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Study: Despite pension reform, Ill. deficit grows

Published: Tuesday, Jan. 21, 2014 5:30 a.m. CDT

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SPRINGFIELD – Recent pension reform legislation has been hailed as historic and groundbreaking, but the $160 billion savings plan ultimately won’t make much of a dent in the state’s growing deficits, a report released Tuesday said.

While the changes to the state’s major public pension systems will eliminate their unfunded liability over the next 25 years, the state’s deficit will increase to $13 billion during that time, according to the University of Illinois’ Institute for Government and Public Affairs study.

Institute researchers had projected a $14 billion deficit – a $1 billion difference – if the state had not implemented pension reform.

“The deficit has gotten off the front burner,” Institute Director Chris Mooney said. “And the pension solution, while important, in terms of [its effect on] the budget, it’s a red herring.”

Mooney said the Institute’s study was released purposely as campaigns for the 2014 general election begin to heat up.

“We want to make sure people know what’s going on, and don’t get complacent,” Mooney said. “This thing [this deficit] just drops like a rock regardless of what we do.”

The study, which the institute calls its “Fiscal Futures Project,” made projections by estimating savings from the pension reform plan and assuming that the state’s temporary income tax increase will roll back from the current 5 percent to 3.75 percent as scheduled in January of 2015.

Even if the temporary income tax is extended by lawmakers, researchers say the budget gap would be eliminated by half, standing at $7 billion in 2025.

The unfunded pension liability grew as lawmakers shorted or skipped required payments over the years. Regular overspending by the Legislature, even in healthy economic times, caused the deficit to rise.

The pension reform law, passed in December, followed years of debate about how to reverse decades of lawmakers and governors shorting or skipping pension contributions.

The law, which cuts benefits and raises the retirement age for younger workers but also reduces employees’ contributions and includes a state funding guarantee, would cut the systems’ debt by $21 billion and save $160 billion over 30 years. But it doesn’t take effect until June 1, and several lawsuits have been filed challenging its constitutionality.

While Gov. Pat Quinn, who’s running for re-election in November, has claimed pension reform as a legislative victory, his office of management and budget has indicated that some difficult decisions lie ahead.

“The state faces a challenge with the expiring revenue to develop a solution that will allow the state to continue to pay down its bills and protect education and public safety services from radical budget cuts,” assistant budget director Abdon Pallasch said.

In a report issued earlier this month, Quinn’s office outlined a three-year projection showing the state’s deficit would grow to $1.9 billion in 2015 and $4.1 billion in 2016 if the increase sunsets as scheduled. Correspondingly, the state’s backlog of bills would also grow, from an expected $5.6 billion at the end of this fiscal year in July to $16.2 billion in 2016.

State Sen. Daniel Biss, a pension reform negotiator and mathematician by trade, has long urged that reforms are just a drop in the bucket. The Evanston Democrat says he’s for an “all-of-the-above balanced approach.”

“We have to take steps on the tax side and other steps on the spending side besides pensions,” Biss said. “This is a long-term series of steps and that [pension reform] is one step.”

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