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Illinois lawmakers move Medicaid, pension bills

(Reuters) – Illinois lawmakers on Tuesday worked through key legislation, advancing a plan to reform employee pensions and sending the governor a bill to raise the state’s cigarette tax to help pay for Medicaid.

The Democrat-controlled General Assembly began tackling the state’s huge pension debt with legislation that would tie a cut in cost-of-living increases for retired state workers to access to retiree health insurance.

The plan, which was passed by a House committee just hours after it surfaced, would give government workers and retirees a choice between accepting the lower increase or losing state healthcare coverage in retirement.

The legislation would also phase out state payments to local school district pension funds, a move that some Republican lawmakers said would lead to local property tax increases.

Labor unions objected to the changes, which are aimed at easing the $83 billion unfunded pension liability that has been building for years as Illinois skipped or skimped on pension payments and fund investments fell.

“It is not fair to ask employees and retirees to pay for the mistakes of others. Our members have paid their share from every paycheck,” said Henry Bayer, executive director of the American Federation of State, County and Municipal Employees Council 31.

Dan Montgomery, president of the Illinois Federation of Teachers, called the bill a “theft of earned benefits to pay the state’s bills.”

John Stevens, an attorney representing a coalition of Illinois government labor unions, told lawmakers on Tuesday the bill is unconstitutional and will be challenged in court if it is enacted.

The pension bill is similar to a proposal unveiled by Governor Pat Quinn last month to save the state $65 billion to $85 billion over 30 years. One major difference is that it does not increase the retirement age.

Still, Quinn believes the legislation meets standards he set “to stabilize and strengthen the pension systems while providing for 100% funding by 2043,” according to a spokeswoman.

Quinn, a Democrat, is insisting lawmakers 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% of state general fund spending.

Standard & Poor’s Ratings Services has warned of a multiple-notch downgrade in Illinois’s A-plus rating if progress is not made in the current legislative session to address fiscal problems that include unfunded pensions and a structural budget deficit fueled by billions of dollars in unpaid, overdue bills.

The Senate, meanwhile, passed a major component of the governor’s $2.7 billion Medicaid reform plan — a near doubling of the state tax on cigarettes to $1.98 a pack, sending the measure, which passed the House on Friday, to Quinn.

The tax hike combined with federal Medicaid matching funds are expected to raise an additional $800 million a year.

The bill also tackles a problem increasingly being faced by nonprofit hospitals in the state — the level of charity care they must provide to qualify for property tax exemptions.

Illinois has stripped some hospitals of their exemptions, forcing them to eventually make millions of dollars in local property tax payments. Credit rating agencies have warned hospital ratings could fall as a result.

The bill, which has the support of the Illinois Hospital Association, establishes standards that nonprofit hospitals must meet to qualify for exemptions.

Last week, the legislature sent Quinn a bill that would slice spending on Medicaid by $1.6 billion by reducing eligibility and provider rates and cutting or eliminating programs.

Lawmakers face a Thursday deadline to pass legislation and complete work on a fiscal 2013 budget.