March 21 (Bloomberg) -- The Illinois Senate approved a measure meant to trim the state pension system’s $97 billion in unfunded liabilities and reduce financial pressure on education and other programs.
The scaled-back bill that passed 30-22 yesterday applies only to school teachers and gives them a choice of retirement options. Earlier in the day, the Senate rejected a more comprehensive measure that would have covered all state workers.
“We need to start with pension reform,” said Senate President John Cullerton, a Chicago Democrat who sponsored the adopted bill, which moves now to the House of Representatives.
The measure would give teachers the choice of keeping an annual pension boost or state-paid retiree health insurance. Cullerton said it would save the state $18 billion to $40 billion over the next 30 years. Republican senators said it would provide limited financial relief and that more needs to be done to rein in costs. Democrats control the legislature.
The 130,000-member Illinois Education Association, the state’s biggest teachers’ union, said on its website that it opposes the bill. A House committee sent a comprehensive pension measure to the floor in January, similar to the one rejected yesterday by the Senate. A vote was never called.
The state’s pension deficit increases by $17 million a day, including obligations to current and future retirees, such as judges, university workers and legislators. Illinois has the lowest-graded credit of any U.S. state by Moody’s Investors Service and Standard & Poor’s partly because of the unfunded retirement plans. Moody’s, S&P and Fitch Ratings all have a negative outlook for the state.
Illinois is paying for years of financial mismanagement and political gridlock, resulting in the worst-funded state pension system in U.S., with 39 percent of assets needed to cover projected obligations for five major groups of employees, according to the Civic Federation, a Chicago-based nonprofit research group that tracks government finances.
On March 12, the state settled with the U.S. Securities and Exchange Commission over charges it misled investors from 2005 to 2009 about shortfalls in retirement funds.
Lawmakers failed to pass a pension restructuring measure in the past legislative session. Governor Pat Quinn, a Democrat, said March 6 that mounting costs for retirees are “draining our ability to educate our students.”
Citing lawmakers’ “poor track record” on addressing retirement-system funding, S&P reduced its score for Illinois to A-, six levels below AAA, on Jan. 25. After S&P raised California’s credit score Jan. 31, Illinois was left with the lowest state grade in the nation. Moody’s gives it an A2, five steps below the top and also its lowest-rate state.
On March 18, Moody’s lowered its ratings on debt issued by four Illinois universities, saying a further deterioration of the quality of the state’s general-obligation bonds and cuts in higher-education funding could lead to more credit reductions.
Illinois lawmakers are scheduled to be in session until late May.
--Editors: Ted Bunker, Pete Young.