HB2575 100TH GENERAL ASSEMBLY

LRB100 10391 AWJ 20588 b

100TH GENERAL ASSEMBLY
State of Illinois
2017 and 2018
HB2575

Introduced , by Rep. David Harris

SYNOPSIS AS INTRODUCED:

New Act

Creates the Illinois Local Government Protection Authority Act. Provides findings of the General Assembly and establishes the Authority with the purpose of achieving solutions to financial difficulties faced by units of local government. Defines terms and creates a board of trustees. Sets forth the Authority's duties and powers, including the ability to obtain the unit of local government's records and to recommend revenue increases. Provides for a petition process, whereby certain entities may petition the Authority to review a unit of local government. Sets forth participation requirements.

FISCAL NOTE ACT MAY APPLY

HOUSING AFFORDABILITY IMPACT NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning local government.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Illinois Local Government Protection Authority Act.

Section 5. Findings and purpose.

(a) The General Assembly finds that:

(1) The State and units of local government are in financial distress, evidenced by reductions in government services. These reductions have been spurred by the escalating costs of promised services, salaries, retirement annuities, and healthcare benefits.

(2) Certain goods, services, pensions, and retiree health care costs are expected to grow at a faster rate of inflation in the coming years.

(3) Illinois taxpayers have supported tax caps in the past, compelling units of local government to manage within existing tax and revenue limitations.

(4) If sufficient revenue is not raised to pay for services and costs or, in the case of pensions, irrevocably set aside and prudently invested, local governments' unfunded liabilities including pension and Other Post Employment Benefit (OPEB) obligations shall continue to grow at a staggering rate;

(5) As a matter of law, demands from retirees for both pension and OPEB payments may have the same priority for payment as those of ordinary suppliers of goods and services, employees necessary for normal operations, and perhaps many bondholders.

(6) A cooperative effort between the State and a financially challenged unit of local government that involves local elected officials and local governmental bodies and taxpayers, workers, and business entities developing a plan of financial recovery is the best way to find a permanent solution to current financial challenges.

(b) Therefore, the purpose of this Act is to:

(1) provide voluntary resolution and assist units of local government to find affordable solutions so that basic services can be provided on a long term basis;

(2) aid in achieving solutions to the problems set forth in this Section and aid units of local government to fully fund essential government services and make sustainable contributions to pensions and OPEB obligations to maintain the credibility of Illinois units of local government;

(3) provide a forum in which taxpayers, elected officials, public employers, and employees can address issues relating to essential government services, financial difficulties relating to costs, judgments, liabilities and post-employment benefit rates, and payment structures and provide transparency to the public as to the affordability and sustainability of these services and benefits; and

(4) offer an alternative to bankruptcy.

Section 10. When used in this Act:

"Significant Past Due Creditor" means a creditor that has not been paid on a liquidated debt obligation (unpaid for 6 months or more) of $5,000,000 or 10% of the annual revenues of the unit of local government, whichever is greater.

"Uniform Calculation Method" means the funding ratio for pension plans determined based on uniform actuarial methodology, including assumptions based on comparable returns on investment (such as the discount rate) from information annually required to be provided to the Authority.

"Unit of local government" means all local governmental entities with funding responsibilities for operating costs, such as contract costs for goods and services, labor, and the pensions and other benefits for their employees. "Unit of local government" does not include school districts.

Section 15. Creation. There is created a political subdivision to be known as the Illinois Local Government Protection Authority for the purposes set forth in Section 5 of this Act.

Section 20. Board of Trustees. The Authority shall consist of a 9-member board of trustees, who shall be appointed as follows:

(a) Four trustees shall be appointed by the Illinois Municipal League.

(b) One trustee shall be appointed by the Governor.

(c) One trustee shall be appointed by the Speaker of the House of Representatives.

(d) One trustee shall be appointed by the President of the Senate.

(e) One trustee shall be appointed by the Minority Leader of the House of Representatives.

(f) One trustee shall be appointed by the Minority Leader of the Senate.

After the first appointment of trustees under this Act, the trustees shall determine, by lot, 2 trustees to serve for terms of 2 years, 2 trustees to serve for terms of 4 years, and 3 trustees to serve for terms of 6 years. All trustees appointed under this Act thereafter shall serve for 6-year terms and until their respective successors are appointed and qualified.

Section 25. Funding; fees. The Authority shall accept and expend appropriations for the purposes set forth in this Act. The Authority shall establish and implement a fee schedule that shall be paid by participating units of local government. The Authority may alter the fee schedule at any time. The State Comptroller's Office shall collect local government reports required by the Authority and provide administrative and operational support for Authority and its functions.

Section 30. Duties. The Authority shall provide a supervised forum to assist with the determination of the following issues resulting from underfunded government services and unaffordable costs and liabilities for local government:

(a) what essential government services and post-employment benefits are affordable and sustainable;

(b) what cost-cutting measures are necessary to achieve affordable services and benefits;

(c) whether a tax increase is necessary to provide additional funding;

(d) what contribution increases, by both public employers and employees, are necessary to maintain the viability of pensions or other employee benefit programs;

(e) what amount of State revenue is necessary to pay for required services, indebtedness, and benefits so that essential governmental services can be provided and the unit of local government can maintain access to the unit of local government's debt market at relatively low cost;

(f) whether the unit of local government should engage in voluntary or mandatory arbitration regarding contractual or labor disputes;

(g) whether services or costs of the unit of local government should be transferred to other governmental bodies;

(h) whether certain services should be consolidated with other governmental bodies or transferred to a regional or multi-jurisdictional authority;

(i) whether the unit of local government should be authorized to file for Chapter 9 proceedings under the Federal Bankruptcy Code;

(j) whether, given the findings of Authority, the unit of local government's plan of a debt adjustment can be prepackaged or prenegotiated;

(k) whether consolidation with other governmental bodies by public-private partnerships or by leasing, sale of assets, or granting the rights to provide the services within defined parameters of costs and services is an effective option to cut costs; and

(l) whether popular solutions from private industry to solve post-employment benefit funding problems may have some applicability to situations facing local governments, including:

(1) changing retirement promises for new hires from defined benefit plans to reduced defined benefit plans, cash balance plans, or defined contribution plans and variations thereto, whereby the public employer's contribution is fixed and the employee's contribution can vary based on the benefit desired by the employee subject to State and federal law;

(2) transferring OPEB obligations from employers to trusts administered by employees, funded with a one-time employer contribution and ongoing employee contributions or transfer retirees to an exchange created under the Affordable Care Act; and

(3) requiring representatives of public employees and employers negotiate affordable cost reductions to existing plans.

In addition, the Authority shall develop criteria for measuring the financial health of local governments and make public comment on whether costs of operation, including services, labor, and pension and Other Post Employment Benefits obligations, can be paid from reasonably available sources without impairing a unit of local government's primary mission of providing essential services.

Section 35. Powers. The Authority shall have the power to:

(a) Provide recommendations consistent with the purposes of funding and enforcing reasonable and affordable government services and costs of operation, labor and post-employment benefits for employees of a local government.

(b) Obtain information required under this Section and Section 45 from all participating units of local government.

(c) Create a funding target and set an acceptable level of essential governmental services and increasing percentage targets for an appropriate level of annual funding for pension funds so that by a specified date, full or appropriate funding is realized by the participating funds.

(d) Encourage units of local government that fail to meet the Authority's annual funding targets to enter into cost reduction negotiations between public employers and their employees. The Authority shall provide assistance with these cost reduction efforts, including employer-employee benefit adjustment discussions.

(e) Mediate discussions regarding appropriate levels of local government services, costs, taxes, pension funding, and benefits to ensure that they are within an acceptable range of the funding target.

(f) Make findings regarding affordable levels of services and costs, including labor costs and employee benefits, that allow adequate funding for essential governmental services.

(g) Approve settlements.

(h) Recommend a tax increase that requires a vote by the unit of local government on the tax increase. Home rule local governments shall have their representative body vote on the recommended tax increase. The Authority may require a referendum regarding the tax increase for non-home rule local governments.

(i) Recommend a diversion of State revenues in order to fund specified costs of operation, labor, and post-retirement benefits.

(j) Recommend voluntary mediation.

(k) Require annual work plans, along with quarterly progress reports, from local governments that have not met the cost reductions or pension funding target.

(l) Require participating units of local government that have individual budgets that are not affordable or specific pension plans with funded ratios below a level determined by Authority and have not met the funding target for 2 consecutive years to submit an explanation to their electors. The affordability of the budget and acceptable levels for essential governmental services shall be determined by standards established by General Assembly based on recommendations by Authority. The funding ratio for pension plans shall be determined according to the Uniform Calculation Method. The required explanation to the electors shall include a Statement of the impact of the underfunding of obligations and pensions on the provision of essential governmental services and shall be published in a newspaper of general circulation. The Authority shall establish rules and guidelines for the reporting and publication by units of local government.

(m) Consider and make recommendations to the General Assembly legislation regarding an economic safety net whereby the State shall provide a set of fallback post-employment benefits for employees in the event that a public employer has not resolved the underfunding of its pension plan and thereafter is unable to pay its retirees. The program shall use the federal Pension Benefit Guaranty Corporation as its model. Contractual benefits would have to meet affordability tests prior to being approved for safety net funding. The outcomes of the affordability tests may result in smaller benefit payments than were initially promised to the employees by the defaulted employer.

Section 40. Petition and criteria. The Authority may exercise its authority over a unit of local government under this Act if the Authority is petitioned and the Authority accepts the participation of the unit of local government identified in the petition. The Authority has absolute discretion regarding acceptance or denial of any petition and participation of a unit of local government. The Authority shall create rules regarding the petition, procedure, format, and required documentation.

(a) The following parties may petition the Authority:

(1) the Illinois Comptroller;

(2) a unit of local government;

(3) a Significant Past Due Creditor; or

(4) a pension fund.

If the Illinois Comptroller, a Significant Past Due Creditor, or a pension fund petitions the Authority, their petition shall include documentation of the unit of local government's approval of the petition and participation.

(b) The Authority may seek declaratory and injunctive relief regarding the exercise of its powers and implementation of its findings and recommendations.

(c) Trigger Criteria. The Authority may consider any of the following criteria regarding the unit of local government or its individual pension plan in its determination to accept or deny the party's petition:

(1) past due debt obligations or judgments of more than a specified percentage of the annual revenues of the unit of local government that have been unpaid for more than 6 months without an agreement by the creditors to forbear or standstill as to prosecution of the claims;

(2) failure to make statutory or Annual Required Contributions (or a suitable similar substitute concept) to pension funds from existing operating revenues for 2 consecutive years;

(3) funded ratio for an individual pension plan falls below a threshold set by Authority;

(4) failure to pass a budget by a date established by Authority after the start of the fiscal year;

(5) bills of a specified percentage of annual current revenues are left unpaid for a period greater than 180 days, as defined by a payment period;

(6) failure to maintain at least 30 days cash on hand in the General Fund at end of the fiscal year for 2 consecutive years;

(7) debts or judgments that are past due for more than 6 months or pension liabilities exceed a given percent of the fair market value of taxable real property in the taxing district;

(8) financial statements are not published within 6 months of the close of the fiscal year;

(9) the unit of local government has defaulted on debt securities;

(10) the sum of the Annual Required Contributions and the annual debt service on any outstanding pension obligation bonds has exceeded a thresholds set by the Authority for the last 3 consecutive years; and

(11) any other criteria that the Authority determines is necessary to accomplish its mission.

The Authority shall develop standards for interpreting these criteria and how it shall grant participation to a unit of local government.

Section 45. Participation requirements. If a unit of local government is selected, it must fully cooperate with the requests of the Authority, including, but not limited to: (a) submitting any documents required under Section 35; (b) providing information regarding its budget, revenue sources, and liabilities, including pension funds; (c) annually filing information with the Authority demonstrating their budgets, revenues, costs, liabilities, and funding level for their actuarially determined pension and other post employment benefit liabilities; and (d) providing access to the records of the pension funds for each participating local government for the purpose of confirming this information.