We’ve known for awhile that Illinois’ fiscal situation is a disaster. Now we know just how badly we’re doing compared with other states: Last week, the Pew Center on the States named Illinois one of the 10 most financially troubled states in the nation. The report, "Beyond California: States in Fiscal Peril,"compared California (which recently had to make payments to state vendors with IOUs) with the rest of the states. Illinois, with a projected budget deficit of $13.2 billion for FY2010, ranked fourth worst in the nation. Authors of the report cited state leaders "lack of fiscal discipline to balance its state budget" as the main reason for the ranking.
The State Doesn’t Pay Its Bills
Essentially the state has run a deficit every year since 2001, dodging the constitutionally required balanced budget by delaying payments from one fiscal year to the next to Medicaid vendors, such as doctors, pharmacists and small business owners that provide social services. This practice is actually legal under Section 25 of the state finance act. Right now, Illinois owes about $3.5 billionto those vendors. Add that to the routine practice of putting off required state pension payments, a debt that stands at $70 billion, and it’s easy to see how the state finds itself in this mess. So while California hands out IOU's, Illinois just doesn’t pay its bills. In the past, when the state pushed off “just” a few billion in bills to the next year, it was easier to mask. It’s harder to push off $13 billion, especially when revenues are down. To further complicate matters, the state routinely takes out loans to pay the backlog. We’re only five months into the fiscal year, and Illinois already has borrowed $2.25 billion. That loan must be repaid by June 30, along with $45.4 million in interest payments. It’s unclear where the state will get the money to repay the loan.
No Plan to Fix the Problem
Last March, Gov. Quinn proposed several budget reforms to help get us out of this mess, including raising the income tax, changing pension benefits for new employees, and cost cutting. That proposal never gained traction in the General Assembly. The Illinois Senate passed HB 174, which would have raised the income tax and expanded the sales tax to services, but that bill didn't move in the House. At this point, the deficit is so large neither proposal would close the gap. We just came out of a fall veto session where no revenue or spending changes were addressed. Most likely, legislators will deal with the budget mess after the February primary, but then any changes will only take affect for a few months of the fiscal year, not nearly enough time to gather enough revenues or cost savings to close the gap.
Some argue the state can simply cut its way out of the mess, but that’s almost impossible. The deficit equals half of the general fund budget. Cutting that budget in half would mean eliminating all state support for K-12, higher education, and social services. Also, the state is legally required to provide services for those who qualify for Medicaid and unemployment insurance, which increases with the unemployment rate.
It Affects Us All
When the state doesn’t pay its vendors on time, those small business have to lay off employees. Progress Illinois reports almost 2,000 people have been laid off because of the budget mess, the ramifications rippling throughout the economy. The state’s poor fiscal practices also have caused its credit rating to drop, meaning higher interest payments on loans and bonds. When the state has gigantic revenue problems, it doesn’t send required payments to universities, Southern Illinois hasn’t received a state payment since July.
The fiscal situation affects us all. We all pay taxes. We all drive on roads or ride public transit. We all want police protection and good local schools.
State finances are broken and have been for some time. Leaders need to examine the state’s spending and revenue practices and get rid of what’s not working now. Waiting until after the primary means three more months of inaction on the worst budget situation in decades.