By Andrew Stern
SPRINGFIELD, Illinois (Reuters) - Divided Illinois lawmakers on Thursday put off a vote on proposed changes to its vastly underfunded public employee pension system, risking further credit rating downgrades of the state.
Tom Cross, the Republican leader of the state House of Representatives, announced that too few House Democrats would support the current form of the legislation so he had agreed with Governor Pat Quinn not to call for a vote on it.
"We have to be willing to find some common ground," a weary-sounding Cross told fellow lawmakers.
"We need to let emotions settle down."
Quinn, a Democrat, has insisted lawmakers use the legislative session scheduled to end on Thursday to pass reforms to pensions and Medicaid, the joint federal-state healthcare program for the poor, to keep the two huge budget items from consuming even more than their current 39 percent of state general fund spending.
The governor said he will convene a meeting with legislative leaders next week to try to forge an agreement so lawmakers can return soon to pass it.
"We have made great headway on stabilizing our pension system and we are very close to a solution, but we are not there yet," Quinn said in a statement.
The state Senate took a largely symbolic vote approving pension reforms for two of the state's five pension systems. Supporters from both parties said it would serve as a roadmap.
Lawmakers in the Democrat-controlled General Assembly have passed legislation that contains elements of Quinn's $2.7 billion Medicaid plan, including $1.6 billion in program cuts and other changes and a $1-a-pack cigarette tax increase.
Lawmakers also sent Quinn a budget for the fiscal year that begins July 1 that holds spending within an agree-upon $33.7 billion general funds revenue base, according to a statement from the Senate Democratic Caucus.
But dealing with Illinois' huge $83 billion unfunded pension liability by Thursday's midnight deadline for the current session proved to be a thornier issue as lawmakers tried to navigate state constitutional protections for existing benefits.
The state's liability has been building for years as Illinois skipped or skimped on pension payments and fund investments fell.
Democratic House Speaker Michael Madigan proposed, and then dropped, a measure in the pension reform bill that would have phased out state payments for local teachers' pensions, potentially forcing school districts to hike property taxes.
Madigan removed himself as the bill's sponsor, a sign that he no longer supported the measure.
The core reform essentially required current and retired workers to choose between a cut in cost-of-living increases for their retirement payments and state-subsidized health insurance.
Cross repeatedly said on Thursday the state could see its already relatively low bond ratings fall further if it fails to rein in pension costs.
Standard & Poor's Ratings Services has warned of a multiple-notch downgrade in Illinois's A-plus rating if progress is not made to address fiscal problems that include unfunded pensions and a structural budget deficit fueled by billions of dollars in unpaid, overdue bills.
In January, Moody's Investors Service dropped Illinois' bond rating to A2, the lowest level among the states it rates, citing legislative inaction on underfunded pensions and unpaid bills.
Labor union officials raised objections to all of the pension reform bill versions, labeling them unconstitutional.
Meanwhile, the state Senate approved legislation passed by the House last week that would expand gambling by adding five casinos, including one in Chicago, and slots at race tracks.
Quinn, who vetoed a gambling expansion bill last year, said last week the new one still falls short of ethical and other protections he laid out last fall.
But the bill's Senate sponsor said the governor's concerns would be addressed in subsequent legislation.
(Additional reporting and writing by Karen Pierog in Chicago; editing by Lisa Shumaker and Todd Eastham)