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Fun with numbers

Tuesday, Jan 21, 2014

* AP

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 says.

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.”

The study is here.

* The Institute is projecting a $1 billion deficit for this fiscal year that doesn’t actually exist. If that’s the case, then I really gotta wonder about the rest of their numbers.

And even using their possibly flawed numbers, the pension reform (if it survives the courts) will save Illinois on average about a billion dollars per year through 2025, using a “cash budget gap” formula. Annual savings are designed to go way up after that, however.

* Also, the Institute admits that a different projection formula, which accounts for the annual change in unfunded liability, is “arguably more meaningful.” Using that projection of the pension reform law’s impact, you get an average annual savings of $5.5 billion. That’s pretty darned substantial.

And using that “arguably more meaningful” formula, if both the tax hike and the pension reform law remain in place, the average annual budget gap over twelve years is about $800 million. That ain’t great, but it’s far more manageable than repeal of both laws, which gives us an average annual budget deficit of a whopping $10.5 billion. Using the cash budget gap formula, repeal of both the tax hike and pension reform laws would result in an average annual deficit of $8.2 billion.

* So, yeah, not all problems are solved, but they are a whole lot more manageable with a permanent tax hike and the new pension reform laws than without.

- Posted by Rich Miller        

  1. - langhorne - Tuesday, Jan 21, 14 @ 12:28 pm:

    tho i dont much like it, i hope the pension reform law, or most of it, is upheld. only because i dislike the cullerton approach even more.

  2. - wordslinger - Tuesday, Jan 21, 14 @ 12:44 pm:

    I don’t see how you can reasonably project deficits 25 years out.

  3. - Liberty - Tuesday, Jan 21, 14 @ 12:45 pm:

    So it won’t hurt the state so much when the court tosses. Shame on the Republicans for their disdain for contractual law. Shame on the Democrats for their betrayal of employees.

  4. - 47th Ward - Tuesday, Jan 21, 14 @ 12:47 pm:

    When you describe a competing or opposing viewpoint as “arguably more meaningful,” then it’s time for you to re-think your case and maybe start over.

  5. - AnonymousOne - Tuesday, Jan 21, 14 @ 1:00 pm:

    All those hurt by the pension law have known from the start that pension thumping is not about saving the state from financial ruin. It was a call for blood letting from the disdained teachers and public employees simply because many in the private sector have lost some of their benefits. The only way to get back on financial track that even vaguely involves the topic of public pensions is the Martire plan, the plan that no legislator would lend credence to. Just re-emphasizes why we’ve gotten into this mess in the first place. Incompetence and politicking.

  6. - Rob Roy - Tuesday, Jan 21, 14 @ 1:04 pm:

    First if the state had paid it’s portion all along there wouldn’t be a shortfall. And correct me if I am wrong but I think the number they throw out is if they had to pay it out all at once not over time. Will not stand up in court.

  7. - illinifan - Tuesday, Jan 21, 14 @ 1:10 pm:

    Pension reform was indeed a red herring, but can happen now is to say to the citizens of Illinois that the tax hike has to remain in place and justify it with saying reform was done but it was still not enough. The hope is to make the tax hike more palatable by saying the employees took a hit as well. If the pension reform is thrown out later, by then the tax hike or other tax reforms are permanent.

  8. - Andrew Szakmary - Tuesday, Jan 21, 14 @ 1:12 pm:

    I wish I could deputize myself, declare police powers, and unilaterally force banks who lent me money on my mortgage, credit cards and student loans to accept less than what I contractually owe them. My personal financial situation would improve quite dramatically! But I suppose only rich and powerful entities like the State of Illinois can do that.

    Is this what we have come to? In place of the rule of law, and equality before the law, we will simply substitute the old Hungarian proverb: Jupiter is allowed to do things that oxen are not.

  9. - Chi - Tuesday, Jan 21, 14 @ 1:12 pm:

    The numbers on how the tax hike effects the deficit is the biggest reason Rutherford is the only GOP candidate that is being reasonable. The others are flat out lying, taking us for fools.

  10. - anon - Tuesday, Jan 21, 14 @ 1:39 pm:

    “not all problems are solved, but they are a whole lot more manageable” Manageable for whom? Not for those who just had 30 to 50 % of their life savings stolen by pension “reform.”

  11. - JustMe_JMO - Tuesday, Jan 21, 14 @ 2:15 pm:

    A question vs comment.

    I wonder if any of our elected leaders have any thoughts on what will be required after the court makes it final ruling?

    Does the court have to rule on Public Act 098-0599 as a whole or can they rule on individual changes within it?

    “Beginning July 1, 2014, all Tier 1 employee contribution rates will decrease by 1%.”

    If upheld the state immediately starts losing pension revenue. If rejected the state has to recoup over payments from employees.

  12. - Anonymous - Tuesday, Jan 21, 14 @ 2:21 pm:

    === So, yeah, not all problems are solved, but they are a whole lot more manageable with a permanent tax hike and the new pension reform laws than without ===

    === I don’t see how you can reasonably project deficits 25 years out ===

    Frankly, I don’t see how you can reasonably project savings 25 years out. Not with the profligate spending ways of the state gov’t.

  13. - Jimbo - Tuesday, Jan 21, 14 @ 2:38 pm:

    I’ll keep my 1% and my pension thanks. Oh, I’m not allowed to unilaterally dictate terms? Glad we agree. :). Really, I’m happy with my benefits reduced or not, I’m just concerned further reductions will follow if this holds up in court.

  14. - AnonymousOne - Tuesday, Jan 21, 14 @ 2:40 pm:

    In anticipation of less income from the pension cut, we’ve had lots of fun helping to cut the incomes of various service providers we’ve subscribed to over the years. They seem indignant that we’re leaving them to preserve our income, thereby hurting theirs, but that’s a consequence of less spendable income by a significant portion of citizens in this state. More than public employees/pensioners are going to be impacted at a time when our state is struggling to get back on it’s feet financially. Oh well. What did they think would happen?

  15. - Chris - Tuesday, Jan 21, 14 @ 3:44 pm:

    “I’ll keep my 1% and my pension thanks.”

    I’ll take the cut to 3% income tax and let somebody else pay for it after I move to another state, thanks.

    It’s equally dumb with whatever variation.

  16. - Arthur Andersen - Tuesday, Jan 21, 14 @ 4:41 pm:

    Rich, I’ve read this thing three times and it flat don’t make sense. May be getting slow in old age or the learned professors have just missed the mark, starting with the issue that in Illinois we don’t usually talk about “an all funds budget deficit.”

  17. - RNUG - Tuesday, Jan 21, 14 @ 5:09 pm:

    JustMe_JMO - Tuesday, Jan 21, 14 @ 2:15 pm:

    The GA, in it’s wisdom or idiocy, made the pension bill mostly non-severable … if significant portions get ruled unconstitutional, it will almost all get tossed.

  18. - lost in the weeds - Tuesday, Jan 21, 14 @ 9:39 pm:

    This headline makes no sense. Pension cuts do nothing? If I take 160 billion in savings and divide by 30 years I get 5.3 billion dollars a year savings.

    Then the article says it will reduce the deficit somewhat.

    Then the article says the deficit will be 13 billion without explaining that it is projected annual deficit ( I am assuming).

    I guess I could read the report and see if it makes sense.

    I guess pension reform was supposed to get rid of the entire structural deficit of the budget not just the pension liabilities. Maybe the retirees can pay the state rather then get a pension so everyone else can have their taxes reduced.

    More math in the classroom is needed.


  19. - HUH? - Wednesday, Jan 22, 14 @ 6:16 am:

    This law will “fix” the problem in 25 years?

    The last law (the payment ramp) gonna fix the problem in 40 years? We are 1/2 way thru the ramp and now we fix the fix?


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