foot soldiers for election campaigns.

Labor unions are by far the biggest campaign finance backers of Illinois Democrats, more than doubling the second-largest group, lawyers, according to data compiled by Follow the Money.

Madigan has said he will allow a vote in the House of Representatives on a limited pension reform bill that passed the state Senate in May.

The measure only affects pensions for state employees and lawmakers by creating a swap between lower cost-of-living increases and state health care coverage in retirement.

Even this modest reform may not pass during the one-day special session on Friday, lawmakers said.

"If we do something that nibbles around the edges we're done with pension reform for a while," Tom Cross, Illinois House Republican leader, said on Thursday.