Apparently, someone started the rumor that state government passed a balanced budget for its 2010 fiscal year, which started July 1, and calls for $26.08 billion in spending from the general fund on public services.
This is one urban legend that needs to be exposed as myth.
Sure, the state officially adopted something it calls a “balanced budget,” but on closer inspection, two things become crystal clear: Illinois cannot afford the budget it passed; and the $26 billion appropriated for FY 2010 understates the true, general fund spending pressure for the year by more than $5.5 billion. The reasons why are easy to explain.
First, the $26 billion appropriated for spending on services is not supported by real, recurring tax revenue. Instead, it relies significantly on debt and one-time revenue transfers that won’t be available next year. In particular, the state will issue $3.4 billion in pension notes to cover the employer contribution it owes to the five public retirement systems in FY 2010. In other words, rather than use real revenue to fund its pension systems, the state will borrow the contribution from investors who purchase the pension notes. Never mind that the state will have to repay this debt, with interest, over the next five years. Illinois then intends to divert the $3.4 billion in revenue it should have contributed to pensions, to instead cover the cost of delivering an equal amount of public services. In other words, without borrowing against its pension contribution, Illinois couldn’t afford 13 percent of its FY 2010 budget for services.
But wait, there’s more. Illinois is receiving $1.843 billion from the federal stimulus program for FY 2010 that won’t be coming in next year. Top all that off with another $356 million in one-time sweeps from special funds that aren’t supposed to be used for general fund services, and just about $5.6 billion of the $26 billion budget is covered by debt or one-time, nonrecurring revenue. Put another way, Illinois can’t afford to pay for more than 21 percent of its scheduled budget for the current fiscal year.
Now for the kicker. The $26 billion budget appropriated for FY 2010 understates the actual spending pressures confronting state government this year. Why? Simple — there will be at least $2.16 billion in past due payments and obligations that the state owed but didn’t pay last year that will carry forward into this year. Illinois doesn’t have $2.2 billion in spare change lying around under sofa cushions to cover these past due debts that, when added to the $3.4 billion owed to the pension system, means the FY 2010 budget as passed understates what is really owed by more than $5.5 billion.
From a provider’s standpoint, this is nothing short of a disaster. Say you run a human service facility that’s been waiting for months to be paid for services delivered last year.
Now the state says sure, you’re in the budget — but at what level is unclear. Can you really keep providing needed care to, say, developmentally disabled individuals, folks with other physical or mental disabilities, abused and neglected children or seniors, victims of domestic violence, etc., not knowing when or if you’ll get the state’s promised payment so you can meet payroll, cover the rent, etc.? No, you can’t.
Which dispels another myth — that folks are crying wolf about the impact of the state’s budget on providers and their clients.
This isn’t some theoretical problem. Real, serious cuts are being made, right now, to vital services. Human service workers are losing their jobs (making the recession in Illinois worse, by the way), while vulnerable individuals and their families are left to suffer.
If the state doesn’t get its act together and pass meaningful tax reform that includes a significant revenue increase (like HB 174 that the Senate passed in May, visit www.ctbaonline.org for a summary), the future looks bleak.
Next year, Illinois won’t have the $3.4 billion in debt proceeds from the pension notes, but will have a new, $800 million obligation due to start repaying those notes. It also won’t have the $1.8 billion in federal stimulus dollars and will have at least $2.2 billion in unpaid bills left over from FY 2010 to deal with.
So, without accounting for inflation, increases in the pension ramp or revenue problems and increased demand for public services caused by the recession, Illinois will start FY 2011 at least $7.4 billion in the hole, a deficit north of 28 percent, if the state keeps its FY 2011 budget at FY 2010 levels. The simple facts are clear: Delaying action on thoughtful tax reform that generates more revenue is something the state — and millions of its residents who rely on public services — just can’t afford.
Ralph Martire is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal policy think tank.
He can be reached at
rmartire@ctbaonline.org.