Governor Pat Quinn on Thursday signed into law Senate Bill 1, historic legislation that addresses comprehensive pension reform. The passage of Quinn's number one legislative priority over the past two years is a political victory. The historic legislation addresses the most critical fiscal challenge in Illinois by reforming the state’s pension systems.
In late breaking news on Rich Miller's Capitol Fax on Friday, Moody's called the bill signed by Quinn as "credit positive." Miller said of the news, "For Bruce Rauner, the Wall St. Journal editorial page, the Illinois Policy Institute and everybody else who’s been loudly complaining that the pension reform bill doesn’t spill enough blood on the floor, Moody’s has some news for you…"
Moody's said the Illinois is "probably the largest pension reform package seen in any state so far, a $21 billion reduction," according to Crain's Chicago Business. "Next closest is New Jersey, which eliminated cost-of-living allowances rather than modify them as Illinois did, cutting its pension debt by nearly $18.5 billion."
Earlier this year, Moody's downgraded Illinois bonds, along with Fitch Ratings. Both credit rating services lowered the state of Illinois' credit rating, with the comment to the state of Illinois: "Fix your pension system."
Illinois' pension system -- "was" the worst-funded among the 50 states -- but now has been reformed and signed into law with historic comprehensive pension reform. Quinn says the new law will "erase the unfunded pension debt and provide 100 percent funding for the systems."
The two votes on the historic comprehensive pension reform from the two legislative bodies were actually minutes apart, since voting on the measures did not depend on one body voting first.
The Illinois Senate passed the bill by a 30-24 vote, with three senators voting present.
The House passed the bill by a vote of 62-53, with one representative voting "present."
During the summer, Chairman State Sen. Kwame Raoul and State Rep. Elaine Nekritz, who had been meeting to draw up a plan, headed a ten-person special committee, the Pensions Conference Committee, and today's vote is the result of that committee's work.
For Quinn and Illinois state lawmakers, it was the second major victory in less than a month. In early November, the Illinois House and Senate passed a bill that would allow same-sex couples to wed in the state of Illinois, at that time becoming the 15th state to pass full marriage equality.
"Pension reform his top priority, proposed a conference committee to break ongoing legislative gridlock, and worked with legislative leaders and members to pass the bill. Since I took the oath of office, I’ve pushed relentlessly for a comprehensive pension reform solution that would erase a $100 billion liability and restore fiscal stability to Illinois." Quinn added, "Today, we have won. The people of Illinois have won."
Quinn praised the bipartisan solution saying "This bill will ensure retirement security for those who have faithfully contributed to the pension systems, end the squeeze on critical education and healthcare services, and support economic growth."
"I applaud House Speaker Mike Madigan, Senate President John Cullerton, House Minority Leader Jim Durkin and Senate Minority Leader Christine Radogno for their leadership and good-faith negotiations. I thank Senator Kwame Raoul and members of the conference committee for their hard work over the past six months. I salute the members of the General Assembly who showed great political courage by voting yes for pension reform," said Quinn as he ended his statement.
"Illinois is moving forward," Governor Quinn said. "This is a serious solution to address the most dire fiscal challenge of our time. I applaud House Speaker Michael Madigan, Senate President John Cullerton, House Minority Leader Jim Durkin, Senate Minority Leader Christine Radogno, Senator Kwame Raoul, Senator Daniel Biss, Representative Elaine Nekritz, Representative Darlene Senger, members of the conference committee, and legislators from both parties who made this day possible. Working together, we will continue to build a brighter future for the people of Illinois."
Sponsored by Senator Kwame Raoul (D-Chicago) and Speaker Michael Madigan (D-Chicago), Senate Bill 1 will eliminate the state’s unfunded pension liability and fully stabilize the systems to ensure retirement security for employees who have faithfully contributed to the systems. All four leaders worked tirelessly to negotiate and pass this legislation.
"The bill would not have passed without me. I was convinced that standing fast for substantial savings, clear intent and an end to unaffordable annual raises would result in a sound plan that will meet all constitutional challenges," Speaker Madigan said.
"I applaud the Governor for prioritizing this issue,” Senate President Cullerton said. "I look forward to working with him and all legislative leaders to ensure that we continue on this path of fiscal leadership and bipartisan cooperation."
"With the bill signing we have staved off a greater crisis," Leader Durkin said. "I am proud many of the significant components are Republican ideas generated by the conference committee, and my predecessor through Senate Bill 1. We should place value into Fitch Ratings’ initial comments viewing our actions as positive and I am confident this law will withstand a court challenge and feel it is a major victory for Illinois taxpayers."
"This is a major step forward in putting Illinois on the path to financial recovery," Leader Radogno said. "It is the result of bipartisan, bicameral negotiations, after a great deal of debate and discussions. It will demonstrate to the credit rating agencies and job creators that we are serious about turning Illinois around. This is not the only step we need to take to get Illinois back on track. But it is a significant step at a time when doing nothing would only make our problems worse. I’m proud of the bipartisan effort and its result. Now we need to build on this momentum."
Under the new law, the state will adopt an actuarially sound funding schedule that requires level payments and achieves 100 percent funding no later than the end of fiscal year 2044. To prevent future governors and legislatures from repeating the same behavior that helped create the pension crisis, the law includes a funding guarantee, giving retirement systems the right to go to court if the state fails to make the required payment to the pension fund.
Under the new law, there will be no reductions in the pension checks going out to current retirees. The law will also minimize the impact on the lower-earning, longer-serving employees. There will continue to be Cost of Living Adjustments (COLA); however, they will grow at a slower rate. For most employees, the COLA will be adjusted from the current 3 percent annually compounding increases that are unsustainable to a new formula based on years of service that includes protections for lower-earning, longer-serving employees.
For example, under the new law, a 65-year-old retired state conservation worker with 20 years of service receiving a $17,000 state pension will see that grow to about $22,000 over 10 years. Prior to the law, that would have grown to about $22,400 over 10 years.
Under the new law, current active employees will see COLA pauses every other year upon retirement, with the number of pauses determined by current age. The law also reduces the amount of money current employees pay into their pensions by one percent.
In addition, pensionable salary will now be capped at the greater of the Tier 2 salary cap ($109,971 for 2013), the employee’s current salary, or the employee’s salary at the end of an existing collective bargaining agreement. The cap will increase over time, based on the consumer price index (CPI). There will also be graduated increases in retirement age based on the age of the employee, with a maximum increase of five years. The bill also creates an optional 401(k)-style defined contribution plan that will be available for up to 5 percent of Tier 1 employees. Senate Bill 1 goes into effect on June 1, 2014.
In June 2013, the Governor proposed a conference committee as a vehicle to break legislative gridlock between the two chambers. He asked the conference committee to forge a compromise that provided 100 percent funding for the systems, which ultimately became the legislation he signed today.
In addition, Governor Quinn also signed Senate Bill 1961 today. Sponsored by Speaker Madigan and Senator William R. Haine (D-Alton), the bill clarifies that the Attorney General will represent the pension systems in any court proceedings, except in cases where the systems are seeking to force the state to make funding payments. The new law takes effect immediately.
Send John Presta an email and your story ideas or suggestions, firstname.lastname@example.org.
John is the author of an award-winning book, the 2010 Winner of the USA National Best Book award for African American studies, published by The Elevator Group, Mr. and Mrs. Grassroots. Also available an eBook on Amazon. John is also a member of the Society of Midland Authors and is a book reviewer of political books for the New York Journal of Books. John has volunteered for many political campaigns.