Illinois Budget Woes Come to a Boil

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Illinois lawmakers were in disarray Thursday as they groped for stopgap measures to address a $13 billion deficit equaling nearly half of the state's general-fund revenue.

The state faces one of the nation's worst budget crises, spilled over in part from the broader national economic crunch, and its current bond ratings lag only California's. But the confusion in the legislature indicates that serious steps to fix state finances won't be taken until after the November elections—if then.

States in the Red


Most states have addressed or still face gaps in their budgets totaling $196 billion for fiscal year 2010, while tax revenue declined in the final quarter of 2009 in 39 of the states for which data is available.

Illinois lawmakers have little appetite for drastic spending cuts. An income-tax increase proposed by Democratic Gov. Pat Quinn is going nowhere. Even temporary steps, such as borrowing to make pension payments, have stalled. Illinois is months late on many of its bills and has no plan for catching up.

The legislature may push the problem to the governor's office by granting Mr. Quinn emergency budget powers and adjourning Friday, about three weeks earlier than usual. A bill under consideration in the state House would give Mr. Quinn greater leeway to shift money among state funds and to require agencies to set aside part of their budgets now in case of future cuts.

A state House committee on Thursday passed a cigarette-tax increase that would generate $320 million by raising the state tax from 98 cents a pack to $1.98 a pack over two years. The House also is considering authorizing a sale of expected tobacco-settlement funds, which could bring in $1.2 billion, said State Sen. Donne Trotter, a Democrat.

House Minority Leader Tom Cross called the tobacco-settlement plan "a gimmick" and said he and other Republicans oppose borrowing the pension payment. "We are having the same conversations today that we had a year ago about the need for reform," he said.

Regardless of its final form, the budget will leave the state borrowing for short-term operations and postponing its bills.

"We are lucky in that we still can borrow," Mr. Trotter said, noting that lawmakers responded to rating-agency concerns last month by reducing pension benefits and lifting the retirement age for new state employees to 67 from 60. Lawmakers also are weighing the idea of postponing pension payments for the first half of the fiscal year until January, Mr. Trotter said.

Illinois's problems are an exaggerated version of dynamics playing out across the U.S. All states except Vermont have at least a limited requirement to balance their budgets. In practice, many states rely on one-time revenue windfalls or short-term borrowing to scrape from one fiscal year to the next.

State budgets typically lag the national economy by several years, and the recession has decimated income-tax and sales-tax revenue. Lawmakers often don't want to aggravate voters by raising taxes during an election year.

But legislatures find cutting expenses politically difficult, too. State budgets are dominated by education and health care programs that many voters cherish.

As a result, Illinois, along with other states, routinely has postponed paying its bills, shortchanged pension plans and spent more than it collects in revenue.

It's possible lawmakers will keep working on the budget until they are required to adjourn at the end of the month. Rikeesha Phelon, a spokeswoman for Illinois Senate President John Cullerton, said Friday's deadline was "just a goal."

Mr. Quinn presented a budget in March that would still leave the state with a $10.6 billion deficit. His plan projected a deficit of $4.7 billion for the coming fiscal year beginning July 1—which he planned to cover through borrowing—and a $5.9 billion deficit carried over from the current budget.

The governor also proposed cutting expenses by $1.5 billion and raising the state income tax 1.5 percentage points, to 4.5% from 3%. He said the tax hike would be used to avert tens of thousands of teacher layoffs. A different proposal to raise income-tax rates passed the state Senate last year but has stalled in the House.

Any hopes that the national economic recovery would help the budget discussions were dashed this week when Illinois disclosed that revenue for April —when most citizens pay taxes—fell more than 15% from the same month a year ago, or $501 million, in part because of a $345 million drop in federal aid. Gross personal income-tax receipts, a major revenue source, dropped $103 million, or 8.1%.

Many states are likely to report similar disappointments. California officials said this week that April personal income tax-collections lagged projections by 30%. Federal estimates don't bode well for states, either.

As of April 30, federal non-withheld income taxes for April fell 17.6% from the same month a year earlier, said a report Tuesday from the Nelson A. Rockefeller Institute of Government at the State University of New York.

Illinois Comptroller Daniel Hynes said in his April report that the state's cash position for the quarter ending June 30 "looks exceedingly difficult." By June 10, Illinois must repay $1.75 billion, plus interest, in short-term borrowing.

Meanwhile, the state still owes billions of dollars to hospitals, universities, social-service providers and others. Mr. Hynes said the state's backlog of unpaid bills probably will exceed $5.5 billion at the end of June.

"Eventually, many providers of essential state services may be unable to continue their operations at current levels, and those vulnerable segments of the population to whom they provide services will suffer the consequences," he wrote.


So Illinois is about to join California, New York, New Jersey, Arizona, and the like on the list of distinction. Congrats on gross mismanagement.

I still see a federal bailout of the states in the near future. California, New York, New Jersey, Arizona, and Illinois are no different than Greece, Portugal, and Spain. The bailout is coming sooner or later. These states will not be allowed to default.

Quote from Candide : I still see a federal bailout of the states in the near future. California, New York, New Jersey, Arizona, and Illinois are no different than Greece, Portugal, and Spain. The bailout is coming sooner or later. These states will not be allowed to default.

Yup. And the states that were responsible in the first place will have to pay taxes to bailout irresponsible liberal states that overpay their employees and provide too great a pension benefit.

Quote : raising the state income tax 1.5 percentage points, to 4.5% from 3%

Ahh so glad I only have one more month in this state.

Quote : So Illinois is about to join California, New York, New Jersey, Arizona, and the like on the list of distinction. Congrats on gross mismanagement.

Welcome to the club.

Quote : raising the state income tax 1.5 percentage points, to 4.5% from 3%

4.5%..? That's cheap.. The average "Slave Labor California Taypayer Pays" twice that..

"The biggest problems in this country are caused by our own government."

Quote from Tony_Danza : Ahh so glad I only have one more month in this state.

surprised to hear that coming from you. I wouldn't think you'd mind a 1.5% increase in income taxes, given how much you hate limited government.

Quote from rrc06 : surprised to hear that coming from you. I wouldn't think you'd mind a 1.5% increase in income taxes, given how much you hate limited government.

I'd say that's a fairly inaccurate characterization of my political views. but whatever floats your boat.

Quote from Tony_Danza : I'd say that's a fairly inaccurate characterization of my political views. but whatever floats your boat.

so you aren't mocking liberatarianism in your signature?

i think you can find libertarianism and libertarians silly and still agree with some of the notions of limited government. but i think your comments, rrc06, just goes to show how far right the right-wingers in america have gone lately.

Quote from karkaputto : i think you can find libertarianism and libertarians silly and still agree with some of the notions of limited government. but i think your comments, rrc06, just goes to show how far right the right-wingers in america have gone lately.

not at all. I just think it's kinda funny that liberal posters in this forum would be up in arms about a 1.5% increase in IL state income tax (4.5% total), when the hard-core liberal states in this country have much higher state income tax rates (NY is 5-10%, depending on your income, CA also goes up to 10%), many of which are progressive in nature.

Bottom line, as far as income tax rates go, 4.5% is certainly not the worst i've seen.

actually CA goes to 11% for high-income groups, with a special 1% surtax to show their love to the rich, who actually employ people...so they are leaving, and taking their jobs with them.

Quote from Krazen1211 : So Illinois is about to join California, New York, New Jersey, Arizona, and the like on the list of distinction. Congrats on gross mismanagement.

sounds like they are already there. And now we have their former senator leading us at the national level

Illinois deep in debt, doesn’t pay bills [msn.com]

Quote : Crisis pushes businesses, organizations to edge of bankruptcy SPRINGFIELD, Ill. - For 35 years, frail senior citizens in southern Illinois could turn to the Shawnee Development Council for help cleaning the house, buying groceries or any of the chores that make the difference between living at home or moving to an institution. No more. The council shut down the program Thursday because of a budget crisis created by the state of Illinois' failure to pay its bills. Paralyzed by the worst deficit in its history, the state has fallen months behind in paying what it owes to businesses and organizations, pushing some of them to the edge of bankruptcy. Illinois isn't bothering with the formality of issuing IOUs, as California did last year. It simply doesn't pay. Plenty of states face major deficits as the recession continues. They're cutting services or raising taxes or expanding gambling to close the gap. But Illinois is taking the extra step of ignoring bills. Right now, $4.4 billion worth of bills, some dating back to October, are sitting in the Illinois comptroller's office waiting to be paid someday. Shawnee Development, for instance, is waiting on about $380,000 in back payments, officials say. That amounts to one-quarter of the council's budget for senior care in seven southern counties. "It makes me mad as heck," said Georgia Smith, a 66-year-old volunteer at the agency. Seniors, she said, "are used to paying our bills, paying our way." Prisons refused bullets Illinois' deadbeat reputation has created some embarrassing situations. A supplier refused to sell bullets to the Department of Corrections unless it got paid in advance. Legislators have gotten eviction notices for their district offices because the state wasn't paying rent. One legislator said he had to use campaign funds to pay the telephone bill after service was cut off at his office. The practice of simply putting off payments became commonplace under ex-Gov. Rod Blagojevich, who liked to spend but adamantly opposed a tax increase to help cover costs. Before he was arrested and kicked out of office, Blagojevich's toxic relationship with legislators essentially paralyzed government, so bills just piled up. The strategy also may have been helped along by Illinois' "anything goes" political culture. When voters believe government decisions hinge on campaign contributions and shady deals, they're less likely to expect responsible fiscal practices. Some schools have tried to shame Illinois into paying by posting signs announcing how much the state owes. The website IllinoisIsBroke.com details the state's financial mess. Associations hold rallies and write letters to the editor. $6 billion in unpaid bills The state still remains months behind. Illinois is on track to end the current fiscal year with about $6 billion in unpaid bills. Budget proposals for the coming year — when the state faces a $13 billion deficit — assume the same thing will happen again. The state owes money for all kinds of services provided in its name, such as medical care for the needy, home care for the elderly and disabled and day care for the working poor. State government promises to reimburse all those organizations for at least part of their costs. When the state doesn't pay its bills, they're stuck trying to figure out how to make ends meet. Most have spent their reserves and cut corners wherever they can, laying off employees, cutting back hours, requiring workers to take furloughs. Recovery Resources, a substance-abuse treatment center in Quincy, is waiting for $200,000 from the state, which provides about two-thirds of the center's annual budget. The center has cut 10 jobs over the past two years, said executive director Ron Howell. It shut down its services for adolescent addicts. People who call for help now wait three to four weeks for an appointment. 'This has numbed us' "The situation, for us, has been almost normalized, and that's the scary part," Howell said. "If I'm not screaming on the edge of self-destruction, it's because this has numbed us." Many agencies have borrowed money to keep the doors open, but service providers say that's getting harder to do — banks are more reluctant to lend money on a promise that the state will pay up someday. "We have had members whose banks have told them it is the creditworthiness of the state of Illinois that is their primary concern," said Janet Stover, executive director of the Illinois Association of Rehabilitation Facilities. State leaders have no plan to catch up on the bills anytime soon, not with a $13 billion deficit to tackle. The Pew Center on the States said last year that in percentage terms, Illinois' deficit is nearly as big as the gap in California, the gold standard for states in crisis. Call for tax increase Democratic Gov. Pat Quinn has called for an income tax increase, but any money from that would be allocated to other areas, not paying routine bills. Republicans want to tackle the deficit through spending cuts, which would also mean letting old bills go unpaid. It's likely that no dramatic movement in either direction will take place until after the November elections. Illinois government owes about $2.5 million to Sparc, a Springfield organization for people with developmental disabilities, said chief executive officer Carlissa Puckett. Sparc has borrowed up to $1.1 million through a line of credit. Turning away clients would be the last resort, she said. Puckett sounds matter-of-fact as she discusses scrimping on paper and pencils. "Why cry if nobody is going to listen to you?" Puckett said. "We're going to keep our head up and figure out how to make it work."

At least CA issued some IOUs

Seriously, I wonder if you can just stop paying your personal income taxes to IL

Quote from karkaputto : i think you can find libertarianism and libertarians silly and still agree with some of the notions of limited government. but i think your comments, rrc06, just goes to show how far right the right-wingers in america have gone lately.

I love how folks like rrc06, who have varying positions on issues ranging from very conservative, to very liberal, are called "right wingers" by those in lockstep with the far left........

Independent thinkers are so confusing, to those who lack the ability.....

Quote from Radeck : actually CA goes to 11% for high-income groups, with a special 1% surtax to show their love to the rich, who actually employ people...so they are leaving, and taking their jobs with them.

Nah..... only 10.3%