QUINN CALLS SPECIAL SESSION FOR PENSIONS
Even with overwhelming majorities in both chambers of the General Assembly Governor Pat Quinn, House Speaker Michael Madigan, and Senate President John Cullerton were unable to negotiate a compromise on pension reform during the spring legislative session, and after downgrades from two of the nation’s top rating agencies the Governor has called a June 19 special session.
Senator Bill Brady (R-Bloomington) had been calling for a special session to address pension reform since the legislature adjourned on May 31. 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.
Quinn called the legislature back to Springfield in an attempt to shift responsibility for inaction on pensions to legislators, despite his own lack of input and failure to advance any reform plan of his own.
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.
FITCH, MOODY’S DOWNGRADE IL
Early in the week Fitch Ratings lowered its rating on Illinois’ outstanding general obligations bonds from “A” to “A-“ with a negative outlook. The negative outlook means that further reductions could be in Illinois’ future without action to reduce the state’s overwhelming pension burden. Moody’s Investors Services followed suit on June 6 dropping their rating from A2 to A3 and also keeping a “negative watch.”
“These ratings shouldn’t be a surprise to anyone,” said Sen. Brady. “We’ve been warned for months that downgrades were imminent if we failed to act on pension reform. The majority party in Springfield spent all of the spring session procrastinating and as a result we adjourned without meaningful reform. These downgrades are the consequences of inaction.”
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.”
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.
The negative outlooks mean that additional rating drops could be in the state’s future. “Maintenance of the 'A-' rating will require timely action in advance of the expiration of the temporary (income) tax increases in fiscal 2015,” wrote Karen Krop, Fitch's primary analyst on Illinois. “Deterioration in the state's financial position, as evidenced by excessive use of nonrecurrent revenues or additional payment deferrals, would likely lead to a negative rating action.”
Fitch and Moody's are two of the three major credit rating agencies in the nation. The third agency, Standard & Poor’s, had not yet weighed in as of June 6, but could follow suit and also lower their assessment of Illinois' financial management.
The General Assembly faces additional hurdles 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.
Though a comprehensive public employee pension reform measure didn’t come to fruition during the spring session, Senator 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.
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.
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%.
FEDERAL RULING GIVES QUINN ONE MONTH EXTENSION TO ACT ON CONCEALED CARRY
A federal judicial panel ruled on June 4 to grant a one-month extension, giving Governor Pat Quinn until July 9 to review Right-to-Carry legislation passed by the General Assembly at the end of the spring legislative session.
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.