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Fiscal Futures Project report finds that pension reform will not fix Illinois' budget deficit
The changes—should they survive a constitutional challenge—will eliminate the unfunded pension liability over the next 25 years. However, the Fiscal Futures Project found that the state will still face a $3 billion budget deficit in FY 2015, and a $13 billion deficit by 2025. This is hardly different than the $14 billion deficit the researchers projected for FY 2025 if the state had not implemented pension reform.
The new pension law does substantially reduce the fiscal burden to the state of paying for future pension obligations. The savings to the state come mostly from reductions in cost of living adjustments for current and future recipients of state pensions. However, the changes hardly make a dent in the long-term fiscal situation because the state will only allocate about $1 billion each year to reduce the annual scheduled payments to the pension funds, money that can be applied to the deficit.
The Fiscal Futures Project also found that making the 2011 tax hike permanent, combined with pension reform, would only eliminate roughly half the budget gap. The researchers project a deficit of $1 billion in FY 2015, growing to $6 billion in FY 2025 under those conditions.
“The pension revision law of December 2013 was a huge step in the direction of fiscal stability for Illinois,” the authors of the report said. “Unfortunately, the state’s fiscal problems are so great that much still remains to be done.”