Illinois Union Ally Turns Critic

By AMY MERRICK And DOUGLAS BELKIN

In his more than two decades as Illinois's top power broker, House Speaker Michael Madigan has been a stalwart backer of unions, regularly supporting public-pension benefits with long-term obligations. The unions have returned the favor in campaign donations and endorsements.

But now, amid a massive budget crisis, he is threatening to break that link, underscoring a growing gulf between public-employee unions and some of their longtime Democratic champions.

View Full Image

Associated Press

Illinois House Speaker Michael Madigan may be forced to abandon a longtime political ally, unions, amid a looming financial crisis.

Illinois, one of the nation's remaining union strongholds, has funded less than 50% of the pension benefits it owes retirees—the worst ratio of all U.S. states, according to Moody's Investors Service—and faces a $15 billion budget deficit. Last month, lawmakers—in a move championed by Mr. Madigan—raised the state income tax to 5% from 3%, retroactive to Jan. 1, and Gov. Pat Quinn, a Democrat, is expected in his budget proposal this week to request to issue $8.7 billion in bonds to restructure its debt owed to schools, hospitals, social-service agencies and others.

Late Monday, the state delayed until next week a $3.7 billion bond issue originally slated for this week so that investors could review the governor's proposal, according to people familiar with the matter.

Last week, Mr. Madigan floated, for the first time, the idea of cutting pension benefits for current state workers. The speaker said lawmakers were working on bills to reduce the pensions, but he declined to give details.

Since 1970, the Illinois constitution has barred reductions in public-employee pensions, and states have had little success in court when they attempt to lower benefits for current workers. But Mr. Madigan's latest comments are part of a national trend of state and city Democratic politicians recalibrating their relationships with unions as voters grow weary of service cuts and tax and fee increases to balance state budgets.

"I think [state Democrats] finally have come to the realization that the government is in crisis and something has to be done," said Republican House Minority Leader Tom Cross.

View Full Image

Associated Press

Gov. Patrick Quinn

Across the U.S., state tax collections are starting to increase. Illinois's revenue decreased slightly in January but is up modestly so far this fiscal year. But the $150 billion in federal stimulus aid that states have used to prop up their budgets has largely been spent, so states face big deficits again this year.

Mr. Madigan declined to be interviewed for this story, but he told reporters last week that he was considering proposals that included union givebacks.

Mr. Madigan's decision to consider cutting public-employee benefits comes as the American public's support for labor unions stands at 52%, near a 70-year low, according to a Gallup poll conducted last summer. Rahm Emanuel, the former White House chief of staff and current Democratic front-runner in the Chicago mayoral race, has said he would ask for union givebacks from public employees if elected. New York City Mayor Michael Bloomberg, an independent, and Democratic California Gov. Jerry Brown also have floated the idea of union concessions.

Republican governors have been more aggressive than Democrats in demanding givebacks. On Friday, Wisconsin Gov. Scott Walker said he wants to end collective bargaining with public-employee unions.

A former protégé of Mayor Richard J. Daley in the early 1970s, Mr. Madigan was elected to the legislature in 1971 and became speaker in 1982. As head of the state house and the Illinois Democratic Party, he has controlled the statehouse agenda—as governors have come and gone, for most of the last three decades.

In 2003, Mr. Madigan agreed to a plan by then-Gov. Rod Blagojevich to borrow $10 billion for state pension contributions. Then, in 2005 and 2006, Democrats voted to reduce the pension payments by billions of dollars to free up cash for other spending. Those decisions, coupled with investment losses and early-retirement packages, left the state with a mountain of debt and unmet pension obligations.

View Full Image

Last year, Illinois lawmakers passed significant pension cuts for newly hired state workers, including an increase in the retirement age. Gov. Quinn is now proposing to have retired state workers pay more for their health benefits, a move that would require changes to state law and negotiations with Illinois's public-employee unions.

Mr. Cross, the Republican leader in the Illinois House, proposed a bill last month that would cut pension benefits for current employees, shaving $25 billion off the pension shortfall as soon as it is enacted. Whether it could survive a legal challenge is in doubt. "The state's going to end up spending more money that it doesn't have to fight this in court and lose," said David Comerford, spokesman for the Illinois Federation of Teachers.

State Senate President John Cullerton has said he believes such a law would be unconstitutional but would allow it to come to a vote.

Mr. Madigan's challenge to current workers' pensions has drawn fire from the state-employee unions that supported him for much of his career.

"It's not only unjustified in fact, but it's totally misdirected" because of the protections in the state constitution, said Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees Council 31, which represents state workers.

While Illinois's public-employee unions had been allies of Mr. Madigan, "there have been differences, particularly in the past year or so," Mr. Lindall said.

Mr. Lindall said AFSCME and other state-worker unions were in discussions last year with Messrs. Quinn and Cullerton about proposals for "a comprehensive fix to pension funding."

But Mr. Madigan, who didn't participate in the talks, rushed his own plan—which unions opposed—through the state House. AFSCME didn't endorse Mr. Madigan in his re-election campaign in November.

Write to Amy Merrick at amy.merrick@wsj.com and Douglas Belkin at doug.belkin@wsj.com