ANALYSIS-Pension reform in Illinois? Not so fast
CHICAGO, Oct 8 (Reuters) - The would-be architects of a grand bargain to solve Illinois' $100 billion pension crisis have not met as a group for three months, and the state's last chance to strike a deal this year is slipping away.
A super-committee of legislators charged in June with charting a way out of the worst pension crisis among states is bickering over savings, while some of its members ramp up election campaigns. A six-day legislative session, the last of 2013, is two weeks away.
Credit agencies are threatening to cut Illinois' ratings, already the lowest of the 50 states, to BBB-plus, the level of Kazakhstan. As a result, Illinois debt trades at 1.75 percentage points above the benchmark AAA-rated yield scale for the U.S. municipal bond market, compared with 0.5 for California. That will cost it dearly if it goes ahead with a bond sale in late November.
"I don't think we postpone an emergency," Democratic Governor Pat Quinn told reporters on Friday. "This is urgent. This is a crisis. Everyone knows this. All our businesses tell me that every single day, so this is time to act."
After years of avoiding the festering issue, the cost of pensions has risen to a quarter of Illinois general fund revenue, fiscal watchdog Civic Federation calculated this month. That leaves less for schools, healthcare, police - everything for which a state is responsible.
Democrats, who could not even agree on a plan among themselves, set up a committee of six Democrats and four Republicans in June to broker a deal. The committee last met on July 8 in a public forum.
Since then, members have met in smaller groups behind closed doors.
Democrats appeared to reach a rough consensus on a package of reforms centered on replacing a 3 percent annual increase in pensions with a rise of half the rate of inflation. Expecting unions to cry foul, they offered to cut employee pension contributions by 1 percentage point.
Then Republicans surprised Democrats by objecting.
"I don't think what the Democrats put on the table is enough to tell people it's sustainable," said committee member Senator Bill Brady, a Republican. Although Democrats control both chambers of the legislature, Republicans votes will be needed to offset some Democrat votes against it.
Republicans call for a smaller cut to employee contributions than Democrats and the option for 401(k)-style accounts.
"They really stand out as a laggard in doing pension reform," said Tim McGregor, director of municipal fixed income at Northern Trust in Chicago. "The loser in all this is the state will pay a higher net interest cost."
Senator Kwame Raoul, a Democrat chairing the special committee, said he would push for a meeting as soon as this week in an effort to ready a plan for the fall legislative session.
"I remain optimistic. I think the only reason we don't get a deal done is people don't want to get a deal done for political reasons," he said without elaborating. He said the committee has striven to work cooperatively.
An actuarial review last month of the Democrats' proposal found it would save nearly $140 billion over the next 30 years, reduce the state's fiscal 2015 pension payment by nearly $1 billion and reduce current unfunded liability by $19.6 billion.
A simple majority of panel members is required to submit a report to the House and Senate for a possible vote. If there is no agreement, a second conference committee could be appointed.
The committee's current pension framework has the backing of Democrat Senate President John Cullerton, but House Speaker Michael Madigan is waiting for the committee to file a report before signing off on any plan, said spokesman Steve Brown. The panel could continue meeting past the fall session and Governor Quinn or legislative leaders could call lawmakers back anytime for a vote.
Illinois, which has sold $3 billion of bonds this year, could sell $200 million or more of general obligation bonds in late November, said John Sinsheimer, the state's capital markets director
Despite the looming legislative session, there is no concrete deadline to force a deal, unlike the debt ceiling crisis now facing the federal government, said Christopher Mooney, director of the Institute of Government & Public Affairs at the University of Illinois.
Meanwhile, next year's election is nearing. "These people are worrying about 2014. That's what's on their mind," he said.
Three of the panel's four Republican members are running for higher office, including Senator Brady, who announced a run for governor soon after being named to the panel. All of the other members but one face reelection in 2014.
Brady said he has sought to keep his gubernatorial ambitions separate from his committee work. "I'm one vote on the committee," he said.
He did, however, criticize Quinn, his potential opponent in the governor's race, for not being directly engaged with the committee.
(Reporting By Karen Pierog, editing by David Greising, Peter Henderson and Leslie Gevirtz)