Quinn Suspends Illinois Lawmaker Pay Until Pensions Fixed

Photographer: Saul Loeb/AFP via Getty Images

Illinois Governor Pat Quinn said he’s using his line-item veto power in a budget bill to block the salaries of state lawmakers. Close

Illinois Governor Pat Quinn said he’s using his line-item veto power in a budget bill... Read More

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Photographer: Saul Loeb/AFP via Getty Images

Illinois Governor Pat Quinn said he’s using his line-item veto power in a budget bill to block the salaries of state lawmakers.

Illinois Governor Pat Quinn said he will suspend state lawmakers’ pay because they’ve failed to address the nation’s worst-funded pensions, escalating his feud with fellow Democrats in a state plagued by political gridlock.

“This is an emergency,” he told reporters today in Chicago, adding that such a “drastic measure” is needed to spur legislators. “The best way to do that is to hit them in the wallet.”

The amount to be withheld equals $13.8 million, said Brooke Anderson, Quinn’s communications director. The average state lawmaker is paid about $67,800 a year, she said.

Lawmakers rebuffed Quinn by failing to act yesterday during the latest special session he called to address almost $100 billion in unfunded liabilities -- the third time in the past 11 months they’ve done so. The governor said he’s using his line-item veto power in a budget bill to block the salaries.

“This is the leverage that the taxpayers need in order to get this done,” said Quinn, 64. “It’s time now for the legislature to legislate.”

Comptroller Judy Baar Topinka, a Republican, said in a statement that she would ask for a legal review of the action before the next paychecks are to arrive Aug. 1.

House Speaker Mike Madigan said he endorsed Quinn’s move, which included a request by the governor to have his own pay withheld until pension legislation is passed.

“I understand his frustration,” he said in a statement. “I am hopeful his strategy works.”

‘Political Grandstanding’

Senate President John Cullerton, the other Chicago Democrat central to the negotiations, called Quinn’s action “political grandstanding” and said it wouldn’t deter the conference committee considering the issue.

“The governor’s actions today are as unproductive as yesterday’s arbitrary deadline,” Cullerton said in a statement. “Responsible leaders know that unworkable demands will only delay progress.”

The inability to agree on a fix for the five systems resulted in Fitch Ratings cutting Illinois on June 3 to A-, the fourth-lowest investment grade.

Moody’s Investors Service on June 6 dropped it to A3, equivalent to Fitch’s rank. Illinois and its localities pay the most to borrow relative to top-rated AAAs among 19 states tracked by Bloomberg.

The state has the worst-funded government-employee plans based on a Moody’s formula released last month. Its net pension liabilities represent 241 percent of governmental revenue, according to the New York-based ratings company.

Small Penalty

Even though Illinois has the lowest credit grades among U.S. states from the three biggest rating companies, investors in the $3.7 trillion municipal market are demanding the smallest penalty on its debt in 29 months.

The extra yield demanded to own general-obligation bonds from Illinois and its localities rather than top-grade munis dropped to 1.28 percentage points yesterday, the narrowest spread since February 2011, data compiled by Bloomberg show. Illinois issuers still pay the most to borrow among the 19 states tracked by Bloomberg.

Illinois’s most recent $1.3 billion bond sale included a portion maturing in July 2038 that was priced to yield 5.65 percent, Bloomberg data show. The interest rate fell to 5 percent in trading today. The 0.65-percentage-point drop compares with just a 0.04 percentage point decline over the same period in 25-year AAA muni yields.

Abbreviated Carping

The failure of yesterday’s session to produce an agreement was foretold -- conference committee members said a week earlier that they didn’t have time to develop an acceptable restructuring plan.

In the few hours that lawmakers were in session, there was barely a mention of pensions. When there was, the talk was accompanied by finger-pointing.

“The governor has been negligent in his duties, plain and simple,” said Democratic Representative Jack Franks, adding that Quinn is “governing by press release.”

Committee members complained that Quinn didn’t show up to testify at its last hearing, on July 8. Barring another special session, lawmakers are not to return to Springfield until late October.

The lack of action has spurred challenges to Quinn. Bill Daley, a former White House chief of staff and JPMorgan Chase & Co. (JPM) executive, has filed papers to run for governor next year, setting up a fractious March 18 primary.

The son and brother of two former Chicago mayors, Daley said today that Quinn failed on the pension issue.

“This governor is long on press conferences and short on results,” he said in a news release. “This media sideshow doesn’t get things done.”

Democratic Attorney General Lisa Madigan, the House speaker’s daughter, also is considering a run.

Republican candidates include businessman Bruce Rauner, Treasurer Dan Rutherford, and state senators Kirk Dillard and Bill Brady.

To contact the reporters on this story: John McCormick in Chicago at jmccormick16@bloomberg.net; Tim Jones in Springfield at tjones58@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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