State of Illinois
2017 and 2018


Introduced , by Rep. David Harris


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.

LRB100 10391 AWJ 20588 b






HB2575LRB100 10391 AWJ 20588 b

1    AN ACT concerning local government.
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4    Section 1. Short title. This Act may be cited as the
5Illinois Local Government Protection Authority Act.
6    Section 5. Findings and purpose.
7    (a) The General Assembly finds that:
8        (1) The State and units of local government are in
9    financial distress, evidenced by reductions in government
10    services. These reductions have been spurred by the
11    escalating costs of promised services, salaries,
12    retirement annuities, and healthcare benefits.
13        (2) Certain goods, services, pensions, and retiree
14    health care costs are expected to grow at a faster rate of
15    inflation in the coming years.
16        (3) Illinois taxpayers have supported tax caps in the
17    past, compelling units of local government to manage within
18    existing tax and revenue limitations.
19        (4) If sufficient revenue is not raised to pay for
20    services and costs or, in the case of pensions, irrevocably
21    set aside and prudently invested, local governments'
22    unfunded liabilities including pension and Other Post
23    Employment Benefit (OPEB) obligations shall continue to



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1    grow at a staggering rate;
2        (5) As a matter of law, demands from retirees for both
3    pension and OPEB payments may have the same priority for
4    payment as those of ordinary suppliers of goods and
5    services, employees necessary for normal operations, and
6    perhaps many bondholders.
7        (6) A cooperative effort between the State and a
8    financially challenged unit of local government that
9    involves local elected officials and local governmental
10    bodies and taxpayers, workers, and business entities
11    developing a plan of financial recovery is the best way to
12    find a permanent solution to current financial challenges.
13    (b) Therefore, the purpose of this Act is to:
14        (1) provide voluntary resolution and assist units of
15    local government to find affordable solutions so that basic
16    services can be provided on a long term basis;
17        (2) aid in achieving solutions to the problems set
18    forth in this Section and aid units of local government to
19    fully fund essential government services and make
20    sustainable contributions to pensions and OPEB obligations
21    to maintain the credibility of Illinois units of local
22    government;
23        (3) provide a forum in which taxpayers, elected
24    officials, public employers, and employees can address
25    issues relating to essential government services,
26    financial difficulties relating to costs, judgments,



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1    liabilities and post-employment benefit rates, and payment
2    structures and provide transparency to the public as to the
3    affordability and sustainability of these services and
4    benefits; and
5        (4) offer an alternative to bankruptcy.
6    Section 10. When used in this Act:
7    "Significant Past Due Creditor" means a creditor that has
8not been paid on a liquidated debt obligation (unpaid for 6
9months or more) of $5,000,000 or 10% of the annual revenues of
10the unit of local government, whichever is greater.
11    "Uniform Calculation Method" means the funding ratio for
12pension plans determined based on uniform actuarial
13methodology, including assumptions based on comparable returns
14on investment (such as the discount rate) from information
15annually required to be provided to the Authority.
16    "Unit of local government" means all local governmental
17entities with funding responsibilities for operating costs,
18such as contract costs for goods and services, labor, and the
19pensions and other benefits for their employees. "Unit of local
20government" does not include school districts.
21    Section 15. Creation. There is created a political
22subdivision to be known as the Illinois Local Government
23Protection Authority for the purposes set forth in Section 5 of
24this Act.



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1    Section 20. Board of Trustees. The Authority shall consist
2of a 9-member board of trustees, who shall be appointed as
4    (a) Four trustees shall be appointed by the Illinois
5Municipal League.
6    (b) One trustee shall be appointed by the Governor.
7    (c) One trustee shall be appointed by the Speaker of the
8House of Representatives.
9    (d) One trustee shall be appointed by the President of the
11    (e) One trustee shall be appointed by the Minority Leader
12of the House of Representatives.
13    (f) One trustee shall be appointed by the Minority Leader
14of the Senate.
15    After the first appointment of trustees under this Act, the
16trustees shall determine, by lot, 2 trustees to serve for terms
17of 2 years, 2 trustees to serve for terms of 4 years, and 3
18trustees to serve for terms of 6 years. All trustees appointed
19under this Act thereafter shall serve for 6-year terms and
20until their respective successors are appointed and qualified.
21    Section 25. Funding; fees. The Authority shall accept and
22expend appropriations for the purposes set forth in this Act.
23The Authority shall establish and implement a fee schedule that
24shall be paid by participating units of local government. The



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1Authority may alter the fee schedule at any time. The State
2Comptroller's Office shall collect local government reports
3required by the Authority and provide administrative and
4operational support for Authority and its functions.
5    Section 30. Duties. The Authority shall provide a
6supervised forum to assist with the determination of the
7following issues resulting from underfunded government
8services and unaffordable costs and liabilities for local
10    (a) what essential government services and post-employment
11benefits are affordable and sustainable;
12    (b) what cost-cutting measures are necessary to achieve
13affordable services and benefits;
14    (c) whether a tax increase is necessary to provide
15additional funding;
16    (d) what contribution increases, by both public employers
17and employees, are necessary to maintain the viability of
18pensions or other employee benefit programs;
19    (e) what amount of State revenue is necessary to pay for
20required services, indebtedness, and benefits so that
21essential governmental services can be provided and the unit of
22local government can maintain access to the unit of local
23government's debt market at relatively low cost;
24    (f) whether the unit of local government should engage in
25voluntary or mandatory arbitration regarding contractual or



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1labor disputes;
2    (g) whether services or costs of the unit of local
3government should be transferred to other governmental bodies;
4    (h) whether certain services should be consolidated with
5other governmental bodies or transferred to a regional or
6multi-jurisdictional authority;
7    (i) whether the unit of local government should be
8authorized to file for Chapter 9 proceedings under the Federal
9Bankruptcy Code;
10    (j) whether, given the findings of Authority, the unit of
11local government's plan of a debt adjustment can be prepackaged
12or prenegotiated;
13    (k) whether consolidation with other governmental bodies
14by public-private partnerships or by leasing, sale of assets,
15or granting the rights to provide the services within defined
16parameters of costs and services is an effective option to cut
17costs; and
18    (l) whether popular solutions from private industry to
19solve post-employment benefit funding problems may have some
20applicability to situations facing local governments,
22        (1) changing retirement promises for new hires from
23    defined benefit plans to reduced defined benefit plans,
24    cash balance plans, or defined contribution plans and
25    variations thereto, whereby the public employer's
26    contribution is fixed and the employee's contribution can



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1    vary based on the benefit desired by the employee subject
2    to State and federal law;
3        (2) transferring OPEB obligations from employers to
4    trusts administered by employees, funded with a one-time
5    employer contribution and ongoing employee contributions
6    or transfer retirees to an exchange created under the
7    Affordable Care Act; and
8        (3) requiring representatives of public employees and
9    employers negotiate affordable cost reductions to existing
10    plans.
11    In addition, the Authority shall develop criteria for
12measuring the financial health of local governments and make
13public comment on whether costs of operation, including
14services, labor, and pension and Other Post Employment Benefits
15obligations, can be paid from reasonably available sources
16without impairing a unit of local government's primary mission
17of providing essential services.
18    Section 35. Powers. The Authority shall have the power to:
19    (a) Provide recommendations consistent with the purposes
20of funding and enforcing reasonable and affordable government
21services and costs of operation, labor and post-employment
22benefits for employees of a local government.
23    (b) Obtain information required under this Section and
24Section 45 from all participating units of local government.
25    (c) Create a funding target and set an acceptable level of



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1essential governmental services and increasing percentage
2targets for an appropriate level of annual funding for pension
3funds so that by a specified date, full or appropriate funding
4is realized by the participating funds.
5    (d) Encourage units of local government that fail to meet
6the Authority's annual funding targets to enter into cost
7reduction negotiations between public employers and their
8employees. The Authority shall provide assistance with these
9cost reduction efforts, including employer-employee benefit
10adjustment discussions.
11    (e) Mediate discussions regarding appropriate levels of
12local government services, costs, taxes, pension funding, and
13benefits to ensure that they are within an acceptable range of
14the funding target.
15    (f) Make findings regarding affordable levels of services
16and costs, including labor costs and employee benefits, that
17allow adequate funding for essential governmental services.
18    (g) Approve settlements.
19    (h) Recommend a tax increase that requires a vote by the
20unit of local government on the tax increase. Home rule local
21governments shall have their representative body vote on the
22recommended tax increase. The Authority may require a
23referendum regarding the tax increase for non-home rule local
25    (i) Recommend a diversion of State revenues in order to
26fund specified costs of operation, labor, and post-retirement



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2    (j) Recommend voluntary mediation.
3    (k) Require annual work plans, along with quarterly
4progress reports, from local governments that have not met the
5cost reductions or pension funding target.
6    (l) Require participating units of local government that
7have individual budgets that are not affordable or specific
8pension plans with funded ratios below a level determined by
9Authority and have not met the funding target for 2 consecutive
10years to submit an explanation to their electors. The
11affordability of the budget and acceptable levels for essential
12governmental services shall be determined by standards
13established by General Assembly based on recommendations by
14Authority. The funding ratio for pension plans shall be
15determined according to the Uniform Calculation Method. The
16required explanation to the electors shall include a Statement
17of the impact of the underfunding of obligations and pensions
18on the provision of essential governmental services and shall
19be published in a newspaper of general circulation. The
20Authority shall establish rules and guidelines for the
21reporting and publication by units of local government.
22    (m) Consider and make recommendations to the General
23Assembly legislation regarding an economic safety net whereby
24the State shall provide a set of fallback post-employment
25benefits for employees in the event that a public employer has
26not resolved the underfunding of its pension plan and



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1thereafter is unable to pay its retirees. The program shall use
2the federal Pension Benefit Guaranty Corporation as its model.
3Contractual benefits would have to meet affordability tests
4prior to being approved for safety net funding. The outcomes of
5the affordability tests may result in smaller benefit payments
6than were initially promised to the employees by the defaulted
8    Section 40. Petition and criteria. The Authority may
9exercise its authority over a unit of local government under
10this Act if the Authority is petitioned and the Authority
11accepts the participation of the unit of local government
12identified in the petition. The Authority has absolute
13discretion regarding acceptance or denial of any petition and
14participation of a unit of local government. The Authority
15shall create rules regarding the petition, procedure, format,
16and required documentation.
17    (a) The following parties may petition the Authority:
18        (1) the Illinois Comptroller;
19        (2) a unit of local government;
20        (3) a Significant Past Due Creditor; or
21        (4) a pension fund.
22    If the Illinois Comptroller, a Significant Past Due
23Creditor, or a pension fund petitions the Authority, their
24petition shall include documentation of the unit of local
25government's approval of the petition and participation.



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1    (b) The Authority may seek declaratory and injunctive
2relief regarding the exercise of its powers and implementation
3of its findings and recommendations.
4    (c) Trigger Criteria. The Authority may consider any of the
5following criteria regarding the unit of local government or
6its individual pension plan in its determination to accept or
7deny the party's petition:
8        (1) past due debt obligations or judgments of more than
9    a specified percentage of the annual revenues of the unit
10    of local government that have been unpaid for more than 6
11    months without an agreement by the creditors to forbear or
12    standstill as to prosecution of the claims;
13        (2) failure to make statutory or Annual Required
14    Contributions (or a suitable similar substitute concept)
15    to pension funds from existing operating revenues for 2
16    consecutive years;
17        (3) funded ratio for an individual pension plan falls
18    below a threshold set by Authority;
19        (4) failure to pass a budget by a date established by
20    Authority after the start of the fiscal year;
21        (5) bills of a specified percentage of annual current
22    revenues are left unpaid for a period greater than 180
23    days, as defined by a payment period;
24        (6) failure to maintain at least 30 days cash on hand
25    in the General Fund at end of the fiscal year for 2
26    consecutive years;



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1        (7) debts or judgments that are past due for more than
2    6 months or pension liabilities exceed a given percent of
3    the fair market value of taxable real property in the
4    taxing district;
5        (8) financial statements are not published within 6
6    months of the close of the fiscal year;
7        (9) the unit of local government has defaulted on debt
8    securities;
9        (10) the sum of the Annual Required Contributions and
10    the annual debt service on any outstanding pension
11    obligation bonds has exceeded a thresholds set by the
12    Authority for the last 3 consecutive years; and
13        (11) any other criteria that the Authority determines
14    is necessary to accomplish its mission.
15    The Authority shall develop standards for interpreting
16these criteria and how it shall grant participation to a unit
17of local government.
18    Section 45. Participation requirements. If a unit of local
19government is selected, it must fully cooperate with the
20requests of the Authority, including, but not limited to: (a)
21submitting any documents required under Section 35; (b)
22providing information regarding its budget, revenue sources,
23and liabilities, including pension funds; (c) annually filing
24information with the Authority demonstrating their budgets,
25revenues, costs, liabilities, and funding level for their



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1actuarially determined pension and other post employment
2benefit liabilities; and (d) providing access to the records of
3the pension funds for each participating local government for
4the purpose of confirming this information.