Arguably the three hot-button issues in state politics this year are the budget hole, pensions, and education policy. And they’re all somewhat tied together through fiscal and labor issues. This week, as the eyes of Chicago have been on the Blagojevich trial, there have been some significant developments emerging from the statehouse dome that bear watching as they evolve into law.

* First, House minority leader Tom Cross has proposed specific changes to state pensions (not including the very healthy Municipal Retirement Fund). Significantly, the bill is co-sponsored by Michael Madigan, so it comes in with not just with political power behind it but also bi-partisan momentum. It takes the two-tier idea that was frequently discussed during the previous elections—making current benefits more expensive and pairing them with a reduced-benefit plan—and adds a 401k option.

The full legislation is here. Rich Miller breaks down the tiers here, and the employee-contribution increases are significant: in Chicago and Cook County, the increased employee contribution is between 42 percent and 70 percent of current Tier 1 employee contribution.

* One of the big fights coming on the national scene is the raising of the debt ceiling. In Illinois we now have our own miniature version of that: treasurer Dan Rutherford has said he’ll go to lenders and rating companies and tell them, "hey, we’re a massive debt risk. Raise our rates! Save us from ourselves!" I’m not exactly sure how much actual impact that would have; it’s clear the state has a lot of debt, and it’s clear that many state Republicans don’t want to add more. So I don’t know how much Rutherford’s objection could actually impact the terms on which the state borrows. But let him tell it in more detail (via Illinois Statehouse News, which does a great job getting video of our politicians):

Part two of the video is here. (Update: Illinois Statehouse News talks with Judy Baar Topinka about the bill backlog.)

But Archpundit makes a good point: the borrowing is meant to pay off existing debt. It’s not meant to add more debt; it’s meant to restructure the way the state is paying its required dues to vendors and other parties the state owes: "Instead of borrowing from people willing and capable of loaning the state money, we are borrowing from state vendors, doctors and other health care providers who treat state employees and all sorts of other people and organizations the state pays money to."

* And the education policy package that passed both houses remains unsigned; state senator Kimberly Lightford is ironing out the details of the strike provisions before it hits Pat Quinn’s desk.

Photograph: LongitudeLatitude (CC by 2.0)