February 9, 2011
The following opinion piece by Civic Federation President Laurence Msall appeared in the February 7, 2011 edition of Crain’s Chicago Business.
As the rest of us try to put the Groundhog Day blizzard behind us, the state Legislature is heading back to Springfield. There they will debate a plan that could put a fiscal iceberg right in the path of the Illinois ship of state and guarantee that last month's temporary income tax is anything but.
Gov. Pat Quinn is asking the Legislature to approve an additional $8.75 billion in general obligation restructuring bonds to “pay off the state's unpaid bill backlog.” But less than half of the proceeds would go to pay off old bills. According to the governor's budget office, $1.45 billion of those proceeds would be used to increase general funds expenditures next year, and almost $3 billion in proceeds would be unrestricted as to their use. The Civic Federation strongly opposes long-term borrowing for operational expenses on principle, but the fact that billions of the proceeds from the governor's 15-year borrowing plan have no specified use is both expensive and irresponsible.
Just as frightening is the proposed back-loading of principal and interest payments on the new bonds, which could increase the borrowing cost to more than $3.4 billion. The state's repayment obligation would increase significantly in fiscal years 2015 and 2016, just as last month's income tax increase is supposed to sunset—a big iceberg Illinois would hit around the time of the next gubernatorial campaign.
The dirty truth in Springfield is that the state's growing use of borrowing to fund operating expenses is already a budgetary problem. This year, Illinois is paying $1.73 billion in debt service on pension bonds issued in 2003 and 2010 alone. If the new borrowing is approved, Illinois' total indebtedness (including capital and general obligation bonds) will have increased by 425% in less than 10 years, from $9.2 billion to nearly $50 billion. Illinois taxpayers would be stuck supporting more than $3 billion per year in total debt service through 2020 and more than $2 billion annually through 2026.
Borrowing for operational expenses builds deficits into future budgets, increases the cost of government and pushes the cost of this year's government operations onto future taxpayers.
There is a better way to pay off Illinois' backlog of unpaid bills: If the state holds spending increases to 2% or less in each of the next three years, the backlog could be reduced to a reasonable 60-day cycle without borrowing. Taxpayers would save nearly $4 billion in borrowing costs that otherwise wouldn't be paid off until 2026 and avoid a titanic fiscal calamity in 2016.