The law, which would help to alleviate some of the $100 million unfunded pension liabilities by scaling back some of the benefits the state owes to retired employees, was deemed unconstitutional by Sangamon County Circuit Judge John Belz Nov. 21. In his ruling, Belz said the state’s obligation to its employees is not based on its ability to pay or not.
From the Bond Buyer:
The overturned legislation would limit COLAs, cap pensionable salaries and raise the retirement age for some, while cutting employee contributions by 1%, shifting contribution calculations to a more actuarially sound method, and giving the pension funds enforcement rights over state payments.
The changes would shave about $145 billion off state payments in the coming decades, including $1.1 billion in fiscal 2016, while bringing the system full funding in 30 years. About $21 billion would be pared from the unfunded obligations’ tab.
The State Journal-Register in Springfield said that both Moody’s Investor Service and Standard & Poor’s Rating Service are waiting to see if an appeal of the ruling to the state’s highest court by Attorney General Lisa Madigan is effective before making any more value judgments about the state’s debts. S&P pointed out that no matter the ruling, the state’s rating wouldn’t change until the next rating cycle anyway.
From the Journal-Register:
Moody’s Investor Service said in an announcement released Monday the ruling, if upheld, would speed the growth of debt for one of one of the worst-funded pension systems in the nation.
“The state’s negative outlook indicates the possibility that factors such as further growth in the state’s pension liability will drive the rating lower still,” Moody’s stated.
Other states with unfunded pension debts also could be downgraded, Bloomberg says, based on constitutional provisions that protect state employee retirement benefits, including Michigan, Texas, Hawaii, Arizona, Alaska and Louisiana.
Bloomberg also pointed out that not only does the state face large pension debts, next year’s budget will be short by $2 billion if the state income tax drops back down to 3.75 percent (from a 2011 increase to 5 percent) Jan. 1 as scheduled by current law.
Robert Miller, of Wells Capital Management, told Bloomberg Illinois’ pensions are a “looming” specter, and that the tax and budget questions will only make the situation worse.
The court’s pension decision won’t have an immediate impact on 2015′s budget, says the Bond Buyer:
The state, knowing a legal challenge loomed, didn’t build any savings on pension contributions from the pension into its fiscal 2015 budget that runs through June 30, so there’s no immediate fiscal impact. It’s also long been clear that the state high court would have the final word on the reforms approved last December.
In the meantime, as raters and lawmakers wait for a state Supreme Court decision (Madigan asked the court to fast-track a ruling), Illinois still sits at the bottom of the country’s state financial ladder. The raters have given the state a “negative” outlook. And, says the Bond Buyer:
[Moody's] last week announced Illinois’ fiscal 2013 adjusted net pension liability to revenue was the highest of all states at 268%. The median for all 50 states is 60%.
The agency called on Gov.-elect Bruce Rauner to use his new term to get the state’s finances under control.
NEXT ARTICLE: Reeder: Courts hold state’s future in balance with Illinois pension reform decision
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