November 17, 2016
As Illinois moves toward its 18th month without a complete budget, a new forecast shows that the State’s backlog of unpaid bills could reach $13.5 billion at the end of the current fiscal year.
The backlog estimate is part of a five-year projection by Governor Bruce Rauner’s administration. According to the projection and a related economic and fiscal policy report, the mountain of unpaid bills could grow to $47.1 billion at the end of FY2022 if existing State spending and revenue policies remain in place.
The dire prediction was issued on November 15, at the beginning of the Illinois General Assembly’s fall veto session. On the following day, the Governor’s budget director discussed the numbers at a meeting between Governor Rauner and legislative leaders on ending the budget impasse.
Illinois has not had a complete budget since FY2015, which ended on June 30, 2015. While Democrats who control the General Assembly have pushed for additional revenues, the Republican Governor has said he would only agree to higher taxes in exchange for key elements of his Turnaround Agenda, which is intended to make Illinois more appealing to businesses.
Despite the lack of a comprehensive budget, most State spending is continuing because of court orders, consent decrees and statutory requirements. This includes Medicaid, employee salaries, State pension contributions and debt service.
For other areas of government, the State is operating under a stopgap spending plan that provides a full year of funding for preschool through high school education and partial funding for higher education, social services programs and operational expenses for State agencies. This partial spending authority expires halfway through FY2017, on December 31, 2016.
The new projection shows an annual operating deficit of $5.3 billion in FY2017, based on the assumption that the State will enact additional spending authority for the areas that received partial funding or no funding at all in the stopgap budget. The gap between revenues and expenditures in FY2017 grows to $8.3 billion if the State provides $3.0 billion in additional funding for some of the costs that were not budgeted in FY2016. The $13.5 billion backlog of unpaid bills consists of the $8.3 billion as well as roughly $5.2 billion in unpaid bills carried over from FY2016.
It should be noted that the revenue and expenditure numbers used in the five-year projection cannot be compared to the numbers typically presented by the Governor’s Office of Management and Budget (GOMB), which only include the State’s general operating accounts. The new projection includes two accounts outside the General Funds—the Fund for the Advancement of Education and the Commitment to Human Services Fund—that receive a portion of State income tax revenues.
GOMB’s budget presentation also shows other resources used in the FY2017 stopgap spending plan to avoid a tax increase. These resources include the entire balance of about $275 million in the Budget Stabilization Fund, Illinois’ only rainy day fund, and the accumulated balance of $484 million in the Commitment to Human Services Fund that was not used in FY2016 because of the lack of a budget. The stopgap plan also allowed the State to forgo repayment of approximately $439 million of interfund borrowing.
The following table summarizes the FY2017 estimate and the five-year projection through FY2022. GOMB did not provide an estimate of FY2016 results.
In FY2018 the operating deficit is projected to grow to $7.1 billion, largely due to an increase of more than $900 million in statutorily required pension contributions from General Funds. As discussed here, the significant increase stems from reductions in assumed rates of investment return by four of the five retirement systems and increases in assumed life expectancy.
It remains to be seen whether a recent ruling by the Illinois Labor Relations Board in favor of the Governor and against the State’s largest union might result in savings. The Board on November 15 declared that negotiations between the State and the American Federation of State, County and Municipal Employees (AFSCME) were at an impasse. The ruling allows the administration to implement its proposed contract terms, but AFSCME has said it will appeal the decision in court.
One of the main issues in the contract dispute is the administration’s plan to require employees to bear a much larger share of the costs for group health insurance. Governor Rauner’s recommended budget for FY2017 had proposed a General Funds appropriation of $1.37 billion for group insurance, based on negotiated cost reductions. That compares with the current projection of $1.81 billion.
GOMB has been required to issue an economic and fiscal policy report, including a multi-year budget forecast, since 2011. A law enacted in August 2016 increased the length of the projection to five years from three years and required that the report be filed by November 15 instead of in early January.