Illinois owed $37.9 billion more than all of its assets combined,
including cash, investments and property, as of July 1, 2010,
according to a recent statewide financial audit by William Holland,
the state's auditor general, and Judy Baar Topinka, state
Illinois even shorted unknowing taxpayers of $1.4
billion. An examination by auditors of the income tax refund fund
revealed a $1.4 billion deficit, because the state didn't put enough
income tax revenue into the fund, causing a delay in getting the
taxes returned to individuals and businesses.
The deficit would have been worse without a $3 billion cash
infusion of federal stimulus money.
Illinois was one of four states with a deficit when comparing all
its debts to assets in fiscal 2010, and of those four, it was in a
hole of about $10 billion more than its nearest cousin -- New
Jersey, which ranked second.
A combination of mismanagement and a global recession are the
largest factors in Illinois monetary woes.
Former Gov. Rod Blagojevich, who was convicted on corruption
charges in federal court recently, came into office in 2003 during a
small recession. He immediately promised he wouldn't raise taxes,
but he and the Legislature did not cut spending, resulting in a
full-blown fiscal crisis.
"We had a period -- maybe three, four or five years, from 2004 to
2007 -- where we could have, not solved all our problems, but gotten
things under control. But we wasted those years and got deeper and
deeper in the hole just because of a lack of discipline," said Fred
Giertz, an economist with the Institute of Government and Public
Affairs at University of Illinois at Urbana-Champaign.
Another reason for the state's financial misery is how it keeps
its books, according to the audit. Ralf Seiffe is the director of
research at the Institute for Truth in Accounting, a nonprofit that
works to make governments provide accurate financial reports,
according to its website.
"Bad accounting policies and bad budgeting policies are the means
and manner by which legislators and the governor get away with
essentially spending more than they should," Seiffe said.
The state was faced with a smaller, but similar problem in the
early 1990s. Former Gov. Jim Edgar and the General Assembly were
handed a $2 billion deficit and produced a $1.5 billion surplus by
1999 through a tax increase, budget austerity measures and some good
fortune in the financial markets.
"Edgar was either good or lucky, or both," Giertz said, adding
that a similar combination is needed to pull the state out of its
$37.9 billion hole.
Bringing the state's finances in line will be a struggle.
Illinois recently instituted what was billed as a temporary income
tax increase on individuals and businesses. Money from the tax hike
is paying off old bills and making sure new ones are paid on time.
Politicians will be faced with a situation where letting the
income tax hike expire is unpalatable, because that would require a
corresponding $6.8 billion cut to the state's budget to make up for
the lost revenue.
Most people agree that the state needs to reduce spending, said
David Yepsen, director of the Paul Simon Public Policy Institute at
Southern Illinois University. When presented with the programs that
eat up the majority of the budget, however, people are hard- pressed
to point to areas where they would take the blade.
"It's no wonder that politicians have got us to this point,
because they reflect what the sentiments are of a lot of people. A
lot of people want something for nothing," Yepsen said. "We want
public services, yet we don't want to pay the full price of them,
and we don't trust government to spend money wisely or to cut
Massive public worker layoffs, school closures due to a lack of
funds and the firing of entire fire departments statewide are
examples of the kind of crisis needed to spur the public and
government to take steps toward fixing the state's finances, said
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A mini-crisis earlier this year is partially responsible for
prodding the legislature and Gov. Pat Quinn into action.
The organizations that rate the state's credit worthiness and its
main source of borrowing -- selling bonds -- threatened to downgrade
those bonds when legislators floated a plan to leverage $3.7 billion
to make the state's payment to the pension system this spring. When
a government's bond rating falls, it's harder to sell bonds, because
investors don't see them as good investments.
Faced with that prospect, Quinn and the legislature decided to
make the state's contribution with cash for first time in two years,
instead of adding to the $13 billion the state owes in pension
Additionally, since fiscal 2010, the state has taken the first
steps of a long journey to get it on a more solid financial footing.
Pension and workers' compensation reforms, changes to Medicaid, a
slimmer budget, and an income tax increase were all passed this
winter and spring.
What's needed to turn those baby steps into full strides?
"It's going to take Republicans talking about finding additional
revenues. It's going to take Democrats (finding) ways to talk about
making cuts, and I think you're seeing a form of that here with
Quinn and the union. He's clearly telling them something they don't
want to hear," Yepsen said.
Quinn has refused to pay state employees who are members of the
American Federation of State, County and Municipal Employees Council
31 public worker union a 2 percent pay hike that is outlined in
Quinn continues to say the legislature didn't include the money
for the raises in the budget it sent him, and without the money, he
can't pay the extra $75 million. Two lawsuits, one in Illinois
Circuit Court and one in the U.S. District Court in Springfield, are
pending on this issue.
While politicians seem to be moving in the right direction,
Yepsen said he is concerned about the speed with which they are
"I just worry that it's not fast enough. And that what's going to
happen to Illinois is as this recession ends, other states are going
to get out the problem quicker than we are. And those states are
going to become more attractive to economic growth and development
than we are, because we are going to be lagging behind in cleaning
up this mess," Yepsen said.
If the state was in the red for $37.9 billion in 2010, then what
does the fiscal picture look like now? The audit released Thursday
answers that question by simply saying: It's nearly impossible to
However, the state's mounting debts were contrasted against the
state's assets in this audit.
A report by Treasurer Dan Rutherford released in May said the
state owes $45 billion in debt through 2036, including interest.
Taxpayers owe $140 billion in unfunded pension and retiree health
care liabilities, according to the same report.
Statehouse News; By ANDREW THOMASON]