Didn't think that it could get any worse? Fair warning Illinois voters, the state's financial crisis is worse that what a lot of us thought. The Civic Federation of Chicago has done an eye-opening analysis of the state's budget and came to some dire conclusions.
Despite claims (from the Democrat state candidates and leadership) that Illinois is catching up on its billions of unpaid bills, the tab actually is growing. Revenues are down, despite the huge "temporary" increase in income taxes. Already paying junk bond rates, the state will commit to even more borrowing. State pension payments will gobble up $1 of every $4 the state spends, further squeezing out social services, education and other pressing needs. There's plenty more bad news (summarized below), but I can't leave yet without mentioning that Democratic House Speaker Michael Madigan, who deserves a lot of blame for the state's financial mess, is getting $35 million out of the state's general funds (the same funds that are supposed to pay for operating expenses, not for capital improvements) for a new school in his district. That will further ensure more benefits for his district and more votes for him, at your expense.
In case the below paste from the Federation's report looks too tedious to read, a Chicago Tribune editorial ("How Gov. Quinn and Statehouse pols booby-trapped Illinois," Oct. 19, 2014) sums it up nicely.
- The backlog of unpaid bills and other General Funds liabilities is projected to total $6.4 billion at the end of FY2015, up from approximately $6.0 billion at the end of FY2014. This is the first year-end increase since FY2012, when the backlog was estimated at $8.8 billion.
- General Funds revenues decline by $1.7 billion to $35.1 billion in FY2015 from $36.8 billion in FY2014. This decline includes $402 million of income tax diversions in FY2015 that are used for additional education and human services funding outside the General Funds.
- The enacted FY2015 budget relies on borrowing $650 million from the State’s Special Funds, which must be repaid within 18 months, to increase total General Funds resources to $35.8 billion.
- General Funds expenditures appear to decline by $1.1 billion from $36.8 billion in FY2014 to $35.8 billion in FY2015 but actually increase by $528 million due to shifting of funds from year to year and among State accounts.
o FY2014 expenditures are inflated by a Medicaid appropriation of $600 million that will be used for FY2015 expenses, and FY2015 expenditures are reduced by $600 million due to transfers out that are not necessary due to the FY2014 funding.
o FY2015 expenditures are understated by $400 million because of the income tax diversions.1
o General Funds expenditure increases in FY2015 include $221.5 million related to new Medicaid legislation, $119 million for group insurance, $57 million for State pension contributions, $50 million for the Chicago Public Schools’ pension fund and $35 million for construction of a public school on Chicago’s Southwest Side in the legislative district of the Speaker of the Illinois House of Representatives.
- The Governor’s Office estimates that the FY2015 budget underfunds agency costs by about $470 million, including operational expenses of $130 million at the Illinois Department of Human Services and $90 million at the Illinois Department of Corrections and $60 million related to mental health grants at the Department of Human Services.
- Medicaid costs increase by $2.0 billion in FY2015, but most of the increase relates to a surge in newly eligible recipients under the Affordable Care Act, whose expenses are entirely covered by the federal government and do not affect General Funds.
- Group insurance costs were expected to increase by less than 1% in FY2015, with negotiated savings offsetting enrollment increases and medical inflation. However, State contributions will increase because of an Illinois Supreme Court ruling that struck down health insurance premium increases for retirees.
- State pension contributions from all funds would have declined by an estimated $1.2 billion in FY2016 under the new pension law compared with existing statutorily required contributions, but the law has been put on hold due to legal challenges. State contributions are expected to increase sharply in FY2016 from FY2015 due to reductions in the assumed rate of return on investment by the State’s largest pension funds.
- Despite authorizing dedicated resources in FY2010 to pay for new capital bonds, the General Funds cost for capital purpose debt service is expected to increase for the second year in a row. In FY2014 the amount of General Funds transferred to pay for capital purpose bonds increased by $74 million to $625 million and increased by $92 million in FY2015 to $717 million.
- Total General Funds debt service costs in FY2015, including pension bonds, total $2.2 billion or 7.2% of total State-source General Funds revenues, which is down slightly from the total of $2.3 billion in FY2014.
- In FY2015 the State owes a total of $3.9 billion in debt service due on $31.3 billion of principal owed for all outstanding General Obligation Bonds and Build Illinois Bonds. It will pay $16.4 billion in interest on these bonds through FY2039 for a total outstanding debt service cost of $47.7 billion.
- The State’s enacted capital budget for FY2015 totals $21.0 billion, of which $16.9 billion relates to reauthorized projects from previous years and $4.2 billion involves new projects. The State has sold nearly $12.0 billion in bonds to support the capital budget since FY2010 and in FY2015 the Capital Projects Fund is expected to have a $288.5 million shortfall in revenues to pay for the debt service cost related to these bonds, which will be paid for with General Funds.
- Illinois is the lowest rated state by all three major bond rating agencies with a negative outlook from each. If the State is downgraded four levels by Moody’s (below Baa3) or three by either Fitch or Standard and Poor’s (below BBB), it would face termination of its swaps portfolio and an estimated liability of $123.7 million as of the most recent valuation on June 30, 2013.
For information on my award-winning historical novel, "Madness: The War of 1812," visit: http://www.madness1812.com
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