Posts filed under 'Illinois finance'
July 1st, 2008
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.
June 30th, 2008
Rep. Ron Wait, R-Belvidere, and other Republicans say that if Gov. Rod Blagojevich is going to cut spending from the state budget he says is more than $2 billion out of balance, then he ought to cut dollars earmarked for lawmaker pay raises.
Their letter is here.
May 31st, 2008
The powers that be of Illinois government do little in moderation, especially when it really counts.
Today, on the last day of spring session, they’re poised to do it all. They’re gearing up to pass not only a spending plan of roughly $60 billion for the next fiscal year, but also a $31 billion multi-year capital construction program.
Oh, and to help raise money to cover that spending, they may also approve a massive expansion of gambling and agree to lease the Illinois lottery to private investors.
The last day of session is a long, long day. Negotiations continue behind closed doors as lawmakers dart from committee to floor debate and back. Staff rush to put into writing conceptual agreements brokered by legislative leaders. Then they rush those budget plans back to rank-and-file lawmakers, who vote on them even as they attempt to read and understand them.
When voting is over — often just minutes before midnight — they party. They head to a nightclub near the Capitol, and dance, drink and eat until sunrise. Then they say goodbye and head home for the summer.
Or not.
The larger a budget agreement, the more complication it can be to move – with all its parts — through the Legislature in a way that satisfies lawmakers highly suspicious of each other.
If they can’t pull it off by midnight, the beast implodes. They need only a simple majority — 50 percent plus one vote — to approve most of the package by midnight. Democrats, who control both chambers of the Legislature, can advance their plan largely without a single Republican vote.
Once midnight strikes, they need a three-fifths majority. The Democrats can’t get that without the help of Republicans — the same Republicans they have, until this point, kept in the dark.
May 29th, 2008
With each report released by the state’s chief auditor, it becomes clearer that Illinois government under the administration of Gov. Rod Blagojevich is unravelling.
On Tuesday, it was the governor’s budget office and the Illinois Department of Central Management Services — the state’s central purchasing agency — under scrutiny. And it wasn’t pretty.
First, there’s the Governor’s Office of Management and Budget, or GOMB (pronounced GUM-by by Capitol cynics). According to Auditor General Bill Holland’s report, the office with “management” in its name failed to manage on multiple levels. From the audit summary, here are the highlights:
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| Bozo the Clown |
The Office did not exercise adequate controls over contractual agreements.
The Office did not exercise adequate control over its interagency agreements and related travel expenditures.
The Office did not exercise adequate control over its travel functions.
The Office personnel files did not contain all required information.
The Office did not maintain sufficient controls over the recording and reporting of State property.
The Office did not fully comply with annual financial reporting requirements set forth by continuing disclosure undertakings.
The Office did not comply with provisions of the Accountability for the Investment of Public Funds Act.
The Office did not exercise adequate control over its Cash Management Improvement Act Annual Report.
One might say GOMB failed to “exercise adequate control.”
From the Tribune, here’s a closer look at some of the details:
The audit found 12 significant lapses of adequate controls over such things as contracts with other state agencies, travel expenditures, salary adjustments and the recording and reporting of state property.
In reviewing 21 contracts worth nearly $7.3 million, auditors found that the office failed to bid competitively for legal and other services, did not properly maintain documents and awarded contracts to bidders that did not receive the highest scores under bidding criteria.
For example, two legal services contracts to major law firms were not competitively bid. Freeborn & Peters was awarded a $50,000 contract in September 2005, while Barnes & Thornburg received a $40,000 contract in August 2005. By law, the state must bid all such professional service contracts that cost more than $20,000.
More here from the AP:
Gov. Rod Blagojevich’s Office of Management and Budget improperly awarded state contracts and had difficulty monitoring others, a state audit said today.
The review by Auditor General William Holland found that the budget office did not issue contracts based on required competitive bidding procedures. It also wrongly paid employees for travel expenses and failed to document workers’ pay raises.
“As the management agency of state government, they’re setting a poor example,” Holland said.
Now, on to CMS.
From the summary of Holland’s audit, here’s my personal favorite, which concerns a deal between CMS and the Department of Healthcare and Family Services
In April 2007 an interagency agreement was transacted between the Department and HFS which essentially authorized the Department to expend funds (up to $20 million) from HFS’ appropriation from the Health Insurance Reserve Fund for the payment of medical expenses under the Workers’ Compensation program. During fiscal year 2007, the Department processed $19,998,199 from HFS’ appropriation for State Employees Group Insurance to pay for claims and services related to the Workers’ Compensation Act.
In other words, CMS and HFS — the agency responsible for managing the state’s health care programs — forged an agreement under which CMS raided nearly $20 million set aside for state worker health insurance to pay costs associated with worker’s comp. This is the “health care governor,” after all.
CMS also had trouble keeping its fiscal years straight, Holland’s audit found.
In the fiscal year 2007 lapse period, the Department accepted payments from the Department of Revenue (IDOR), totaling $2,825,621, that were not associated with any billings for services rendered. The Department did apply $614,957 of these payments toward outstanding balances owed by IDOR. IDOR reported expenditure against its current fiscal year appropriations, while the Department was recognizing the receipt as an advance payment against fiscal year 2008 services. This is a violation of the Advance Billings Rules. Although the Department did not specifically issue a billing, the Department did accept and process payments which allowed the IDOR to expend remaining appropriations.
Applying payments toward a wrong fiscal year is a recurring theme. In his recent audit of the state Department of Revenue, Holland cited that agency for this — and for creating “falsified” documents to support its flawed accounting.
The Department paid $1,592,300 out of FY06 appropriations (10 separate invoices) towards the FY07 Department of Central Management Services (DCMS) Internal Service Fund billings.
The Department paid $2,825,621 out of FY07 appropriations (8 separate invoices) towards the FY08 DCMS Internal Service Fund billings.
In FY07, the Department created or falsified six invoices with DCMS headings as supporting documentation in order to make these prepayments. Of these invoices, 1 of the 6 invoices stated it was for FY07 charges or leases when, in fact, it was to prepay FY08 costs. The remaining five invoices stated they were prepayments. All six invoice vouchers (Form C-13) submitted to the State Comptroller stated they were “FY2007 Contracted Prior to July 1.”
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| The Three Stooges |
In FY07, the Department created two invoices on Department of Revenue letterhead, in essence charging itself, in order to prepay two invoices to DCMS. Both invoices appeared to be for FY07 charges and did not clearly state they were prepayments for FY08. Both invoice vouchers (Form C-13) submitted to the State Comptroller stated they were “FY2007 Contracted Prior to July 1.”
What was going on over there? This is the agency responsible for collecting — and keeping track of — your tax dollars.
Then there was that doozy of an audit a couple weeks ago of HFS, the health care agency formerly known as the Illinois Department of Public Aid.
From the Register Star:
The Illinois Department of Healthcare and Family Services has carried an average of $1.5 billion in unpaid medical bills over from one fiscal year to the next since fiscal 2005, the audit found. And while the agency generally took less than a week to process claims for payment, it took an average of 57 days to submit those claims to Comptroller Dan Hynes, who distributes the payments, according to the audit.
The agency’s failure to pay bills on time means it owes providers upwards of $81 million in interest for in late-payments, the audit found.
Again, this is the state agency in charge of administering health care — the governor’s longstanding chief policy focus.
When the agency fails to pay doctors and other health care providers on time, state law requires it pay those providers interest — hence the potentially $81 million in interest owed. Yet, Holland reported that HFS “did not have a system in place to pay automatically owed interest (interest greater than $50) to providers until May 2007 – almost eight years after the inclusion of Medicaid claims” in the state law mandating interest payments.
Holland also noted HFS required health care “providers to follow a cumbersome process to request interest” and that it had been “excluding certain claims from interest payments, some of which are not supported by Administrative Rule.”
And when providers asked the agency to reimburse them for their costs, HFS routinely rejected their claims by citing “error codes” that providers may not have recognized since HFS didn’t include those codes in its provider handbook, Holland reported.
We identified 123 error codes HFS used for rejected services that were reported to providers in 2006 that were not on the list of error codes found in HFS’ provider handbook. These error codes are used by providers to determine why a service was rejected so they can make the appropriate corrections in order to resubmit the rejected services within the required 12 month period.
Then again, some providers just had to ask when they needed some cash. HFS doled out at least $5.7 million in “one-time drop payments” to providers who called up to “declare their emergency,” even though auditors could not substantiate how exactly the agency determined whether to make such payments.
No policies or procedures exist to delineate the process for providers requesting or HFS’ review and approval of the need for a one-time drop payment. HFS does not require providers to submit a written request documenting their need or keep a log of one-time drop payment requests. According to HFS officials, these providers usually contact HFS by phone and declare their emergency need to be paid.
During testing, auditors found that generally the only documentation to support one-time drop payments were the e-mails between HFS employees changing the payment parameters for these providers and an internal HFS spreadsheet which tracked the one-time drop payment requests. There was no log or consistent documentation showing who outside HFS requested the payment or whether HFS determined that an emergency need existed.
UPDATE 1
Blago’s administration has been marked by such audits since shortly after taking office in 2003. In 2005, Holland cited CMS for wasteful spending and widespread contract irregularities.
State auditors Tuesday accused the Illinois Department of Central Management Services of wasteful spending, skirting its own rules when awarding contracts and failing to document claims that it had saved the state hundreds of millions of dollars.
Auditor General William Holland did not allege any criminal wrongdoing at the giant administrative services agency, but he did forward his report to Attorney General Lisa Madigan and Gov. Rod Blagojevich’s inspector general. […]
“There clearly was some inappropriate activity,” he said.
Asked if CMS oversight was sloppy, Holland said, “Sloppy is a very kind word. It’s above sloppy. I don’t know that it’s sinister, but I don’t know that it’s not.”
During the audit, CMS staff launched their own “audit” of Holland’s office — an apparent attempt by CMS to somehow retaliate or pre-empt the force of Holland’s investigation.
When Holland released his audit, CMS staff worked feverishly to undermine its credibility.
Holland responded by defending his audit in a Capitol news conference — a highly unusual move for a guy who does remarkable well at staying out of the political limelight.
The audit covered the two years ending June 30, 2004, which included the administration’s first 18 months. The CMS director, Michael Rumman, resigned at the time. Blago brushed off the audit as a fight between “bean counters.”
April 8th, 2008
Rockford Sen. Dave Syverson, Clare Sen. Brad Burzynski and other Senate Republicans last week unveiled a seven-point economic stimulus plan.
Let’s look at those points, one at a time. First up: The Senate Republicans say Gov. Rod Blagojevich must not “demonize” businesses. From their report:
Businesses not only provide jobs for our
citizens, they also pay the tax revenues
that fund our state budget and allow us to
implement our priorities. Since taking office,
the Governor and his administration have
repeatedly portrayed the business community
as a group of “fat cats” to be taxed and
demeaned, rather than entrepreneurs who
provide our economy with needed jobs, taxes
and investment.
Indeed, Blagojevich has repeatedly vilified Illinois businesses to suit his political needs, saying for instance that they ought to pay their “fair share” in taxes. The Senate GOP report continues:
Today, Illinois is renowned for its
hostile business climate – something which does not
go unnoticed to prospective businesses. The more the
Governor and his allies fuel this notion, the fewer jobs
and investments we will see in Illinois. In addition,
harsh anti-business rhetoric scares other companies
from coming to Illinois and expanding their business.
It’s time to stop the antibusiness
rhetoric and harmful tax-and-spend
proposals that seek to balance the state
budget on the backs of business owners and,
more importantly, the jobs they provide for
our economy.
And now for the kicker:
Demonizing the business community doesn’t
just have a negative impact on the owners of
companies. When hit with higher taxes and
fees, business owners end up passing the
new costs on to their customers – working
families. This is a point even the Governor’s
staunchest supporters concede – during
last year’s committee hearings on the GRT,
a sponsor of the measure, Senate President
Emil Jones, acknowledged: “Any costs
that businesses incur, they pass it on to
consumers.”
So here’s the question for you: Does the governor’s tone truly affect a business’ decision on whether to stay in, or relocate to, Illinois? Clearly, a business will weigh the tax burden in Illinois as compared to neighboring states. But the governor’s tone?
March 4th, 2008
State officials every couple years find new and creative ways to put off paying public pension debt, causing a greater financial burden for future taxpayers.
At any given time, the state’s backlog of unpaid bills tops more than $1 billion, causing doctors and other health care providers to wait months for reimbursement from the state when they care for Medicaid patients.
For the last five years, the governor and lawmakers postured over the details of a capital construction plan, failing to ever implement a new one necessary for road and school construction.
That governor, Rod Blagojevich, is as likely to fill out top-tier positions in his administration with political hacks as opposed to professionals with meaningful, relevant experience.
That same governor has no qualms with putting the full force of this taxpayer-paid staff behind his latest feel-good, politically charged initiative, yet he seldom puts even a fraction of this emphasis behind follow-through and completion of such projects.
Yet the Pew Center on the States awarded Illinois a perfectly acceptable “C” grade in a report covering how well the 50 states manage their money, people, information and infrastructure. A summary of the group’s report, showing how Illinois compares to other states, is here.
A detailed look at Illinois is here.
The Blagojevich administration has been troubled from the start, and the consequences for Illinois government have been serious. The administration began with high hopes: Blagojevich’s election victory in 2002, bringing his party control over all three branches and replacing a Republican regime tainted by corruption, generated widespread interest in bringing the state’s shaky management into good shape. But intraparty battles have continually stymied progress. Political disagreements have been delaying a new infrastructure-spending plan for years, to cite just one example, and the state may soon lose federal matching funds intended for roads and bridges.
Then, the report cuts the governor some slack:
It can’t be easy to manage a state such as Illinois, with huge outstanding bills and troubled revenue streams. But when the state’s leaders are effectively stuck in the mud, the difficult becomes all but impossible. Last year, the governor proposed a major expansion of health care supported by a gross receipts tax on business. The House rejected the plan 107-0. “We weren’t even talking about coming to some resolution,” says state Senator Christine Radagno. Months later, the legislature passed its own budget, Blagojevich vetoed about $500 million of it to make room for his health care expansion and the whole mess wound up in the courts.
Still, as the Post-Dispatch notes, this state’s grade fell:
Illinois fell from a C+ to a C, ranking it among the bottom nine states. Researchers blamed a dysfunctional relationship between Gov. Rod Blagojevich and the state Legislature.
“The Blagojevich administration has been troubled from the start, and the consequences for Illinois government have been serious,” the report says.
The administration’s response:
Blagojevich’s office released a statement saying the report didn’t acknowledge Illinois’ success at improving efficiency while reducing debt and budget deficits.
“Unfortunately, the Pew Center chose to focus on politics instead of fiscal facts,” the statement said. “The report does not accurately reflect the progress we’ve made.”
That’s classic Blagojevich.
First of all, this administration is notorious for skewing financial figures. Rather than stating the amount of new money the state sends to schools each, for instance, this administration prefers to state the sum of all the increases occurring since Blagojevich took office in 2003. Obviously, that’s a much bigger, more dramatic, number.
Oh, and when the state ran the biggest deficit in the nation, Blagojevich — who happened to be campaigning for re-election at the time, in 2006 — insisted that simply wasn’t possible. The “fiscal facts” in Illinois are sad indeed.
Second of all, as I already alluded to above, this administration also is notorious for putting politics before policy. And that’s not to say they even do well at that. Look no further than today’s headlines.
Illinois should be thrilled with its passing grade. I’m wondering how it did so well.
February 29th, 2008
The New York Times editorial page recently took note of New Jersey’s fiscal crisis, and in doing so issued this warning to other states:
It is hard to remember when any governor used the sort of desperate language that New Jersey Gov. Jon Corzine chose this week to describe his state’s fiscal crisis. His words should be a sober warning to other states to get their fiscal houses in order before they face a crisis of Trenton’s magnitude.
The editorial went on to describe what it called a “self-destructive gimmick”:
… the state seriously underfunded its pension plan and used the money to pay for current spending programs.
And it concluded:
The Garden State’s woes should serve as a warning to other states, whose lawmakers might be inclined to use budget gimmickry to deal with shortfalls in revenue and get through immediate fiscal troubles. As New Jerseyans are learning the hard way, that is likely to lead to much bigger trouble in the years ahead.
Illinois should take note. As far as I can tell, this state is the capital of “budget gimmickry.”
Illinois for decades blew off its public pension systems, and future taxpayers will pay — big time. Believe it or not, state leaders didn’t even have a long-term plan for paying down pension debt until 1995, when they finally got around to instituting one.
No longer would the state take a “pay as you go” approach to financing public pensions — putting aside just enough each year to cover annual pension and benefit payments to retirees. Instead, the state would, once and for all, start putting aside enough money each year to cover long-term pension liability.
And by putting more money away into its public pension funds, those funds would ultimately earn enough interest — dollars going back into the funds — that the state’s annual obligation would become minimal.
Or at least that was the idea behind the 1995 plan, which established in Illinois law a formula under which the state would get its pension systems 90 percent funded by 2045 — over 50 years.
But state leaders just can’t help themselves from putting off those payments each year in order to free up cash for all their favorite projects. In 2005, they took their policy of procrastination all the way by wholesale restructuring the 50-year plan. Rod and the gang called their move a “pension holiday.”
Then there was that clever pension maneuver during Rod’s first year in office, 2003. The state borrowed $10 billion to bolster the pension systems. But rather than dumping the entire $10 billion straight into the pension funds, the state skimmed more than $2 billion off the top and used those dollars to offset the state’s mandatory annual pension contribution.
In doing so, Rod and the gang freed up more than $2 billion they could spend on other stuff.
How cool is that! Pretty cool if you’re Rod, and you’re eager to spend some taxpayer money. Not so cool, if you’re a future taxpayer.
As I explained at the time, in a previous job:
Imagine getting a home equity loan for $100,000, spending $27,000 of it on a new car and investing the rest — then counting on the interest earned to cover the interest paid, as well as the cost of the car. That’s the essence of Gov. Rod Blagojevich’s $10 billion pension bonding plan, which became law in April.
This isn’t a new idea. Buying and selling in separate financial markets in order to profit from the difference in rates is called an arbitrage. It’s commonly used by banks, which invest their customers’ money for a higher rate of return than they pay on, say, checking or savings accounts. …
But counting on the performance of any investment is risky. When the market slumps, as it did during the last two years, an arbitrage can fail; there’s a chance the rate of return on the investment could be less than the cost of the loan. Pension bonding plans can put governments on the hook for additional, unforeseen contributions to their systems — while they continue to pay the debt service on the bonds.
This state’s pension bonding plan, which doubles the state’s total bonded indebtedness and constitutes the largest such scheme to date, is no exception to the rule. And there’s an additional twist that heightens the risk. Rather than realize gains as they occur, the administration is realizing, and spending, the projected 30-year gain in the first year of the plan. Like the homeowner who spent 27 percent of an equity loan for a car, the plan dictates that some 27 percent of the bond proceeds be spent immediately.
What’s the bottom line? The state is in lousy shape financially, particularly with regard to pensions. As the state comptroller noted in a recent report:
The funding level of the state’s five retirement
systems remains among the nation’s lowest.
The five state systems — the State Employees’
Retirement System (SERS), the State Universities
Retirement System (SURS), the Teachers’ Retirement
System (for teachers outside of Chicago –
TRS), Judges’ Retirement System (JRS), and General
Assembly Retirement System (GARS) – were
funded at a 62.6% ratio at the end of fiscal year
2007 (assets vs. liabilities). Even with the infusion
of the $10 billion pension funding bond proceeds
into the system in July 2003, the funded
ratio has failed to reach the highs seen prior to the
last recession, where the systems’ funded ratio
reached 74.7%.
UPDATE 1
The Legislature’s fiscal forecasting agency has compiled a chart showing the state’s future pension liability and how it changes based on the payments made each year. I posted it here.
February 18th, 2008
As Gov. Blagojevich prepares to announce his budget plan on Wednesday, business groups are convinced he will propose a tax on carbon emissions to generate more dollars for state coffers. The State Journal-Register reports:
The (Illinois) chamber fears that Blagojevich will ask lawmakers to approve a tax on carbon emissions from power plants and other industries. While acknowledging it has no details about what Blagojevich plans to propose, the chamber thinks a “carbon tax” could be imposed to generate more than $2.6 billion for cash-strapped state government.
“We are planning as though this will be a major initiative,” Todd Maisch, vice president of the chamber, said Friday. “His (financial) needs are substantial.”
Blagojevich aides refused to confirm — but also did not flatly deny — the plan.
Since taking office in 2003, Blagojevich has looked to Illinois businesses as a source for the revenue he needs to support expanded state spending. That approach topped out last year when he proposed a multi-billion-dollar gross receipts tax on Illinois businesses to cover the cost of a universal health care plan and other spending priorities.
In the SJ-R story, the Illinois Chamber notes that the suspected plan for a carbon tax would be just the latest incarnation of Blagojevich’s desire to more heavily tax businesses:
Maisch said a carbon tax would have the same effect as the ill-fated tax on businesses’ gross receipts that was proposed by Blagojevich last year.
It’s difficult to imagine big-spending Blagojevich going a year without a big-spending initiative. Yet, before state officials consider one dime of new spending, they first must deal with a revenue hole in the existing budget. Crain’s Chicago Business has more.
In other words, the pressure is on Blagojevich, et al., to raise more money — and fast. Hold on to your wallets.
February 15th, 2008
State officials haven’t approved a major capital construction plan since 1999, the first year of former Gov. George Ryan’s administration.
Whether they pull it off this year — amid continuing, maybe growing, acrimony in Springfield — is anybody’s guess. But even if they manage to clear their political obstacles, they may an emerging financial one. As Stateline.org reports, bonding — the type of borrowing the state must do to support a capital plan — is getting more expensive.
The problem isn’t with cities or states issuing the securities but with the insurance carriers that promise to pay interest and principal on municipal bonds in the unlikely event that states or local governments default. In recent years, the insurance carriers also began guaranteeing securities based on car loans, commercial real-estate deals, credit card debt and mortgages, including subprime loans that are now defaulting.
Here’s where it may hit home:
The bad loans are threatening to cause securities ratings firms such as Moody’s Investors Service, Fitch Ratings Ltd. and Standard & Poor’s to drop the credit rating of the insurers, which in turn would drop the credit rating of bonds they insure.
A ratings drop would drive up costs for state and local governments, forcing them to pay higher interest rates to borrow, or could keep investors away in a time of tight credit.
The Wall Street Journal has more, but you must be a subscriber to read the whole thing.
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.
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