Dale Righter

Illinois State Senator | 55th District


Governor’s Office releases challenging budget outlook for Illinois

Friday, January 18, 2013

The state’s uncertain economic climate is on track to become even more precarious according to a  summary of three-year financial projections and a chart recently released by the Governor’s budget office, said State Sen. Dale Righter (R-Righter).

As mandated by state law, Gov. Pat Quinn’s budget office recently released its annual projections, which showed that despite an anticipated $600 million increase expected in the coming fiscal year, those gains will unfortunately be offset by an almost $950 million increase in state employee pension obligations.

The Governor’s budget projections offer a brief snapshot of Illinois’ financial outlook, and serve as a preview of the fiscal parameters the Governor will be working within to construct his annual budget proposal. However, the brief four-page document and its accompanying chart offered no direction on how Quinn proposes to meet the outlined spending targets.

Of note, the budget office predicted Illinois would spend about $450 million more on education in FY 2014 than the currently fiscal 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 removed from the total education allotment, the Governor's Office predicted the amount available for other education spending would drop by about $400 million.

The Governor's budget office also anticipates healthcare spending will increase by around $250 million, pension fund payments for state employees would increase by just under $100 million, and Department of Human Services spending would spike by about $200 million more than what was authorized for the current fiscal year.

According to the Governor’s three-year projections, it is assumed 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.

Although paying down old bills was cited as a key rationale for hiking taxes when Democrats approved the tax hike in 2011, 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.

Audits: Pension Investments Suffered in FY12

The Governor’s report—released three weeks before his scheduled State of the State address—was released just as new audit reports of the state’s five pension systems confirmed Illinois has an unfunded pension liability exceeding $94 billion as of the end of the fiscal year on June 30. 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.

The audits, release Jan. 16, show that the volatility of the stock market took a toll on pension system investments during the previous fiscal year. As the largest of the five state pension systems, the Teachers' Retirement System (TRS) took the biggest hit in the market, falling by $968 million.

And, as part of what some may consider a “trifecta" of difficult state budget news, one of the major debt rating agencies recently issued a warning that Illinois is on a "negative watch." The action taken by Fitch Ratings does not lower the state's credit rating, but still serves as a strong warning to the state that if action isn’t taken to improve Illinois’ finances the agency will likely downgrade the state in the near future.

Fitch cited concerns over a lack of progress on meaningful pension reform as the catalyst for the change in Illinois’ credit outlook. Moody’s Investors Service had already dropped Illinois’ credit outlook to a negative watch in late 2012, and the state currently holds the country’s lowest credit rating from Moody’s Investors Service.  

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