After Years Of Mockery, Illinois Is Finally Earning High Marks Over Its Finances

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With its near junk-bond status, Illinois has a well-earned reputation as a financial pariah among states.

There’s a history of going years without passing budgets, racking up billions upon billions of dollars in unfunded pension costs and letting a backlog of unpaid bills grow larger than what it costs to operate a major American city like Chicago for an entire year.

But as the state heads out of the pandemic, preparing for a full reopening Friday, it is flush with federal COVID-19 relief cash. Vendors are being paid at a faster pace than at any point in the past 20 years. And a $42 billion state budget soon headed to Democratic Gov. JB Pritzker fully funds big priorities, lacks some of the familiar accounting gimmicks of years past and appears balanced.

Yes, balanced.

Is Illinois back? Or is this seeming moment of financial stability a blip, a fiscal sugar high destined to fade in a year or two?

“If you take a snapshot of where we are right now, I think we have a lot to be proud of,” said Deputy Gov. Dan Hynes, a former state comptroller who is Pritzker’s point person on the state budget. “The third balanced budget in a row. Paying off a lot of these outstanding debts. Paying down the [unpaid bill] backlog.”

But Republicans view the more than 4,600 pages of budget legislation that surfaced for the first time on the final day of the scheduled spring legislative session as a failure — and one of the party’s aspiring candidates for governor next year went hyperbolic to make the case.

State Sen. Darren Bailey, R-Xenia, posted a video on TikTok Wednesday, showing him firing his Colt .223 rifle at the pile of budget documents stacked on a tree trunk, which explodes into a hail of paper. Twisted Sister’s “We’re Not Gonna Take It” blared as a soundtrack.

“This entire week, people have been asking me how I feel about the budget. I’ve been having a hard time putting it into words,” Bailey said.

“Hopefully, this helps,” he said as he pointed his weapon at the budget and pulled the trigger.

House Minority Leader Jim Durkin, R-Western Springs, condemned how Democrats delivered the budget for the fiscal year beginning July 1 during the wee hours of June 1, depriving Republicans, the media and others with an opportunity to analyze the documents ahead of votes. They zeroed in on how the multibillion-dollar spending plan contained cost-of-living increases for legislators and as much as $1 billion for pet Democratic initiatives.

“That was classic Mike Madigan, classic 65th and Pulaski style,” Durkin said.

But Democrats and — more significantly — budget analysts interviewed by WBEZ see uncharacteristic signs the sky might be parting over Springfield after years of budgetary gloom.

“We have vaccines. The world is beginning to open back up,” said House Majority Leader Greg Harris, D-Chicago. “We are seeing a bright, sunny day outside, and there’s a lot to talk about that we’ve accomplished in the last year as a state that has put the state of Illinois in a far more stable place financially and a responsible place fiscally.”

Individual income tax rates remained the same. Spending on public schools totaled nearly $7.6 billion, up by more than $362 million over current spending. The budget fully funds this year’s required $10 billion-plus pension payment to the state’s five retirement systems.

And it also has $8.1 billion in federal COVID-19 relief money as one-time revenues and more than $600 million generated by the closure of several business tax credits.

When the pandemic struck in March of 2020, the state’s main revenue sources — income and sales taxes — fell off a cliff as unemployment soared, people hunkered down in their homes and businesses shut down.

April 2020 data showed year-over-year individual income tax revenues for the month dropped by 49%, corporate income tax revenues were down by 57%, and sales taxes showed a 20% decline.

That month, Illinois became the first state post-pandemic to have its bond rating placed on negative outlook.

To make matters worse for Pritzker, November brought the decisive defeat of his constitutional amendment to get rid of the state’s flat income tax and replace it with a graduated income tax where the wealthy would pay higher tax rates. Had it materialized, it had potential to flood Illinois coffers with more than $3 billion annually.

Despite that development, gradually through the third and fourth quarter of 2020, the state’s financial numbers stabilized. And by spring of this year, they had begun to roar back.

Year-over-year data showed individual income tax revenues had more than doubled in May over the anemic, pandemic-depressed levels of May 2020, buoyed in large part to delays in tax-filing deadlines. And sales taxes were more than 50% greater in May of this year compared to 12 months ago.

The robust recovery of tax revenues and infusion of federal pandemic dollars gave Pritzker and Democratic lawmakers more than enough cushion to craft a flush, once-in-a-generation budget.

The positive uptick was becoming clear in February, when one of the big bond-rating agencies, S&P Global, took note of improving fiscal conditions and issued a report titled, “Is Fiscal Stabilization on the Horizon for Illinois?” A month later, S&P moved the state’s outlook to stable and, with passage of a new budget that pays down borrowing, sees continuing encouraging signs with Illinois’ finances.

“Illinois was one of the first [states] that we put on negative outlook. This year, they’re one of the first that we took off the negative outlook,” said S&P credit analyst Geoffrey Buswick.

“There were a lot of things that we saw even before the budget was passed that we thought were warranting the change to stable. And now with this budget passed, we do see it as gaining closer to true budget balance,” he said.

Of course, Illinois is still saddled with one of the worst unfunded pension liabilities in the country, which stood at more than $144 billion as of last November. And the budget framework cobbled together by Democrats doesn’t do anything to address that problem.

While budget watchers like the Civic Federation’s Laurence Msall give Pritzker plaudits for producing what appears to be a balanced budget, they question whether this moment of fiscal stability will be short-lived, especially when federal COVID-19 relief disappears.

“What’s missing to say Illinois is back is predictability in any plan for how the state is going to pay its bills, continue to pay its bills, balance its budget, make its pension contributions in two or three years when all this federal relief money is gone,” said Msall, president of the nonpartisan tax policy and research organization.

“And so it is unclear to most observers: What will Illinois do next year?” he said.

For now, though, a concrete data point reflecting the state’s improved fiscal condition is the $3.8 billion in unpaid bills Illinois owes. It’s a sobering amount. But in 2017, that total stood at more than $16 billion, one of the most glaring calamities caused by the two-year budget impasse between then-GOP Gov. Bruce Rauner and Democrats in the legislature.

Democratic state Comptroller Susana Mendoza says vendors are now being paid within 30 days of when the Pritzker administration submits payment requests to her office, marking the quickest payment cycle since 2001.

And for human service providers that are highly vulnerable to disruptions in state payments, that is a profound thing, particularly considering the horrible struggles many providers endured as a result of the 2016-2017 budget impasse when the state wasn’t paying its bills for months on end.

“It’s taking a while to recover [from the budget impasse], and then the COVID-19 pandemic didn’t do any favors as far as improving the situations for communities and families. But if we’re talking about being paid on time, that has definitely improved for organizations,” said Andrea Durbin, CEO of Illinois Collaboration on Youth, the largest provider voice for services to children, youth and families, representing nearly 100 organizations across the state.

During the dark days of the budget impasse, Durbin spearheaded an ultimately failed lawsuit against Rauner and his agency directors to compel the state to pay its human-service contractors, which were having to cut services and lay off workers because the state was, effectively, a deadbeat.

Times have changed in a state with improved fiscal standing that can now pay its bills in a reasonable time.

“It’s great when you don’t have to spend time or money tracking down late payments or borrowing money from reserves or lines of credit,” Durbin said. “But when you are paid in a timely way, it adds that layer of predictability to operations.”

Dave McKinney and Tony Arnold cover Illinois politics and government for WBEZ. Follow them on Twitter @davemckinney and @tonyjarnold.

via WBEZ Chicago

June 10, 2021 at 06:36AM

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