Illinois Ranks Last in Another Fiscal Class

July 1st, 2008 at 07:00am Aaron Chambers

Take the state government’s assets — cash on hand, property and the like — and put them alongside its liabilities — debt and bills not paid — and what do you get?

A whopping -$20.4 billion.

Yes, that dash before the dollar sign means the figure is negative. Indeed, the state’s assets are $20.4 billion behind its liabilities. The state is in the fiscal hole — big time. And ultimately, taxpayers are on the hook.

In accounting jargon, the figure represents the state’s “net assets.” In real-life terms, it means the state has big, big long-term fiscal problems. In fact, Illinois has by far the worst net assets position of all the states, according to an analysis released Monday by Illinois Auditor General Bill Holland.

Gov. Rod Blagojevich didn’t create the problem. But it got worse under his watch.

First, let’s look at how the state’s net assets have deteriorated in recent years. This chart from Holland’s report, which you may also see here, inverts the trend of net assets so that negative is up and positive is down. In other words, the higher the red line climbs on the chart, the worse financial shape this state is in.

Now, let’s look at how Illinois compared to other states. As you may see from this chart, which also is available here, the vast majority of states are positive in terms of net assets. That means their assets outweigh their liabilities.

Illinois is among just four states in the red. Illinois has more than twice as much liability as any other state. (This chart also is available on the last page of this report.)

Holland based his analysis on the Comprehensive Annual Financial Report of each state. In Illinois, state Comptroller Dan Hynes produces that report. The latest CAFR is here, but I must warn you that it’s large and may take a minute to download.

From the CAFR, here’s a detailed look at why the state’s net assets are deteriorating. The punchline is this: The report says the state’s increase in liabilities was driven in large part by another $1.02 billion in “Section 25 liabilities” — budget-speak for bills the state pushes off from one fiscal year to the next.

The State’s assets increased $1.952 billion from $38.482 billion at June 30, 2006, to $40.434 billion at June 30, 2007, due mainly to $837 million in increased investment balances and $825 million in increased taxes receivable. The increased investment balances can mostly be attributed to the increases in investments in the Unemployment Compensation Trust Fund of $628 million due to the Trust Fund’s increase in net assets of $607 million during the year. The majority of the increased taxes receivable are related to the State’s hospital assessment plan ($734 million) which was not in effect at the end of the prior year. The State’s increase in liabilities of $2.931 billion from $53.462 billion at June 30, 2006, to $56.393 billion at June 30, 2007, resulted mainly from the increase in accounts payable and accrued liabilities of $1.020 billion, increase in intergovernmental payables of $321 million, and increase in long-term obligations of $1.472 billion. The $1.020 billion increase in accounts payable and accrued liabilities resulted mainly from the increase in Section 25 liabilities (described on page 11) of $1.021 billion. The majority of the increase in intergovernmental payables of $321 million is due to the timing of payments to school districts made by the State Board of Education. The long-term obligations increase of $1.472 billion resulted from the increase in the net pension obligation of $2.592 billion, the decrease in bonds and notes payable in the Designated Account Purchase Program of $726
million due to normal and early retirements, and the decrease in general obligation and special obligation debt of $392 million and $147 million, respectively.

Now, let’s look at another nifty chart from Holland’s report. This one shows the state’s general-fund deficit over the last six years. To put this in political perspective, Gov. Rod Blagojevich took office in January 2003, roughly the middle of fiscal 2003. Fiscal 2007 — the last year for which CAFR data is available — ended June 30, 2007.

As you may see, the state’s general-fund deficit hit $3.8 billion last summer. That’s not far off from the $4.2 billion deficit that existed when Blagojevich took office. Illinois started to climb from its budget hole after Blagojevich became governor, but is has since fallen nearly all the way back down in that hole.

(To be fair, Holland said in his report that the deficit last summer was driven in part by hangups with the state’s hospital assessment plan, an elaborate mechanism the state uses to generate more federal dollars for itself and hospitals by shuffling dollars between itself and hospitals to trigger federal reimbursement for Medicaid-related expenses.)

Back in 2006 when Blagojevich was running for re-election, I compared this state’s CAFR with those in other states and found that Illinois had the worstgeneral-fund deficit in the nation. The state’s fiscal condition has improved little since then, according to Hynes, who spent much of the spring describing the budgetary problemsthat balooned under Blagojevich’s watch.

Entry Filed under: Rod Blagojevich, Illinois finance