The comprehensive pension reform law passed in Illinois last month will “hardly make a dent” in the state's long-term budget deficits, according to a report from the University of Illinois' Institute of Government & Public Affairs.
Without the pension reform, the budget gap between total revenue and total spending is projected to be a $1 billion deficit in fiscal year 2014 and a $14 billion deficit in fiscal year 2025. With the new pension reform law, and assuming it will withstand any constitutional challenges, the gap is expected to improve by $1 billion to $1.5 billion each of the next 10 years, still resulting in a $12.8 billion deficit in 2025.
The law, which is intended to fully fund the state-administered pension plans by 2045, is expected to save $160 billion over the next 30 years.
Even if higher tax rates that are scheduled to decline in 2015 are kept at current levels, the budget gap is expected to be $5.6 billion in 2025 with the pension reforms, compared to $6.9 billion without any reforms.
The IGPA in the first example looked at the budget deficit as the difference between total revenue and total spending. When it is adjusted to include the change in unfunded pension liability, the deficits are $15.8 billion and $10.7 billion in 2025 based on the prior pension law and new law, respectively. Even with continuing the current tax levels, the multibillion-dollar deficits remain at $8.6 billion and $3.5 billion, respectively.
“More than pension revision and higher taxes are needed to close Illinois' structural budget gap,” the report concluded.
Retiree associations have filed three lawsuits claiming the new law violates a stipulation in the state's constitution that pension benefits “shall not be diminished or impaired.”
