Senate Week in Review: June 3-7
Springfield, Ill. – State Sen. Sue Rezin (R-Morris) said the 2013 legislative session ended on May 31 without any pension reform accomplished. While bigger measures, such as concealed carry and “fracking,” passed the Illinois General Assembly, the largest and most pressing issue – pension reform – failed to garner enough support to pass both chambers.
With unfunded pension liabilities reaching $100 billion by some conservative estimates, the Illinois General Assembly’s main priority for this session was to reform and stabilize the state retirement systems. Nevertheless, lawmakers have left Springfield without accomplishing that task.
As a result, just days after the legislature adjourned, two major ratings agencies lowered Illinois' credit rating, prompting Gov. Quinn to call lawmakers back into session June 19. Quinn announced the June 19 session just minutes after Moody's Investor Services became the second major credit rating agency to downgrade Illinois during the week.
Earlier in the week, Fitch Ratings lowered its rating on outstanding Illinois general obligations bonds from “A” to “A-” with a “negative” outlook—meaning further reductions could occur. On June 6, Moody's Investor Services followed suit, dropping their rating from A2 to A3 and keeping a "negative watch" – which means further downgrades are likely.
Fitch Ratings described the state’s long-term pension liabilities as “very high,” with the report stating the credit drop was a result of “The ongoing inability of the state to address its large and growing unfunded pension liability.” The report noted the unfunded pension liabilities and expenses are “unsustainable” and said that, “…failure to achieve reform measures (last week), despite the substantial focus on this topic, exacerbates concern about management's willingness and ability to address the state's numerous fiscal challenges.”
Similarly, Moody's described Illinois as being in "political paralysis" and said that, "An A3 rating, while very low for a US state, is consistent with the General Assembly's inability to steer the state from a path to fiscal distress."
Illinois now has the lowest general obligation bond rating of any of the 50 states. Though California also has an “A-” rating, it has a “stable” outlook. Illinois’ “negative” outlook means the Land of Lincoln is at the very bottom of all state credit ratings. Illinois has seen its credit rating downgraded a record 13 times under Quinn, which compares to three times under now-imprisoned former Gov. Rod Blagojevich and six times under all previous Illinois governors combined.
Fitch and Moody's are two of the three major credit rating agencies in the nation. The third agency, Standard & Poor’s, left Illinois' credit rating unchanged, but its comments were hardly encouraging, essentially saying it had already assumed in January that the Governor and legislative leaders would not address the problem.
In calling the legislature back to Springfield, Quinn quickly sought to shift responsibility to state legislators, despite his own inability to advance any reforms and near invisibility during most of the spring legislative session.
Pension reform collapsed in the final days of the legislative session, when the Senate rejected changes pushed by House Speaker Michael Madigan and Madigan refused to allow a vote on a bill pushed by Senate President John Cullerton.
“The General Assembly made some progress on a number of important issues this session,” Sen. Rezin said. “However, the failure to accomplish pension reform is likely to overshadow all other accomplishments. All parties in the state recognized that pension reform was the number one issue for the state and that it was ours to solve. Yet here we are, returning to our districts, with the problem left unsolved. Now, retirees and taxpayers alike are left to wonder what will happen to their pensions and to the liabilities that face this state. It’s completely unnecessary and truly unfortunate.”
The General Assembly faces additional hurdles to pass pension reform because the state Constitution requires a three-fifths vote for legislation to go into immediate effect after May 31. Only the Cullerton-backed measure has achieved that margin in either chamber, but critics argue it does not do enough to solve the problem.
The Madigan-backed reform could be brought up again for a vote in the Senate, but since it only received 16 votes previously, getting to the needed 36 votes represents a steep hurdle.
“At this time it is unclear what will happen with pension reform,” Sen. Rezin said. “As we continue the discussions on how to solve Illinois’ pension crisis into the summer, it will remain my goal to achieve reform that the attorneys feel is constitutional, give assurance that the state will fund the pensions, and protect taxpayers from future liabilities. We need to move forward with a comprehensive, fair and affordable pension reform plan.”
Sen. Rezin said that comprehensive pension reform should include stronger language for the funding of the pension systems. Without strong language guaranteeing pension payments from the state, they could be shorted or skipped as they have in the past and compound the pension liabilities. Sen. Rezin said that is what happened in 2005 when the General Assembly voted to take a pension holiday and skip paying $4 billion into the pension systems over two years. This happened despite testimony at the time from the Teachers Retirement System (TRS) that the holiday would equate to $50 billion in unfunded liabilities in 30 years.
Though a comprehensive public employee pension reform measure didn’t come to fruition during the spring session, Sen. Rezin reported successes in other areas—including the defeat of measures that would have allowed Chicago Public Schools (CPS) to skip almost $400 million in pension payments to the Chicago teachers’ pension fund in the next two years, as well as a bill that would have shifted almost $800 million in pension costs to Illinois’ state universities and community colleges over the next decade.
Senate Bill 1687 failed to advance after opponents convincingly argued the measure would have led to property tax hikes and tuition increases at state universities, as community colleges and state universities sought to defray the costs associated with the “shift.”
In fact, university presidents had testified that every cost shift of 1 percent of their payroll will lead to a 2% tuition hike. If the measure had passed, it would have added an estimated $600 to $800 to the average tuition bill for a freshman at the state’s public universities before the usual tuition hikes are added.
“Shifting this cost to the state universities and colleges is not going to solve any of the state’s fiscal problems,” Sen. Rezin said. “Placing a heavy burden like this on these institutions when the state owes universities all over the state millions of dollars to begin with is going to cause some major hardships for them, not to mention to the home and business owners and working families who want to send their children to college at an affordable rate. I did not support it in the Senate and I hope that it is not called for a vote again in the future. We need a better solution to our pension crisis than this.”
Another pension measure defeated in the House of Representatives would have allowed CPS to short its teachers’ pension fund by $392 million in Fiscal Years 2014 and 2015. Senate Bill 1920 failed 39-78-1 when House proponents were unable to persuade their colleagues to support the pension holiday.
Sen. Rezin says this legislation was an example of the need for strong pension funding guarantees included in pension reform so that the state does not authorize holidays that would only force the pension systems further into the hole.
Opponents pointed out the financial condition of the CPS teachers’ pension fund has declined dramatically in the last decade. In 2002, the system boasted one of the nation’s best funding ratios at 96%, with an unfunded liability of less than $400 million. In 2012, the system’s unfunded liability had grown to $8 billion—a stunning 1,900% increase—with a funded ratio of 54%.
Also this week on June 4, a federal judicial panel granted a one-month extension giving Gov. Quinn until July 9 to review the Right-to-Carry legislation sent to him by lawmakers.
Months of negotiations culminated in passage of House Bill 183, as lawmakers sought to approve a concealed-carry bill in anticipation of a June 9 federal deadline requiring the state implement some form of Right-to-Carry. In addition to the July 9 extension, Attorney General Lisa Madigan has until June 24 to file an appeal with the U.S. Supreme Court. The Attorney General could file an appeal asking the nation’s high court to overturn the December 2012 decision issued by the 7th U.S. Circuit Court of Appeals, which gave the state 180 days to enact a Right-to-Carry law.
At this time, Illinois is the only state in the nation that does not allow some form of concealed carry. In its current form, House Bill 183 imposes common-sense safeguards, including significant training requirements and background checks for those seeking to carry a concealed firearm. Additionally, firearms are prohibited from being carried in a number of places, including schools, bars, hospitals, government buildings, airports and sporting events, and House Bill 183 outlines strict penalties for anyone found to be carrying a concealed firearm while under the influence of drugs or alcohol.
On the last day of the legislative session, lawmakers also approved model legislation covering hydraulic fracturing (commonly known as “fracking”). The technology holds out the promise of new jobs and greater energy independence. Extensive negotiations between environmental groups and industry representatives ultimately yielded Senate Bill 1715, which defines how Illinois will regulate and monitor the practice.
Sen. Rezin noted that fracking is already taking place in the state, but the legislation aims puts standards and practices in place for the companies that come in the state. She said this was important in order to protect the environment and create statutory language for the industry to follow.
Hydraulic fracturing is the process of injecting pressurized water and materials underground to crack rock layers and free up natural gas or oil that can then escape to the surface where it is recovered.
It has been estimated that hydraulic fracturing could create as many as 40,000 jobs in Illinois, many in southern Illinois and other job-starved areas of the state.