Comptroller: State May Continue “worst deficit in the nation”

4 comments February 11th, 2008

Dan Hynes, the state’s generally low-key comptroller, today moved to undercut any attempt next week by Gov. Rod Blagojevich to paint the state’s fiscal picture as rosy. He said Illinois is poised to “retain its status of having the worst deficit in the nation for the fourth year in a row.”

Hynes issued a “special” report on state finances from 2003 — the year Blagojevich took office as governor — through the current fiscal year. The report’s conclusion:

The fiscal outlook for Illinois is not optimistic. The state has failed to build up reserves or address the underlying structural problems of the state’s budget – in particular, the pension and Medicaid liabilities. At the same time as the economy appears to be slowing, the Governor has promised expansions in health care without a permanent revenue source to pay for them. This lack of reserves – and the Medicaid and pension payments “albatrosses” – will be a drag on the state when it faces an inevitable economic downturn, likely already underway.

Blagojevich is scheduled to deliver his annual state of the state/budget address next week, Feb. 20. Presumably, Hot Rod will not be pointing to the state’s ongoing fiscal problems, which continued under his watch. Hynes apparently is doing his part to let folks know what’s up. He touted his souring report as a “fiscal state of the state.”

It’s just the latest look at the state’s increasingly ugly fiscal situation. More here. I asked the governor’s office for a response to the Hynes special report, but they never got back to me.

Hynes suggests that Illinois, during Blagojevich’s tenure, blew a tremendous opportunity to get its budget in the black during Blagojevich’s tenure.

During this period of national economic growth, most other states took advantage of their increased revenues to stabilize their financial positions. Illinois, when measured on the more comprehensive GAAP (Generally Accepted Accounting Principles) basis, still sustains a deficit, ending fiscal year 2007 nearly $3.6 billion in the red based on preliminary unaudited estimates. While this is an improvement from the record $4.166 billion GAAP deficit recorded in fiscal year 2003, it provides Illinois the dubious opportunity to retain its status of having the worst deficit in the nation for the fourth year in a row. 

In greater detail, he first describes the revenue side:

Since the end of the last recession in
2001, Illinois has been unable to regain its fiscal
footing despite impressive and consistent revenue
performance.

The state’s fiscal position bottomed out in fiscal
year 2003 as General Funds revenues from individual
and corporate income taxes fell when compared
to the prior year and sales taxes were flat.

Now for the bill backlog:

The backlog of General Funds bills awaiting payment
in the Comptroller’s Office that spring
peaked at $2.4 billion and the payment delays after
bills were filed with the office reached 51 days.
The state was forced to short-term borrow $1.5
billion in May 2003.

At the end of fiscal year 2003, even in spite of the
short-term borrowing, Illinois was holding $874
million in bills, plus delaying income tax refund
payments and holding bills at state agencies. The
state’s GAAP (Generally Accepted Accounting
Principles) deficit reached an all-time high of
$4.166 billion.

Back to revenue. Hynes says Illinois failed to capitalize on rebounding economy:

However, a rebounding economy provided Illinois
with strong revenue growth. General Funds revenues
in fiscal year 2007 totaled $28.6 billion,
nearly $5.6 billion higher than the amount collected
in fiscal year 2003. This reflects a trend increase
of $1.4 billion a year, or over 5.5% annually.

The kicker:

Yet, financial stability has remained out of reach.
Illinois’ spending in many programmatic areas has
grown, but several key areas of governmental activity
have not been addressed, leaving the state
poorly prepared for the next economic downturn,
a phenomenon that may already be underway.

In July 2006, the Register Star was the first to report that Illinois had logged the worst deficit in the nation. We examined audited financial reports from all 50 states and concluded:

The rebounding national economy meant extra cash in the coffers of nearly every state in the union.
 
Nearly every state, except Illinois.

Illinois was one of three states to finish the 2005 budget year with a deficit — of $3 billion, to be exact — in its central checking account, a Register Star analysis found. Illinois’ deficit was the largest in the nation. Wisconsin and North Carolina are also in the red; every other state finished with a surplus.

A few days later, WGN asked Blagojevich about the $3 billion deficit.

“That is not true,” the governor said. “In fact, we have a balanced budget. The law requires it. You can’t have a budget unless it’s balanced.”

In fact, it was true. A column I wrote explained the state Constitution’s “balanced budget” provision, which states that, “Appropriations for a fiscal year shall not exceed funds estimated by the General Assembly to be available during that year.”

The state does have both a “balanced” budget and a deficit. It’s been that way since before Blagojevich. It remains that way under him.

The state Constitution says lawmakers may not appropriate spending in excess of the cash the state is expected to take in over the budget year. It does not prohibit a deficit.

Each year, lawmakers simply don’t delineate spending on bills the state won’t have enough money to cover. They shove the other bills, primarily those from health-care providers, into the next year.

This is how they comply with the constitution. Last summer, Blagojevich’s administration rolled $3 billion of these bills to the next budget.

This is a ton of info, I know. If you’re still craving more, check out this article by Charlie Wheeler, director of the public affairs reporting program at the University of Illinois at Springfield.