Illinois budget: Plenty of problems, few solutions

[March 16, 2009]  SPRINGFIELD (AP) -- State government faces a budget deficit so vast that filling it will almost certainly require a painful mixture of tax increases, service cuts and creative accounting.

Just how deep is the hole? By some estimates, it tops $11.5 billion. Convert that into hundred-dollar bills and it would create a stack nearly 9 miles high. The bills would weigh 126 tons.

So how did Illinois get in this mess and what can be done about it?

How bad is it?

When people talk about the deficit, they're really talking about the combined gap for the current budget and the one that takes effect in July. That's because state officials are going to let the current deficit roll over and make the next budget that much uglier.

A deficit of $11.5 billion would amount to $917 for every man, woman and child in the state. That's roughly the same amount that Illinois schools get from the state.

If officials wanted to tax their way out of the hole, they would have to double the income tax. If they wanted to cut spending, eliminating the Transportation Department, the Environmental Protection Agency and the child-welfare department would just about do it.

What went wrong?

Illinois isn't all that different from a family with a limited income, constantly increasing expenses and a with a habit of making bad decisions.

Like families trying to pay bills and save for college, state government has seen its costs climb steadily. Medicaid costs ballooned as health care grew more expensive and more people turned to the state for care. Employee salary and health costs rose, and the law required bigger and bigger contributions to retirement funds. In addition, officials approved new programs, such as the health care expansions championed by former Gov. Rod Blagojevich.

At the same time, the state gets most of its money from taxing income and sales. That means less money is available in a recession, when incomes drop and people cut back on shopping.

Experts say the problem is especially bad because the sales tax doesn't apply to buying services, a bigger and bigger part of the economy. Buy a lawnmower and gasoline to tend the yard, you pay sales tax; hire someone to do it for you and the state gets nothing.

On top of all that, Illinois has been foolish with its money, much like a family getting careless with credit cards. For decades, it didn't keep up with pension costs and even now it often skips payments during tight years, making future budgets that much harder to balance. It intentionally underestimates Medicaid costs, which guarantees that billions of dollars in bills get shoved aside until the next year.

Why does it matter?

One reason to aim for a balanced budget is that the Illinois Constitution requires one. Politicians have often stretched the definition of balanced, but even $11.5 billion worth of rubber bands couldn't stretch far enough to cover the current mess.

On a more practical level, the deficit means state government is shortchanging Illinois residents and businesses.

Residents lose out because state government can't afford the services that most people consider top priority.

The frequent calls to overhaul the way Illinois pays for schools are unlikely to be answered until the state has money available. State prisons will scrape by with fewer guards and state police will drive dilapidated patrol cars. People on Medicaid will have limited access to doctors and pharmacists.

Businesses lose out because the government doesn't pay them properly for the services they provide.

Just look at A Place for Children, a small Chicago business that the state pays to treat young children with developmental disabilities. Co-owner Erin Austria says there's now a gap of three to four months from the time she submits a bill to the time a check arrives for the state. Imagine your paychecks gradually coming further and further apart until you were paid in April for work in January.

Austria said she had to lay off eight of her 22 employees in November and now faces the prospect of turning away children covered by the state. "It's hard to look a family in the face and say 'I'm not coming because I'm not getting paid,"' she said.

Where's the stimulus money?

With the federal government spreading around hundreds of billions of dollars to jump-start the economy, it seems like Illinois should be able to get all the money it needs to shore up its finances.

In fact, the Gov. Pat Quinn's administration says Illinois will get about $9 billion in stimulus money, but that's over several years. And only a portion of the money -- about $2.4 billion -- can be used for the kinds of general expenses that make up the state budget deficit.

The rest of the money goes to construction projects or to specific federally funded programs, such as home weatherization. That will help Illinois families and create jobs, but it won't help the state run its parks or hire new prison guards.

What can be done?

The obvious response to a deficit is to cut spending, and Quinn aides say his budget proposal will include some $850 million in cuts.

Some Republican officials argue the entire deficit should be managed solely through cost-cutting. Changes to the Medicaid program could save money quickly, they claim, and it would pay off for years to come.

John Tillman, chairman of the Illinois Policy Institute, argues there is no reason the entire deficit must be erased at once. What can't be handled through spending cuts can be rolled over to future years until the economy improves, he said.

But aside from Medicaid, which is incredibly complex and politically touchy, there are few fat targets for the kind of cost-cutting that would make a dent in an $11.5 billion deficit.

The current budget totals $67 billion, according to a report from the General Assembly, but most of that is federal money the state doesn't really control or spending authority for long-term construction projects. If state officials want to get out their knives and start slashing, they have about $28 billion to work with.

In other words, completely balancing the budget just by cutting would mean slashing more than $1 out of every $3.

Critics of deep cuts also note that Illinois has one of the nation's leanest governments, at least by one measure. Illinois has 54 state employees for every 10,000 people, the second-lowest level in the nation and far below the average of 85, according to the American Federation of State, County and Municipal Employees.

Raising taxes wouldn't necessarily solve everything either.

A one-point increase in income taxes, to 4 percent from 3 percent for individuals, would generate less than $4 billion more. Even a 2-point increase wouldn't come close to filling the budget hole. Expanding the sales tax or raising gasoline taxes could help, but they would hit poor and middle-class families especially hard.

Moreover, the conventional wisdom is that raising taxes during a recession would simply add to the state's economic struggles.

The bottom line is that there's no easy way out of this mess, said Ralph Martire, executive director of the Center for Tax and Budget Accountability.

"You couldn't ask for a worse situation to confront a new governor than the economic and fiscal problems that confront Gov. Quinn," he said.

[Associated Press; By CHRISTOPHER WILLS]

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