Illinois passes pension reform to address $100bn gap Illinois legislators have passed a landmark reform package that will finally address the state's worst-in-the-nation $100bn unfunded pension liability. The vote on Tuesday caps years of legislative inaction on a pension crisis that has given Illinois the lowest credit rating among US states and driven up its borrowing costs. "This landmark legislation is a bipartisan solution that squarely addresses the most difficult fiscal issue Illinois has ever confronted," said Governor Pat Quinn, who said he intends to sign the bill. But it sets up a battle with public sector unions, who have vehemently opposed the legislation and have threatened to fight it on the grounds that it violates the state constitution's strong protections of public employee benefits. In a statement, the We Are One Illinois coalition of public sector unions called it a "dark day for [Illinois] citizens and public servants." The unions said barring a veto from Mr Quinn, the coalition "will have no choice" but to resort to legal action to protect workers" life savings. The bill is designed to save the state $160bn over 30 years by raising retirement ages, limiting the portion of salaries on which pensions are based, and reducing or suspending cost-of-living increases for retirees. The benefit cuts would immediately reduce the state's unfunded liability by 21 per cent to $79bn. It will also address the main driver of the pension crisis by requiring the state to make its pension contributions. The state has for years paid less than was due or altogether skipped payments even as workers paid their share. Business groups strongly supported the legislation, which was brokered by the Democratic majority leaders in both legislative chambers and their Republican counterparts. But it has come under fire from labour groups, a key constituency for the Democrats that dominate state politics heading into next year's statewide elections, while some Republicans have said it does not go far enough. The unions had supported reforms which would pay down the liability in part by closing corporate tax loopholes. In its statement, the unions noted it was "bitterly ironic" that the Senate had followed its pension vote by approving $58m in tax incentives for chemical distributor Univar, which wants to relocate to Illinois from Washington state, and to keep Illinois-based OfficeMax in the state following its merger with Florida's Office Depot. It also passed further incentives to entice Archer Daniels Midland to relocate to Chicago. If, as is expected, labour groups challenge the bill on constitutional grounds, Dan Rutherford, state treasurer and a Republican candidate for governor, said he does not think the bill will "withstand judicial review." While extreme, Illinois is not alone in facing fiscal challenges. US states have been under pressure since the recession, when falling tax revenues hit budgets. Many states have slashed spending, and have seen revenues modestly grow. The next challenge for lawmakers in the state will be to address the woes of Chicago, the state's economic engine, which is facing its own nearly $20bn unfunded pension liability. According to a recent report by Morningstar, it has the worst funded system of any major US city.