State pension drain expected to hit schools, government operations


SPRINGFIELD -- Education programs face a $400 million cut in next year’s state budget because of increased pension costs, according to preliminary figures released by Gov. Pat Quinn’s office.

The new report also shows an expected $265 million reduction under the heading of “government services,” which includes budgets for the General Assembly, courts, statewide officials and agencies under Quinn.

“It would be a bit premature to say if there’s going to be any reduction in workforce. Who knows what tomorrow may bring?” said Quinn assistant budget director Abdon Pallasch. “There are no plans, there’s no notices going out. It’s just here’s how bad things are looking. If we pass pension reform tomorrow, that helps start us back on the right path.”

The information is contained in an economic and fiscal policy report that must be issued annually by the governor’s office. It sets out broad outlines for the state budget for the next three years.

The report is not the detailed budget proposal that Quinn will present to lawmakers in March. However, it does give an outline of what Quinn is likely to propose then.

Pensions wipe out gains

The report estimates revenue from state taxes and federal assistance will increase by $600 million for the 2014 budget year that starts July 1. However, it also says pension obligations will increase by $945 million, wiping out the increase in revenues.

Worse, some federal money may not materialize because of ongoing budget talks in Washington, Pallasch said.

“It’s still not clear what the impact might be on the state budget,” Pallasch said. “Some federal aid to states may be cut.”

Still, the numbers predict a reduction of about $864 million in the state’s $8.3 billion backlog of unpaid bills.

“Spending reductions and program efficiencies will enable the state to continue to reduce the backlog of past due bills while continuing to provide basic support for its statutory obligations for education, public safety, healthcare, human services and other government mandated programs,” the report says.

The outline says spending on state employee health insurance is likely to more than double, to nearly $1.2 billion, in the next budget. Employee group health insurance was deliberately given less money than it needed in the current budget, leading to significant payment delays for medical services.

“We’ve basically run out of money this year to pay for group health insurance,” Pallasch said.

2015, ‘16 pictures worse

The administration is trying to get lawmakers to approve more money for health insurance in the current budget.

The report indicates a 15 percent cut in spending on economic development and further reductions in human services spending except for programs administered by the departments on Aging and Human Services.

The picture gets even worse in the 2015 and 2016 budget years if the bulk of the 67 percent income tax increase is allowed to expire at the end of calendar 2014 (the midpoint of the 2015 budget year). Spending on education programs is projected to drop by more than $1.4 billion, and the broad category of human services will see a $1 billion reduction.

The rollback of the 2011 temporary income tax hike, coupled with increased pension costs, will require a wholesale review of state budgets, the report concluded.

“Fiscal year 2015 and 2016 will require much larger reductions in spending, requiring extensive program redesign to meet the projected budget targets,” it said. “The budget will be balanced with across-the-board spending reductions of 5.7 percent and 13.6 percent in fiscal years 2015 and 2016, respectively.”

Doug Finke can be reached at (217) 788-1527.