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Budget experts say Illinois may not even be able to get ready for next recession

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Friday, August 30, 2019  |  Article  |   By Cole Lauterbach | The Center Square

Budget--State (8) , Economy (34) , Pensions (70)
Budget experts said Illinois' fixed costs and required pension payments prevent the state from putting enough money into reserve funds that could be used to avoid service disruptions or mid-year cuts during a future economic downturn, which some economists predict could come sooner than later.

When the Great Recession hit ten years ago, states across the country struggled with lower tax revenue and smaller returns on investments in the crashing stock market, which put significant pressure on budgets. Some states have since become more disciplined by stress testing budgets and putting money into rainy day funds.

Illinois and some other states have long-term debt that requires large payments with money that could otherwise be earmarked for an emergency.

“Some of these states have very high pension liabilities and it’s really carving out money from anything else they can do,” said Michael Belsky, executive director at the Center for Municipal Finance at the Harris School at the University of Chicago.

The state has $10 million in an emergency fund, with promises to put more $100 million in should voters approve a progressive income tax.

Belsky and others have proposed more comprehensive budget projections along with “stress testing,” which runs those projections through varying degrees of financial downturns and hardships. 

“Between the legacy underfunding and the strong legal protections for promised benefits, dealing with that is, ultimately, a financing challenge,” said David Draine, senior researcher with Pew Charitable Trusts. 

Illinois’ pension funds saw an average loss of 20 percent in fiscal year 2009, according to state pension data.