December 26, 2013
The following posts were among the most highly read on the Institute for Illinois’ Fiscal Sustainability’s blog in 2013 and represent some of the most closely followed Illinois fiscal issues this year:
January 3, 2013
This blog examines a pension reform proposal introduced in the Illinois General Assembly late in 2012 by a bipartisan group of legislators. Actuarial reports showed that the proposal could immediately reduce the State’s required annual contributions by nearly $2 billion. The legislation included a limit on automatic annual benefit increases, a phased-in increase in retirement age, a phased-in two percentage point increase in contributions and a pensionable salary cap.
Update: Several years of legislative negotiations culminated on December 3 with the passage of comprehensive state pension reform legislation addressing four of the State’s five pension funds. The legislation was signed into law on December 5. After decades of underfunding, the law establishes an actuarially sound plan to reach 100% funding in 30 years. It is projected to immediately reduce the State’s $100 billion unfunded liability by $20 billion and save the State approximately $160 billion in required contributions over the next 30 years. Two IIFS blogs on December 6 and December 12 examined how a specific provision of the new law relating to the automatic annual increase will affect retirees and current employees, respectively.
January 15, 2013
This post discussed a new three year budget projection for the State of Illinois by Governor Pat Quinn’s administration. The projection showed that significant spending reductions would be needed to balance the State budget in FY2015 and FY2016, when temporary income tax rate increases start to be phased out on January 1, 2015. The projection showed a $4.7 billion decrease in State income tax revenues from $18.6 billion in FY2014 to $13.9 billion in FY2016.
Update: The Institute’s analysis of the State of Illinois FY2014 Enacted Budget warned that the budget may represent a high-water mark, with future years bringing sharp reductions in revenues due to the scheduled partial rollback of income tax increases. The looming revenue drop remains one of the challenges lawmakers will face when the General Assembly reconvenes in January 2014.
January 30, 2013
This post discussed the January 2013 downgrade of the State of Illinois’ bond rating by Standard & Poor’s (S&P) as the State prepared to issue half a billion dollars in new capital debt. S&P reduced Illinois’ rating to ‘A-’ from ‘A’ with a negative outlook due to the State’s inaction on pension reform and its ongoing financial crisis.
Update: In the face of unfavorable market conditions triggered by the bond rating downgrade, the State delayed the January bond sale and returned to the market in April with a new sale totaling $800 million. After the Illinois General Assembly ended its 2013 regular spring session without approving reform of the State’s underfunded retirement systems, two of the three major ratings agencies downgraded the State’s bond ratings. Both Fitch Ratings and Moody’s Investors Service cut the State’s rating one level, while Standard and Poor’s affirmed its existing ‘A-’ rating. Illinois’ bond ratings are now the lowest of all 50 states, leading to dramatically higher borrowing costs than better-rated governments. The latest downgrades put Illinois on the final step of the ‘A’ ratings for all three agencies before entering ‘BBB’ status.
February 6, 2013
As discussed in this blog, the State of Illinois faced a decision earlier this year on whether to expand its Medicaid program in 2014 under the federal Affordable Care Act. The Illinois Department of Healthcare and Family Services, the State’s main Medicaid agency, estimated that federal revenues of $12.2 billion related to the Medicaid expansion would significantly exceed then-projected State spending of $573.3 million. Critics of the proposed expansion were concerned that HFS might have underestimated potential enrollment resulting in an underestimate of State costs.
Update: In an analysis of the Governor’s FY2014 Recommended Budget, the Civic Federation urged the State to approve Medicaid expansion under the Affordable Care Act due to the resulting significant increase in federal resources compared to projected State expenditures. The Federation also urged the State to plan for additional costs relating to both newly eligible and previously eligible recipients including setting aside any savings from expansion to pay additional State costs. Governor Pat Quinn signed legislation in July 2013 to allow Illinois to expand its Medicaid program under the federal Affordable Care Act beginning in January 2014.
June 24, 2013
This blog provides preliminary analysis of the FY2014 budget approved by the Illinois General Assembly, according to documents published by the State for its June bond sale. The bond documents show an operating deficit of $89 million and note that the deficit is expected to be eliminated by the end of the fiscal year on June 30, 2014 due to typical fluctuations of revenues and expenditures.
Update: The Institute published its comprehensive analysis of the State’s FY2014 Enacted Budget on October 2. The analysis found that the budget is approximately balanced, with no growth in bills due to inadequate appropriations. However, the Institute warned that the FY2014 Enacted Budget did not show the fiscal discipline required by the State’s perilous financial condition. Rather than reining in spending and using any surplus to further reduce the backlog of bills, the budget includes current year spending that exceeds the Governor’s recommendation by more than $350 million. The State’s backlog of unpaid bills is projected to total approximately $5.8 billion at the end of FY2014. This is down from $8.8 billion at year-end FY2012 and $6.3 billion at year-end FY2013, but still represents more than 16% of the State’s total General Funds revenues.
Continue to follow the IIFS and Civic Federation blogs in 2014 for ongoing analysis of fiscal developments across Illinois. You can subscribe to both blogs via RSS feeds compatible for Microsoft Outlook, Gmail and most web browsers.