The vote for a new Illinois House speaker to replace Michael Madigan took center stage Wednesday, capping a legislative session that left Gov. J.B. Pritzker empty-handed and could force Chicago to dig deeper into its pockets for pensions.
The previous legislature wrapped up several days of lame-duck session work Wednesday after sending to Pritzker’s desk a Chicago firefighters’ pension change Mayor Lori Lightfoot has warned carries an $850 million price tag over the next 35 years.
Lawmakers also rejected Pritzker’s plan to decouple the state from business tax breaks related to losses in the federal CARES Act that will cost Illinois at least $500 million and possibly up to $1 billion in revenue, adding to the $3.9 billion deficit.
The session’s ending set the stage for the noon swearing-in of a new legislature based on November’s election results and a vote on the speakership. House members along a party line handed the gavel to Rep. Emanuel “Chris” Welch, D-Hillside ushering in a new era as it ends Madigan’s nearly 40-year run.
Opposition to Madigan’s bid to retain his iron grip on the House had grown in recent months as a federal corruption probe moved closer to his doorstep. On Monday, he suspended his campaign to retain the post.
Although Madigan has not been charged, federal documents have implicated him at the center of a bribery scheme involving Commonwealth Edison which has admitted it traded jobs and contracts for favorable legislative treatment. ComEd has agreed to pay a $200 million fine under a Deferred Prosecution Agreement.
Welch, 49, was elected in a 70-44 vote. Dealing with the state’s fiscal strains from budget gaps to a $5 billion bill backlog and $141 billion pension burden lay ahead for Welch.
“We’ve got some real budget issues to tackle … it’s time to get to work,” Welch said during a news conference.
Welch, a lawyer and the first African American speaker, joined the House in 2013. Welch is close to Madigan and was accused by the GOP of stonewalling a deeper probe into Madigan during last year’s House Special Committee. Welch led the committee formed at Minority Leader Jim Durkin’s behest to Madigan to consider whether Madigan had behaved in a manner unbecoming a state legislator in connection with the ComEd probe.
Welch is a partner at the full-service local government law firm Ancel Glink. He has told his partners that he would probably have to separate from the firm. He previously was a partner at Sanchez, Daniels and Hoffman LLP which does bond work. He supports passing legislation imposing a 10-year term limit for leadership positions.
After the vote and Welch’s speech, Durkin, a Republican from Western Springs, laid into Madigan’s legacy. “Mr. Madigan’s record will long be reviewed and analyzed,” Durkin said. “The legacy is also one which failed its citizens with unbalanced budgets, broken pension systems, tax increase after tax increase with nothing to show for it.”
Backers say Madigan, who also holds powerful purse strings as head of the state Democratic Party and is a close ally of labor, is responsible for building a super majority. He embraced social items like the legalization of gay marriage, ending the death penalty, passed stronger abortion rights legislation and minimum wage hikes.
“While our state has many problems, our schools are better, more children have access to healthcare, and our working-class families will easily live the American Dream,” Welch said.
Madigan first won election to the House in 1972 and became speaker in 1983. He’s held the post continuously with the exception of two years when the GOP held a majority.
Critics blame Madigan in part for the state’s budgetary and pension mess. State credit erosion began in 2003 and accelerated in 2008 and 2009 as deficits grew due to one-time maneuvers that drove up the structural gap and the state’s pension tab during Rod Blagojevich’s tenure that ended in 2009 with his arrest on corruption charges.
Madigan supported Blagojevich’s $10 billion 2003 pension borrowing that included $2.7 billion in deficit financing and then imposed new borrowing rules on the administration that banned scoop-and-toss restructuring.
Madigan served as a delegate to the 1970 constitutional convention and supported the pension clause which bans any impairment or diminishment of promised pension benefits. He backed a pension package reform package in 2013 that cut benefits. The Illinois Supreme Court struck it down in 2015.
Credit erosion continued under Pat Quinn and ratings further tumbled during Bruce Rauner’s tenure falling to the lowest investment grade level where they remain. Madigan locked horns with Rauner refusing to sign off on what he called Rauner’s “extreme” agenda that he believed would hurt unions and the middle class. Rauner continually labeled Madigan as corrupt and refused to support a tax increase without reforms. That led to a two-year budget impasse.
The ratings stabilized in July 2017 when lawmakers — with some Republican support — passed a budget and income tax hike that overcame a Rauner veto. The rating agencies moved the outlook to stable but have since shifted it back to negative over COVID-19 pandemic’s wounds.
“When your football team has a 25-year-plus losing record, you might want to make a coaching change. If Madigan is the coach, that change is long overdue. Madigan has had his chance to turn around Illinois financial condition and hasn’t done it,” said Richard Ciccarone, president of Merritt Research Services. “The market will be watching to see if Illinois can turn the ship around. There is no guarantee that Welch is the one that can get the state on a better path, but, hope springs eternal.”
Near-term, Illinois has seen its 10-year narrow sharply by 77 basis points to a 120 basis point spread over the Refinitiv MMD’s AAA benchmark over the last week as market participants see improved prospects for federal relief in the wake of Democrats taking the Senate as a result of the Georgia runoff. Over the spring as the state’s red ink grew along with threats of a downgrade, the 10-year hit a high spread of 425 basis points.
But long-term pressures abound and voter rejection in November of Pritzker’s plan to raise $3 billion of new revenue by moving to a graduated income tax from a flat one narrows options. Ciccarone said “time will tell about the materiality” of either the speaker’s replacement or the federal blue wave that improves prospects for federal aid.
STATE
Pritzker last week called the decoupling legislation a priority in the lame-duck session. “Right now, we cannot afford to expand tax breaks to businesses that already receive tax breaks,” Pritzker said last week.
The measure fell short of the needed votes in an initial vote in the early hours of Wednesday and was then held for future consideration. The GOP labeled it a tax hike that struggling small business couldn’t afford because of the pandemic and Democrats and Republicans alike were upset that the administration had not brought the issue to the attention of lawmakers last year.
“The Department of Revenue dropped the ball and it's not on us to pick it up,” said Rep. Norine Hammond, R-Macomb. A handful of other states decoupled from the break last year.
Sponsor Rep. Michael Zalewski, D-Riverside, defended the administration saying it had hoped to decouple from the federal rules during a fall veto session which was cancelled due to rising coronavirus cases and said businesses should not have assumed they would receive the state break too.
The House adjourned without taking a final vote. A fiscal note warned that decoupling from the CARES provisions on eligible business types’ net operating loss and excess losses would “minimally prevent a reduction in revenue of $500 million" but Zalewski warned it could add up to $1 billion to the current gap.
Pritzker did not provide a comment on the failed action, whether there was time to resurrect it in the regular session, or his plans to deal with the revenue loss but legislative aides said it could be brought again in the coming months.
CHICAGO
The Senate signed off on legislation previously approved by the House that raises the cost-of-living adjustment for a group of about 2,000 firefighters who were born after Jan. 1, 1966. They fell under a restriction that held their COLAs to 1.5% compared to the 3% most others receive.
The sponsor, Sen. Robert Martwick, D-Chicago, who authored the bill while he was a representative and chair of pension committee argued it was a legal fix to a benefit that was the practice of the fund to observe. Codifying it would make the cost more transparent as it will now be factored into the liabilities, he said.
Pension costs are bearing down on the city. The collective net pension liabilities of the city’s four funds rose to $31.8 billion in 2019 from $30.1 billion and contributions will rise to $1.81 billion this year from $1.68 billion. The firefighters’ net pension liability stands at $5.4 billion and is just 17.57% funded.
“Mayor Lightfoot has said she believes strongly that we must work toward a comprehensive pension solution which keeps the promises made to retirees and which sets pension funds across the state on a path to solvency,” the mayor’s office said. “The passage of HB 2451, effectively under the cover of darkness in a rushed lame duck session, accomplishes neither of these important objectives. If this irresponsible piece of legislation becomes law, Chicago taxpayers will be on the hook for $18 to $30 million per year, totaling over $850 million by 2055.”
The Senate did not vote on legislation previously approved by the House that would move the city to an elected school board. The mayor currently names members. Lightfoot supported an elected board but opposed the pending proposals calling the number of seats to cumbersome.
