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Illinois Senate rejects key bill in budget deal again

CHICAGO, Feb 28 (Reuters) - The Illinois Senate on Tuesday rejected a key pension bill for a second time, leaving the fate of a bipartisan deal to end the state's record budget impasse on shaky ground.

The bill, which modifies a longstanding, compounding, 3 percent annuity increase most future state retirees are now promised, failed in a 26-27 vote in the Democrat-controlled chamber. On Feb. 8, an initial version of the bill was rejected in a 29-18 vote, with 10 members voting "present."

Senate President John Cullerton kept the measure alive by putting it on delayed consideration in the chamber.

The legislation, aimed at cutting the state's pension costs by about $1 billion a year, is tied to several other bills, including appropriations for the remainder of the current fiscal year, that were negotiated by Cullerton and Senate Republican Leader Christine Radogno in an effort to end Illinois' 20-month budget stalemate. All of the bills are tied to each other, so that if one were to fail to pass the entire package would go down.

Republicans rejected the pension measure even though Cullerton said he amended the bill to include elements supported by Republican Governor Bruce Rauner.

Following the session, Cullerton told reporters that Republicans were under a lot of pressure to block tax increases that were included in the package in order to dig the state out of its deep fiscal hole.

"People have to understand this is a classic compromise," he said.

In a 42-16 vote, the chamber approved $7.7 billion to fund social services, employee health care, payroll, and higher education in the second half of fiscal 2017, which ends June 30.

Illinois is limping through a record-setting second consecutive fiscal year without a complete budget due to an ongoing feud between Rauner and Democrats who control the legislature. A six-month fiscal 2017 budget expired on Dec. 31.

The Senate, on mostly Democratic votes, also passed bills in the package that would add six casinos, including one in Chicago, and provide state funding for Chicago teacher pensions. Senators re-voted on slightly amended bills to tighten state contracting rules and authorize government consolidation in counties that were originally passed Feb. 8.

Other bills that could be taken up by the Senate on Wednesday include an income tax rate hike, a massive borrowing to pay down Illinois' $12 billion unpaid bill pile, and a local property tax freeze.

(Reporting by Karen Pierog; Editing by James Dalgleish)