December 23, 2015
The following were among the most highly read posts provided by the Institute for Illinois’ Fiscal Sustainability in 2015. Understandably, they represent the most closely followed Illinois fiscal issue of the year: the ongoing state budget impasse. The posts have been listed in chronological order, rather than by number of views, for the purpose of best explaining the events related to the matter.
Governor Proposes Deep Cuts and New Pension Reforms to Balance FY2016 Budget
February 20, 2015
This blog discusses Governor Rauner’s first budget proposal for the State of Illinois, in which he recommended more than $4 billion in spending cuts and $2.2 billion in estimated pension savings to close a projected budget gap of over $6 billion in fiscal year 2016, which began July 1, 2015.
The budget’s largest single projected savings would come from a proposal to reduce the State’s massive pension obligations. Employees hired before 2011—known as Tier 1 employees—would be shifted into the same lower benefit plan that has covered employees hired after that date. Retirees’ pension benefits and benefits already earned by Tier 1 employees would not be affected.
The proposed FY2016 budget had total expenditures of $31.5 billion—a reduction of $6.7 billion—in order to leave an operating surplus of $504 million to pay off accumulated bills. The backlog of unpaid bills at the end of FY2016 was estimated at that time to be $5.2 billion.
Update: As noted in the next section, the Illinois General Assembly passed a budget different from Governor Rauner’s proposal.
Illinois Legislature Passes $36.3 Billion FY2016 Spending Plan
June 11, 2015
This post examines the Illinois General Assembly’s approval of a $36.3 billion general operating budget for FY2016 with an acknowledged shortfall of at least $3.0 billion in revenues.
The package of approximately 20 appropriation bills and other budget-related legislation was passed during the last week in May 2015, at the end of the legislature’s regular spring session. At the time of the posting, the General Assembly had not officially transmitted the FY2016 budget to the Governor’s Office and had returned to Springfield for an overtime session that was expected to continue through the summer.
The legislation is available on the General Assembly’s website.
Update: In late June, Governor Rauner vetoed most of the budget as passed by the state legislature, calling it “unconstitutional.” The Governor did sign legislation related to K-12 education spending, however. As mentioned previously, the state continues to operate without a FY2016 budget.
Illinois Spending Continues Without an FY2016 Budget
August 20, 2015
This post explains the mechanisms through which the State of Illinois continues to fund certain programs and initiatives despite the lack of operating budget for FY2016.
A graphic in the post shows a breakdown of obligated and unobligated FY2016 State spending published by Senate Democrats on August 13, 2015. General Funds spending obligations are estimated at $34.5 billion, while spending pressures that the State is not required to fund are estimated at $4.2 billion. Despite the lack of a budget, the State is obligated to pay 89.1% of expected expenses of $38.7 billion, according to the calculations.
According to the analysis by Senate Democrats, the main areas of State government in which spending has not been committed are higher education and human services programs either not covered by Medicaid or not under the purview of the Illinois Department of Health and Family Services or the Illinois Department of Human Services.
Update: Since this post, addition spending has been mandated by court order, or been restored after cuts.
Will the State of Illinois Run Out of Money?
October 15, 2015
This post was IIFS’s most popular 2015 blog post. Amid the budget impasse, this blog explores whether the State of Illinois could eventually run out of money. As indicated in the post, the short answer is no—at least not in the way that running out of money is typically understood. Money is still going into the State’s checking accounts. However, this revenue can only be used if there are budgetary appropriations or other spending authority.
For example, even without a budget, the State is obligated to make numerous FY2016 payments due to State law and court orders. And although Governor Bruce Rauner and the Illinois General Assembly have not reached agreement on most of the FY2016 budget, the Governor did sign an appropriation bill for elementary and secondary education.
Update: The State of Illinois continues to operate without a FY2016 budget, and Governor Rauner has indicated that he and legislative leaders are unlikely to meet again this calendar year. The Governor’s Office of Management and Budget is expected to release three-year projections the first week of the new calendar year, and the Governor’s proposed budget is due in February, according to state law.
Illinois Hit with Downgrades as Budget Stalemate Continues
October 30, 2015
This post explains recent credit rating downgrades for the State of Illinois, which leads to increased costs of borrowing. Due to these downgrades, Illinois is the only state credit currently rated below the ‘A’ category, signaling a weakened capacity for the government to meet its financial obligations.
The downgrades come on the heels of an announcement by the State Comptroller that due to year-end spending pressures and lower revenues, Illinois would be delaying contributions to the State’s pension funds in November and possibly in December.
Lower bond ratings increase the State’s cost of borrowing above other better-rated governments. Currently, Illinois has $26.8 billion in outstanding General Obligation Bonds that will cost a total of $13.9 billion in interest as the debt is repaid through 2039.
Update: Late last month, Moody’s indicated that Illinois’ credit rating could move even closer to “junk” status if the State’s already large pension liability and budget deficit grow, noting that there is no floor on how low state credit ratings could sink.