Thursday, June 06, 2013

After two credit downgrades in a week, Quinn calls special session

By Jamey Dunn

Gov. Pat Quinn has called a special legislative session later this month after Moody’s Investor Services made good on its threat to downgrade the state’s credit rating.

Quinn is calling for a special session starting on June 19. “Here we go again. Will two downgrades in one week be enough to convince the General Assembly that our pension crisis can't be ignored anymore? Time and time again over the past two years, I have proposed, asked and pushed members of the General Assembly to send me a comprehensive pension reform bill. Time and time again, failure to act by deadlines has resulted in the bond rating agencies lowering our credit rating, which hurts our economy, wastes taxpayer money and shortchanges the education of our children,” Quinn said in a written statement this afternoon. “Legislators and their leaders know what they need to do to return Illinois to sound financial footing.”

Today, Moody’s knocked the state’s rating for general obligation bonds down to A3 from A2 and gave the state a negative future outlook. Before the downgrade, Illinois already had the lowest rating of any state in the nation. Fitch Ratings dropped the state’s bond rating earlier this week. Both rating downgrades were spurred in part by the legislature’s failure to pass comprehensive changes to the state’s pension systems for public employees before the spring session adjourned last week. Lower bond ratings means the state may pay more interest for future borrowing.

Moody’s does not expect that a pension solution will be approved soon and doubts the General Assembly’s ability to make fiscal reforms in preparation of the scheduled roll back of the temporary income tax increase, which will begin in 2015 unless a vote is taken to stop it. “The Illinois General Assembly on May 31 concluded its session without addressing the severe pension liabilities that are the state's greatest credit challenge. Our rating now assumes the government will not take action to reduce the state's pension liabilities any time soon,” said an analysis from Moody’s. “The legislature's political paralysis to date shows not only the magnitude of Illinois' unfunded benefit liabilities but also the legal and political hurdles to legislation that would make pensions more manageable long term. Without significant reforms, substantial growth in both unfunded liabilities and in annual funding burden are likely in coming years. This trend may coincide with the expiration of most of the income tax increases the state imposed in fiscal 2011 to help cover pension costs.”

Moody’s announcement of the rating decrease was especially harsh on Illinois lawmakers. “An A3 rating, while very low for a U.S. state, is consistent with the General Assembly's inability to steer the state from a path to fiscal distress.”

Quinn’s call for special session comes with no indication that leaders have reached a compromise on pension reform. House Speaker Michael Madigan and Senate President John Cullerton fundamentally disagree on how to go about changing the pension systems for public employees. Madigan’s Senate Bill 1 was soundly rejected by the Senate during the last week of session, and the House did not take a vote on Cullerton’s SB 2404 before adjournment. Supporters of Cullerton’s plan say that model, which offers employees a choice in their benefits reduction, is constitutional. They argue that Madigan’s plan, which would unilaterally cut benefits, is not. Backers of SB 1 say Cullerton’s plan would not save enough to stabilize the pension systems, which have an estimated $100 billion unfunded liability. The House also approved a bill to gradually shift future pension costs to universities and community colleges, which the institutions agreed to. But the proposal failed in the Senate on the last day of session.

Republican legislative leaders are generally on board with Quinn’s call for a special session. “Our pension crisis is so severe that Illinois’ credit rating has been downgraded twice in one week,” House Minority Leader Tom Cross said in a prepared statement. “The sooner the Illinois General Assembly returns to Springfield to get the job done on pension reform, the better,” Senate Minority Leader Christine Radogno said she “appreciates” the call for session, but she has some reservations. “The governor did call today to tell me his intentions to call a special session. I appreciate the call — but I’m not sure what dynamics have changed in this pension reform discussion. Clearly there is a rift amongst Democrat leaders. Despite their supermajority status, they missed a prime opportunity to enact comprehensive pension reform. We hope that opportunity will still be there now that it will take a supermajority vote in each chamber to pass. Senate Republicans remain willing to work on advancing a pension reform plan that substantially solves the problem.”

When Quinn called a special session on pensions last summer, lawmakers came to the capital for one day, and no compromise pension reform plan materialized. Quinn then vowed to launch a “grassroots” campaign for pensions changes that produced an Internet ad campaign and the much-derided pension reform mascot, Squeezy the pension python. 

Democratic legislative leaders had less to say about the announcement. “The Senate president’s office is notifying members of the governor’s request to return to Springfield on June 19th,” said a statement from Senate President John Cullerton’s office. “Moody’s provides more damning evidence that we can’t afford a continual stalemate on pensions. It’s time to identify a reasonable compromise that can pass both chambers with a three-fifths vote.” Madigan spokesman Steve Brown said he has seen nothing that points to a new development on pensions. Madigan did not attend a meeting on pensions held by Quinn earlier this week. “The House will convene,” Brown said. “The House has passed two pretty decent bills: one that has pretty significant [pension] saving and one that ends the free lunch [of the state picking up pension costs for schools].” He said that it would be unlikely that the House would consider legislation that “does anything less” than the bills the chamber has already passed.

Union officials are pushing for Cullerton’s bill. “Moody's rating downgrade makes clear that the House of Representatives must act swiftly to finish the work of sound pension reform the Senate has initiated. Moody's has concerns over ‘legal and political hurdles’ and calls for a ‘credible, comprehensive long-term pension funding plan’ to be implemented. They have laid out the path that should be followed, and it clearly leads to SB 2404. SB 2404 is the only legal, comprehensive, and responsible pension funding solution. It will restore fiscal stability and solvency to the state’s pension systems,” said a statement from the We Are One Coalition.

During the special session, lawmakers may also address concealed carry legislation if Quinn decides to veto House Bill 183, which was approved last week. It is possible the governor would use his veto pen to write in gun control measures that were not passed, such as a high-capacity magazine ban or a ban on assault weapons. Legislators would likely vote to override such a veto.  And of course, as happens with any special session, the specters of a host of issues that did not pass during the regular session will likely be raised. Keep an eye out for a renewed push for the legalization of same-sex marriage and a new version of a gaming expansion proposal. However, any legislation passed at this point would require a three-fifths majority in both chambers to go into effect before next year.


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