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Illinois budget deal hits snag after key pension bill fails

By Karen Pierog and Dave McKinney

CHICAGO (Reuters) - A bipartisan deal aimed at ending Illinois' long-running budget impasse stumbled on Wednesday when a key pension measure failed to pass in the state Senate.

Following the passage of three other bills tied together in a legislative package, a measure to ease Illinois' $130 billion unfunded pension liability was rejected in a 29-18 vote, with 10 members voting "present."

Even though Senate Republican Leader Christine Radogno crafted the package with Democratic Senate President John Cullerton, she still urged her members not to vote in the affirmative because disagreements remained on some of the 12 bills, particularly on school funding and workers' compensation.

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"I think this is a breach of our agreement," Radogno said ahead of the pension bill vote.

Afterward, Radogno sounded less pessimistic, describing the day's developments as a "little drama but not the end of the world."

Earlier, during debate, Cullerton insisted there was no need to wait and moved the sprawling pension legislation through the chamber in a mere seven minutes.

"It's the right thing to do. It's constitutional. And when are we going to do this if we don't do it today? Let's go," he said.

After the legislation was defeated, Cullerton said talks would continue with Republicans.

Illinois is limping through a record-setting second consecutive fiscal year without a complete budget due to an ongoing feud between the Republican governor and Democrats who control the legislature.

The pension legislation, which the state’s public-sector unions oppose as unconstitutional, modifies the longstanding, compounding, 3 percent annuity increase most future state retirees are now promised.

Workers hired before January 2011 would not have future pay raises factored into their eventual pensions unless they accept a less generous annuity increase formula that would provide 3 percent noncompounding post-retirement raises or half the rate of inflation, whichever is lower.

Cullerton predicted the change could cut state pension costs by as much as $1 billion annually and be deemed constitutional by Illinois’ courts, which in 2015 struck down an earlier effort to strip workers of their 3 percent, compounding, post-retirement annual increases.

The other three bills that passed the Senate solely on Democratic votes tightened state contracting rules, authorized government consolidation in counties, and allowed certain state aid for home-rule governments to be sent directly to bond trustees for debt payments. Remaining bills in the package include tax hikes, a massive borrowing to pay overdue bills, a local property tax freeze and a casino expansion.

(Editing by Peter Cooney and Matthew Lewis)