By: Zack Duvall
Illinois lawmakers have reached the first state budget deal in two years, with many experts and state representatives saying it simply isn’t enough and only includes “partial outlines” for addressing Illinois’ multi-billion dollar pension system’s shortfall or the state’s billions of dollars worth of backlogged unpaid bills.
The current budget was only passed after 15 GOP state House and Senate Republicans joined Democrats in overturning first-term Republican governor Bruce Rauner’s veto of the budget.
The budget, which relies heavily on yet more state borrowing, includes a plan to raise $5 billion worth of tax revenue in part through a 32% increase to the flat income tax rate. The proposal would raise that rate to 4.95%, up from the past 3.75%.
The state borrowing that the budget proposal will depend on includes 12-year bonds that will only cover roughly half of the state’s overall debt, or $6 billion worth of bonds to help pay for $15 billion worth of state debt.
The budget further relies on the state reallocating funds, up to $1.2 billion, from state controlled accounts set aside for specific purposes other than paying off the state debt.
The proposal also outlines state official’s plan to begin “sweeping” numerous state accounts. “Sweeping” is often referred to as the government checking under couch cushions to pay off debt, a move that even if the state can “sweep” every account possible would only yield an additional $300 million.
The new budget is coupled with a recently passed Illinois state law that allows for the new budget guidelines dealing with actuarial or investment return assumptions made by the pension system to be retroactive to 2014 allowing the state to see an additional $892.1 million in savings and revenue.
Critics of the new budget, which include many state union leaders, say that it may be too little too late, and that there has not been independent analysis to determine if the new proposal would even make an impact on the state’s current financial situation.
“It’s a bit of a shot in the dark. For something this major, you’d think the legislators voting on this would want to know this information.” Jim Reed, the Chairman of The Illinois Education Association the state’s largest government union, told reporters when asked about the uncertainty surrounding the new budget.
The criticism continued among experts and financial analysts with Steve Malanga, a senior fellow at the fiscal think tank The Manhattan Institute, saying that the budget isn’t the kind of financial plan for the severity of the fiscal crisis the state is facing.
“This is the kind of budget you would pass if you were a state that hit a bump in the road and had a deficit you needed to get rid of over the next 2 or 3 years. It’s not the kind of budget you’d pass if you had $14 billion in unpaid bills, and $130 billion in unfunded (pension) liability.” Malanga said when asked his thoughts about the proposal.
However, supporters of the new proposal say that it isn’t that this budget will solve the state’s financial woes, but that the move by state lawmakers shows that they are doing something to address them.
“The pension pressures will continue, and Illinois’ financial challenges will continue, but at least there is a limit to the liability growth to this state.” Laurence Mgall said citing that even though uncertainty is high, some state bonds traded higher than expected on Friday.
Moody’s, a credit rating and research company, has put Illinois on what is called a “review list” for a possible downgrade in the state’s credit rating. If the state is given a “junk” credit rating it would be the first state in America’s history to receive such a rating.