March 7, 2013 / 9:48 PM / 4 years ago

Illinois House votes to cap pensions in first move toward reform

SPRINGFIELD, Ill., March 7 (Reuters) - The Illinois House of Representatives on Thursday took a first small step of the year toward pension reform, voting to cap annual payments to retired workers to end abuses resulting in pensions exceeding $100,000 a year for some people.

After weeks of delay, debate and rejection of reforms to the nation's worst-funded state pension systems, the House voted 65 to 7 for the measure. It would cap the salaries used to calculate pensions for retired state workers to what is called the Social Security wage base, now at $113,700, adjusted annually for inflation.

Minority Republicans boycotted the vote, as they did last week on other pension proposals, saying the process of considering the measure was a charade engineered by majority Democrats led by House Speaker Michael Madigan.

Supporters said the measure would save $632 million in fiscal year 2014 starting July 1, which is small compared with a system of state pensions that is $96.8 billion short of full funding. The Illinois system is 39 percent funded, compared with the 80 percent considered healthy.

The approval gave hope to some lawmakers that wider reforms can eventually be agreed on.

"I think it demonstrates that the process that we're going through, we don't have to be so cynical about it, it can get us to a solution," said Democratic Representative Elaine Nekritz, a leader in pushing for pension changes.

Illinois, with the lowest debt rating among the states analyzed by major agencies Moody's Investors Service and Standard & Poor's, faces a fiscal crisis. The state budget has been "balanced" only by putting off the payment of some $9.3 billion in bills to vendors with the state as of the end of 2012.

The cost of annual payments to the pension systems for state and local government workers has ballooned to a projected $6 billion in 2014, consuming nearly one of every five dollars of the operating budget.

Illinois legislators have been unable to pass reforms, in part because public sector unions are major political and financial backers of the ruling Democratic Party. Democrats have a supermajority in the legislature but there have been some efforts to work on a bipartisan solution.

Last week, the Illinois House soundly rejected harsh pension measures proposed by Madigan that would have eliminated annual cost of living increases for retired workers, increased the retirement age to 67 and forced workers to contribute 5 percent more to the cost of their pensions.

Democratic Governor Pat Quinn pleaded with the legislature to act quickly on pension reform during his annual budget speech on Wednesday.

The Illinois House was also considering other pension proposals on Thursday with the possibility of more votes.

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