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Pension debt costs hurt across Ill.

Published: Monday, Jan. 14, 2013 5:30 a.m. CST

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SPRINGFIELD – Stacy Goodar was in her first year at a private hospitality management school when she learned she would lose several thousand dollars in state financial aid. Though she qualified for the need-based scholarship, the 22-year-old — like about 18,000 other students statewide – was cut off because Illinois' grant program ran out of money.

"It's why a lot of students drop out," Goodar says. "If you can't afford it, what else are you going to do?"

The college scholarships are just one casualty of the multibillion-dollar Illinois pension crisis continuing to wreak havoc with the state's budget, siphoning cash away from areas such as education, public safety and human services and jacking up the cost of borrowing money for the state and its cities, counties and school districts.

The financial crunch will only worsen after lawmakers failed to enact reforms in the legislative session that ended last week. If they don't pass a bill before the next session ends at the end of May, the state's unfunded pension liability – currently $96 billion – will have ballooned by another $2.45 billion.

Behind the nearly unfathomable numbers and often impenetrable debate at the Capitol, real people and programs are feeling the impact. There's less money for poor people to get medical care. More public employees are losing their jobs. Class sizes are surging. And taxpayers are paying more when their cities borrow money, thanks to what's become known around New York bond houses as "the Illinois effect."

Illinois' annual pension fund payment is expected to increase by about $1 billion to nearly $7 billion in the fiscal year that starts in July. That's more than 16 percent of the state's general funds budget, up from 6 percent in 2008.

As the share of money for pensions has grown, other areas have shrunk. In 2008, education received 30 percent of the general funds budget and health care accounted for 28 percent. This year, 26 percent went to education and 24 percent to health care.

Budget projections released Friday by Gov. Pat Quinn's office predict education funding will be cut by about $400 million in the next fiscal year. The forecast also calls for cuts to economic development programs and public safety.

"We've been living nothing but pain for the last several years in state government, and we know that we'll continue living nothing but pain until we solve this," said state Sen. Daniel Biss, D-Evanston, a sponsor of reform legislation.

Illinois' public-employee pension accounts are the most underfunded in the country, holding just 39 percent of the money needed to pay benefits promised to workers and employees. The shortfall is the result of decades of skipped or shorted payments, workers living longer and economic downturns that led to investment losses.

The governor had set a deadline for lawmakers to pass pension reform before the lame-duck legislative session ended last week and new elected officials took office. But the House adjourned Tuesday without taking a floor vote on a proposal. The new session started Wednesday, but lawmakers aren't expected to consider legislation until the end of this month.

Even then the issue will continue to be a hot potato. Among options are asking employees to contribute more toward their own retirement, requiring them to work longer in their careers, and freezing cost-of-living adjustments – all unpopular with public-employee unions. Quinn and other top Democrats also want to shift the cost of teacher pensions to local school districts, a move Republicans and some Democrats have opposed because they think it will lead to tax increases.

Meanwhile, local governments and taxpayers feel the squeeze of less state funding. DuPage County Board Chairman Dan Cronin said cuts to human services forced DuPage County to close its juvenile detention center and enter into a contract with nearby Kane County to house its juvenile offenders.

Sixteen county employees were laid off, and some residents complained that if their kids got in trouble they were held miles away from their homes. But Cronin said the funding situation left the county with few options.

County residents also were affected by the crisis when the county issued bonds recently for a new storm water project. Though the county has a positive, AAA bond rating, it had to pay a slightly higher interest rate because it's in Illinois – a charge referred to as "the Illinois effect."

Other municipalities pay the same surcharge.

"Because the name and reputation of Illinois is so bad in the bond market, we all have to pay a bit more to make it more attractive," said Cronin, a Republican and former state senator from Elmhurst. "The state of Illinois has an impact on local government. It's profound."

On Friday, Fitch Ratings, a major credit rating agency, lowered Illinois' outlook to negative, signaling that if the state doesn't pass reform in the next six months its rating could be downgraded. Two other ratings agencies  already have given the state a negative outlook, and Illinois is Moody's lowest-rated state.

Quinn has warned that another rating downgrade is possible if lawmakers don't act.

Goodar, meanwhile, transferred to one of the City Colleges of Chicago and took out another loan, bringing her own total debt to $15,000. She's still worried about how to pay the final $400 she owes for this semester at Kennedy-King College.

One of three kids in her family in college, Goodar says her mom is proud but the costs "take a toll on her."

"Hopefully no one else will come and say 'I owe more money,'" she said.

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