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Illinois faces $9 billion annual deficit and $159 billion in IOUs
New analysis (PDF) by the Fiscal Futures Project finds no easy fix to Illinois’ chronic fiscal imbalance. Illinois now faces a $9 billion annual deficit that will grow to $14 billion by FY 2026.
“Years of pay-later budgeting has resulted in a massive imbalance between sustainable revenue and spending,” said Richard Dye, co-director of the Fiscal Futures Project. “Like a person in deep credit card debt, the state has been spending more than it can afford, and is covering the gap by issuing IOUs.” The report finds that the state’s IOUs now total $159 billion—more than twice the inflow of revenue in a single year. It’s a monumental problem that will require a long-term fiscal plan that includes tax increases, spending cuts, and economic growth.
The report, Apocalypse Now? The Consequences of Pay-Later Budgeting in Illinois, examines what it would take to balance the budget. The options are limited.
- Bringing back the 2011 tax increase would close only about one-half of the gap projected for the next several years.
- The problem cannot be solved with spending cuts alone. Because Illinois can’t cut debt service or pension payments, it would take at least a 20 percent cut of all remaining spending to eliminate the deficit. This includes education, corrections, Medicaid, public safety, transportation, and more.
- Economic growth is also not a cure-all: an increase in the growth rate of personal income by an extra one-half percent every year for 10 years (an optimistic scenario) would only have a modest effect on the deficit.
The report concludes: “Changes in awareness, expectations, and policy are needed to restore fiscal balance in Illinois. Being saddled with paying past years’ bills means that today, Illinoisans must reduce their expectations for the services that they can expect from government and be prepared to pay more for government, now and in the future.”