GOVERNOR’S OFFICE RELEASES BUDGET PROJECTIONS
Governor Quinn is scheduled to deliver his annual State of the State message in just three weeks time, but for now Illinoisans concerned about the fiscal state of Illinois can pour over the three-year financial projection summary released by the governor this week. These projections foreshadow a likely challenging and precarious financial position for Illinois over the next few years.
Despite the fact that state revenues are expected to increase by $600 million in the coming fiscal year, the budget office projects that these gains will be offset by nearly $950 million in increased pension costs.
The Governor’s budget projections offer a preview of the coming years; however, the relatively short four-page document and accompanying chart offer no plans from Governor Quinn on how he proposes to meet the spending targets laid out.
In the broad category of education, the budget office predicted Illinois would spend about $450 million more next year than this year. However, included in the education allocation is more than $700 million in increased retirement fund payments for public school teachers and administrators and about $100 million more for university employees. Once those figures are backed out of the total, the Governor's office predicted the amount available for other education spending would drop by about $400 million.
Also included in the Governor’s projections was a prediction that healthcare spending would increase by about $250 million, that pension fund payments for state employees would increase by just under $100 million and that the Department of Human Services would spend $200 million more than what has been authorized for the current fiscal year.
The three-year projections presume that the bulk of the 67% tax hike approved in 2011 will expire as scheduled on Jan. 1, 2015. The expiration of the tax hike, coupled with other expected changes in revenues, will likely result in a $1.8 billion drop in revenues for the final half of Fiscal Year 2015 and another $2.7 billion drop for the full year in fiscal year 2016.
In January of 2011 when the 67 percent tax hike was passed by Illinois Democrats, a key rationale for the increase was that the revenue generated would be used to pay down old bills. Yet in the 2 years since the hike took effect little progress has been made on that front. The budget office predicts that the state bill backlog will drop from $8.28 billion in fiscal year 2013 to $7.42 billion in fiscal year 2014 and then remain unchanged for the next two fiscal years.
ILLINOIS’ PROJECTED PENSION LIABILITY GROWS TO $94 BILLION
Audits of Illinois’ five pension systems released on January 16 confirmed that the state had an unfunded pension liability of more than $94 billion when the fiscal year ended on June 30.
The volatile stock market over the last fiscal year took a toll on pension system investments. The audit revealed that the investment portfolio of the Teachers’ Retirement System (TRS) failed by $968 million. TRS, the largest of the five state pension systems, took the biggest hit in the market.
Because the audits only cover the fiscal year that ended in June, the investment returns do not reflect improvements in the market that occurred over the past six months.
FITCH WARNS OF FUTURE DOWNGRADE
Fitch Ratings, one of the major credit ratings agencies in the United States has issued a “ratings watch negative” warning. While no official downgrade has taken place, the “ratings watch negative” serves as a warning that unless substantial action is taken in reforming Illinois’ massively underfunded pension system a credit rating downgrade could be in the state’s future.
According to Fitch, “The Ratings Watch Negative reflects the ongoing inability of the state to address its large and growing unfunded pension liability, most recently through the failure to pass pension reform in the ‘lame duck’ portion of the 97th General Assembly legislature that ended on Jan. 8. Fitch believes that the burden of large unfunded pension liabilities and growing annual pension expenses is unsustainable.”
Illinois already holds the country’s lowest rating from Moody’s Investors Service.
For years Illinois and California have seemed to be fighting for the top spot as the most fiscally dysfunctional state in the nation. However, Illinois appears to be taking the lead in the when Fitch's threat, is coupled with the news that California is projecting its first budget surplus in a decade.
LAWMAKERS FILE BILLS FOR SPRING LEGISLATIVE SESSION
Lawmakers continue to file legislation for consideration during the coming spring legislative session.
Bills filed included:
• A ban on semi-automatic weapons and large capacity magazines (SB 42);
• A measure allowing lawmakers, the Governor and other eligible officials to drop out of the controversial and chronically underfunded General Assembly Pension System (SB40);
• Regulations on smoking in outdoor patios of restaurants and other establishments (SB53); and
• A proposal affecting the mandatory prison sentence for persons under age 18, who have been convicted of murder (SB55).