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Illinois stuck in a ‘historic, epic’ budget crisis
2/24/2010 9:22:00 AM
Talk of major tax increases coupled with draconian spending cuts is building in Springfield
By Bob Secter, Tribune reporter
5:56 PM CST, February 23, 2010
Illinois government is staring down the barrel of an explosive financial mess, and perhaps nothing frames the danger better than two big numbers.
The first is $26 billion, the grand total that lawmakers have allotted this year for the meat of what the state does: funding education, health care, child welfare, public safety and the machinery of government itself.
The second number is $13 billion, the total of red ink in the state's main checking account that, by law, has to be erased — at least on paper — before a penny can be set aside for day-to-day operations in the fiscal year, which begins July 1.
In short, the deficit is half as big as the core of the state budget.
To experts, that is an astoundingly scary ratio that ranks Illinois as one of the nation's worst fiscal basket cases — if not the worst. The budget deficit in Illinois is almost as big as the one facing California, a financially beleaguered state that has triple Illinois' population, according to the Center on Budget and Policy Priorities, a liberal Washington-based think tank.
"This is historic, it is epic," said Laurence Msall, president of the watchdog Civic Federation. "It is impossible to overstate the level of peril."
Signs of distress are bleeding out to schools, transit agencies and social service providers, all of which complain that it is getting hard to make ends meet because the state is chronically late with promised cash. Meanwhile, the state's credit ratings are tanking, making it ever more expensive to borrow to make ends meet.
Any resolution will almost surely require sacrifice from taxpayers and state workers as well as political courage from elected officials, a commodity always in short supply but especially so in an election year.
Talk of major tax increases coupled with draconian spending cuts is building in Springfield. Despite the seeming urgency, it is not clear whether it will come to anything more than just talk.
This time last year, the budget outlook was already plenty bleak, yet Gov. Pat Quinn and lawmakers ultimately avoided tough fixes. Delay only added billions of dollars more to the projected deficit.
Illinois is hardly the only state reeling from the recession. But a long and bipartisan history of wishing financial problems away has rendered state government here particularly vulnerable.
Budget pressures began to mount in Illinois long before the economic downturn. But the fashionable response from political leaders was to avoid talk of tax increases or significant spending cuts and instead vow elimination of "waste, fraud and abuse," as if those items appeared in a line in the budget that could simply be cut out.
Now, the state's fiscal woes have grown so deep that solid solutions defy such glib answers.
Consider this: The head count of state workers is 20 percent smaller than it was a decade ago. If the state payroll was magically purged of every single employee, the annual salary savings would amount to $4 billion, less than one-third of what is needed right now to dig out of the deficit hole.
"Any elected official or candidate who says you can solve this without a tax increase is either incredibly math-impaired or intentionally deceiving voters," said Ralph Martire, executive director of the Center for Tax and Budget Accountability, another Illinois budget watchdog.
Last year, federal stimulus spending and a heavy dose of borrowing helped state officials skate around tough budget choices. But now the stimulus money is about to dry up, and the loans must be repaid.
Adding to the challenge is a steep decline in sales and income tax revenue, off nearly $1 billion from what was projected last summer.
The total budget for the current year stands near $55 billion, but about half of that is dedicated for items like road and building programs or earmarked federal funds that lawmakers have little leeway to divert or chop.
The only significant wiggle room resides in the other half of the budget, known as the general funds, which are tapped to pay for most common government operations. And whatever flex there is in the general funds, there's certainly not close to $13 billion worth — an amount equal to what is being spent this year on the State Board of Education as well as the departments of Human Services, Children and Family Services and Public Health combined.
More than $7 billion of the $26 billion in general funds appropriations this year is earmarked for elementary and secondary schools. Any cuts would only increase pressure on local property taxes, which already bear the brunt of public school funding and, as taxes go, are probably more unpopular than the income or sales tax.
Another $8 billion was earmarked for public health care programs including Medicaid, the safety net for the poor that is often a target of criticism from the right. Federal stimulus aid that Illinois is now getting to help stave off financial disaster comes with strings that forbid any rollback in benefits to Medicaid recipients.
Without a tax hike, the Civic Federation estimates, just four key spending items — schools, Medicaid, deficit reduction and debt service on loans the state must repay — will eat through 80 percent of the cash available to pay for all general state programs.
Experts have long warned that the financial reckoning in Illinois was coming, pointing to what they call an inherent "structural deficit" in the state budget. That's a fancy way of saying that revenues collected by the state through taxes, fees and other sources were clearly insufficient in the long run to pay for all the programs and benefits that state officials had put into place.
Rather than confront the imbalance head-on, standard practice in Springfield has been to resort to a combination of fiscal tricks. Revenue projections are unrealistically rosy, money is borrowed with full repayment pushed off years into the future, and multibillion-dollar backlogs of unpaid bills are allowed to fester.
The system was already primed for calamity when the steep recession that began in 2008 knocked it over the edge.
Perhaps the most chronic headache involves pensions. For decades, elected officials have shorted promised contributions to the state's public employee retirement funds. As a result, Illinois by far has the worst-funded pension systems in the nation.
It would be a tall order for the state to totally dig its way out of the hole in one year's budget. But playing catch-up is extremely expensive, and it grows more expensive the longer it takes. Because the state was so short of cash, it borrowed $3.5 billion to meet this year's pension obligations. Next year, debt service on that loan will cost $800 million. And that's in addition to more than $4 billion in pension obligations that the state will be on the hook for in fiscal 2011.
As Msall sees it, Illinois is in such poor financial shape that it risks getting to the point where it can no longer make loan payments or meet state aid commitments to schools.
If that happens, he says, "Illinois' ability to borrow will be eliminated and the state will come to a screeching halt."
bsecter@tribune.com
Copyright © 2010, Chicago Tribune
