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Illinois Issues
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Ends and Means: Illinois , Like States Across the Nation, Faces a Tight Revenue Squeeze

Charles N. Wheeler III
WUIS/Illinois Issues

A few weeks ago, Congress and the George W. Bush administration cobbled together a $700 billion rescue plan for Wall Street, in hopes of avoiding economic catastrophe for Main Street.

Too bad the plan’s architects didn’t worry about Capitol Avenue and Statehouse Square as well, as state governments from California to Rhode Island struggle with sagging revenue growth that is jeopardizing their ability to provide needed services.

Noted Stateline.org, a nonprofit, nonpartisan online news site last month:

“The financial crisis has deepened in many state capitals with tight credit markets and new, pessimistic budget figures that pose the biggest threat to states’ fiscal health in 25 years. Grim-faced state officials, seeing reports from the first three months of the budget year that began July 1 for all but four states, are bracing for further declines in tax revenue because of the housing slump, rising unemployment and a slowdown in consumer spending.”

The budget crunch has forced states from coast to coast to lay off workers, freeze contracts, reduce program spending and postpone bond issues for needed projects, Stateline reported.

Illinois, too, is gripped tightly by the current revenue squeeze. Consider:

• Overall base revenues to the state’s basic checking account were down $38 million for the first three months of the fiscal year, reported the Commission on Government Forecasting and Accountability, the legislature’s forecasting arm. While income and sales taxes posted “modest rates of growth” over the comparable first quarter of FY 2008, the take from riverboat gaming and from the lottery was off a combined $55 million, federal aid was down $57 million, and investment interest dipped $31 million. The figures “paint a less than rosy revenue picture,” the commission concluded.

• At the end of September, the state’s general funds cash position was weaker than ever before at this point in a fiscal year, state Comptroller Daniel Hynes said. More than 100,000 unpaid bills — totaling more than $1.8 billion — were being held in his office for lack of cash to pay them, an increase of $430 million from the backlog a year ago. Health care providers and other vendors were waiting 42 working days — more than eight weeks — for payment, also a record for the first three months of a fiscal year.

• Income and sales tax collections could come in as much as $200 million below current projections, the Illinois Department of Revenue warned. The unusual pronouncement — the agency almost never issues such projections —came as lawmakers prepared to restore $221 million to avert layoffs and cuts in human service programs and to keep open almost two dozen state parks and historic sites slated for closure. Gov. Rod Blagojevich had pared them from the budget in July.

While such grim news largely reflects the national economic meltdown, Illinois’ fiscal problems are deeper and more longstanding, the inevitable consequence of budget and fiscal policies that habit-ually have the state living beyond its means.

For example, when fiscal year 2008 ended on June 30, the state had $141 million in general funds in the bank, $500 million less than a year earlier. At the same time, $975 million of outstanding bills remained to be paid, roughly $200 million more than the prior year. The result? An $834 million budgetary deficit, $700 million higher than FY 2007 and the largest gap between year-end cash balance and outstanding bills since 2003. So the first $800 million-plus in current revenues went to pay last year’s bills.

Indeed, not since FY 2001 has the state had enough money on hand to cover outstanding bills — that’s seven straight budgetary deficits, with an eighth a sure bet for FY 2009.

“Illinois’ deficit is not just a one-time aberration resulting from unforeseen economic conditions or the actions of any one administration or legislature,” noted the Center for Tax and Budget Accountability, a nonpartisan, nonprofit think tank. Instead, the problem lies with “a revenue system that has not grown with the economy for decades, even though the cost of providing services has.”

The picture is even bleaker when one considers the unorthodox steps taken in recent years by the governor and lawmakers to boost general funds spending without raising income or sales taxes. Instead, they’ve used one-time windfalls to bankroll ongoing programs and pushed current costs into future years. From FY 2003 through FY 2007, such “unsound fiscal tactics” covered almost $13 billion in spending, according to the center’s calculations, including $4.9 billion in deferred Medicaid payments, $2.3 billion shifted from pension funding and $1.8 billion siphoned from accounts earmarked for specific programs, not general government costs.

Such tactics “have allowed the state to maintain public service levels that it does not have the fiscal capacity to afford,” said a center analysis. “Utilization of these stratagems merely masks the inability of the state’s tax system to generate the revenue necessary to support ongoing services.”

So how does Illinois get back on solid fiscal footing?

One option would be to cut back on service levels, for example tightening Medicaid eligibility so that fewer people would qualify, or doling out less money to local school districts, or cutting funding for community mental health or child abuse investigators. Not very popular, but Medicaid, education and human services account for roughly $8 out of every $10 spent from general funds.

Another option — the “only sustainable solution,” according to the center — requires modernizing the state’s tax system. Or, in less politically discreet terms, raising state income tax rates or — most likely and — broadening the sales tax base to include certain services. Also a hard choice.

What Illinois can’t afford, though, is to continue along its current path, spending money that’s not really there, stiffing health care providers and pushing today’s bills onto future generations. 

While such grim news largely reflects the national economic meltdown, Illinois’ fiscal problems are deeper and more longstanding, the inevitable consequence of budget and fiscal policies that habitually have the state living beyond its means.

 
Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois at Springfield. 

Illinois Issues, November 2008

The former director of the Public Affairs Reporting (PAR) graduate program is Professor Charles N. Wheeler III, a veteran newsman who came to the University of Illinois at Springfield following a 24-year career at the Chicago Sun-Times.
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