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And Miles to Go Before It’s Balanced: Illinois Still Faces Tough Budget Choices

And Miles to Go Before It’s Balanced: Illinois Still Faces Tough Budget Choices

The Illinois budget has been unbalanced and unsustainable for many years. Recently, national attention was focused on the state’s fiscal problems by the State Budget Crisis Task Force, which concluded: “[W]ithout any sort of long-term financial plan to restore balance, and without reserves … Illinois has been doing backflips on a high wire, without a net.”1 A harsh statement, but a reasonable characterization of the risky behavior involved. As a result of these “fiscal backflips” —paying for expanded programs with borrowing, pension holidays, delayed payments to creditors, fund-balance transfers and other gimmicks—Illinois was effectively insolvent going into the Great Recession. In late 2010, the future appeared so bleak that we characterized Illinois’ fiscal condition as “Titanic and Sinking.”2 Two years later we see signs of progress. Illinois certainly has a long way to go to achieve fiscal balance, but problems are being recognized and state leaders have taken several positive steps during the past year. One of the biggest strides occurred in June 2012 with a $2.7 billion plan to “save” Medicaid that consisted of cost reductions, significant new revenue, and other changes. In addition, Illinois’ implementation of Budgeting for Results has broadened the state’s budget focus and key budgeting players are now considering a longer-term picture in budgeting. However, recent developments have, at best, temporarily fixed a number of looming problems. Medicaid expenditures are expected to continue to rise, placing additional budget pressures on Illinois. The state faces an estimated $100 billion in unfunded pension obligations with no clear solution. Finally, in what has become a tradition in Illinois budgeting, the state will use approximately $5 billion in fiscal year 2013 revenues to pay fiscal 2012 bills, and has no agreed upon plan to address the backlog.3 Section II of this chapter reviews the budgetary events of the past year. In Section III, we present our long-term projections of the state’s structural deficit from the Fiscal Futures Model. In Sections IV and V, we analyze and present projections regarding Medicaid and pensions, respectively. Section VI reviews recent state efforts to adopt improved financial practices, such as Budgeting for Results and the addition of multiyear projections. Finally, we offer concluding remarks and policy options.

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Illinois’ lack of transparency and the use of borrowing and budget maneuvers—such as putting off bills until next year—contributed to the lack of recognition of the state’s desperate fiscal condition.

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