Thread: Illinois governor warns of possible cash crisis, restructuring

Illinois governor warns of possible cash crisis, restructuring

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Republican Bruce Rauner smiles after winning the midterm elections in Chicago, Illinois, November 4, …


CHICAGO (Reuters) - Illinois Governor Bruce Rauner warned of a potential cash crisis on Wednesday as he braced his cabinet members for turbulent times ahead if the state does not have a balanced budget for the upcoming fiscal year.

"We'll be asking each one of you to review in detail your operations, your departments, and get ready for the real possibility we are facing a cash crisis and a major, major restructuring of the government," the Republican governor said at a meeting in the state capital of Springfield.

Rauner spoke to his cabinet a day after announcing initial steps to deal with a nearly $4 billion hole in the $36.3 billion general funds budget passed by Democratic lawmakers for the fiscal year that starts July 1.

Democrats, who control the House and Senate, opted for a mix of spending cuts and yet-to-be identified new revenue. The governor insists he will not discuss new revenue until lawmakers address Illinois' structural problems through his so-called turnaround agenda, which includes term limits, changes to workers' compensation laws and a local property tax freeze.

"Let's be clear, reforms are at the core of the budget," Rauner said Wednesday.

House Speaker Michael Madigan, a Chicago Democrat, announced earlier that his chamber on Thursday will take up changes to laws governing compensation for workers' job-related injuries.

Rauner called Madigan's proposal "phony reform" based on a review of the legislation by his team. Still, he said he was cautiously optimistic compromises can be reached.

In the meantime, the governor said the state will go into serious contingency planning.

"We've got to prepare to run the government as best we can with the resources we have," he said.

Illinois' shaky finances, including a $105 billion unfunded pension liability, have left it with the lowest credit ratings among the 50 states.

Rauner said he hoped to press lawmakers to take up pension reforms in the coming weeks after the Illinois Supreme Court last month tossed out a 2013 law that cut state worker retirement benefits.

The legislature's spring session was scheduled to end on Sunday, but members were called back into what could be a lengthy overtime session with the House meeting on Thursday and the Senate on June 9.

Senate Democrats on Tuesday said they will push a package of bills to counter Rauner's agenda.

http://news.yahoo.com/illinois-gover...-business.html

http://www.alipac.us/f9/facing-%241-...elfare-319627/

Illinois' $105-billion public pension fix struck down by state Supreme Court

By MICHAEL MUSKAL contact the reporter

Court says public employee pensions are protected even if Illinois faces acute financial problems

Legislative fix designed to erase Illinois' $105-billion pension liability is tossed out by state high court
Illinois high court rules public employee pension benefits may not be diminished or impaired


Taxpayers are facing a $1-trillion public pension headache across the nation — and that remains untouched after an Illinois Supreme Court ruling on Friday.

The top court in Illinois unanimously threw out a legislative fix designed to erase a $105-billion pension liability the state is facing. In its 38-page written opinion, the court said that the state constitution bars public employee pension benefits from being diminished or impaired.

The ruling has a profound impact in Illinois, on its political system and on the city of Chicago, which also faces pension problems. But while many states face similar issues, the Illinois court decision had been expected, said Jean-Pierre Aubry, assistant director for state and local research at the Center for Retirement Research at Boston College.

"If the court decision had gone against the expectation then it would have had a greater impact," Aubry said. "That would have been more meaningful and might have been more broad."

The Illinois court did not mince words in making it clear that the constitution protected employees even if the state was facing acute problems.

"The financial challenges facing state and local government in Illinois are well known and significant. In ruling as we have today, we do not mean to minimize the gravity of the state's problems or the magnitude of the difficulty facing our elected representatives," Justice Lloyd Karmeier said, writing for the court.

"It is our obligation, however, just as it is theirs, to ensure that the law is followed," he wrote. "That is true at all times. It is especially important in times of crisis when, as this case demonstrates, even clear principles and long-standing precedent are threatened. Crisis is not an excuse to abandon the rule of law."

The public pension problem has been well-documented and touches municipalities across the country. Local governments negotiated contracts including what conservatives say are overly generous benefits. As the economy contracted in recent years because of the recession, meeting state obligations became more difficult. Payments to the pension systems took up a larger and larger share of municipal budgets, cutting the funds available for other government needs like roads and police.

Nationwide, state pension plans are about 72% funded with about 6% of the municipal budgets going to pension systems, Aubry estimated. The total shortfall is believed to be about $1 trillion.

Illinois is in especially dire straits, facing a hole of more than $100 billion. To solve the problem, lawmakers pushed through a deal near the end of 2013 designed to save an estimated $160 billion over 30 years by changing the rules for current employees. The new pension plan included a lower future cost-of-living adjustment, an increase in the age when employees could retire and a cap on pension payments for those at the high end of the scale.

The deal was politically contentious in a state with strong unions that tend to support the ruling Democrats. Still, state officials argued that they had no choice.

"Our economy is and has always been subject to fluctuations, sometimes very extreme fluctuations," said Karmeier, a Republican.

Crisis is not an excuse to abandon the rule of law.- Illinois Supreme Court Justice Lloyd Karmeier, writing for the court

But, he noted, "the law was clear that the promised benefits would therefore have to be paid and that the responsibility for providing the state's share of the necessary funding fell squarely on the Legislature's shoulders."

According to Aubry, about 15 states that face pension problems have some form of constitutional language protecting existing pension rules. Those states include California, Georgia, Kansas, Nebraska, Oregon and Pennsylvania.

Though many of the states have altered how benefits are calculated for existing employees, the biggest changes, like those in California, involve major revisions for new hires.

That is important because it allows the changes to affect the new workforce over the long term instead of trying to impose the shock on workers who are approaching retirement age.

"If the system can tread water," Aubry said, "eventually the cost of the system starts shrinking."
michael.muskal@latimes.com

http://www.latimes.com/nation/la-na-...509-story.html