A Borrowing Binge: $15 Billion More on Table in Illinois

A deficit almost half the amount of the $26 billion general fund budget; a billion dollar backlog in unpaid bills to vendors; and billions more in missed payments to a pension system already $85 billion in the hole.

This is the fiscal reality staring Illinois lawmakers in the face as they reconvene to address a $13 billion budget deficit. Years of incurring too much debt, over taxation, and too many government promises have brought Illinois to the brink. Yet even as the state continues to spend $3 for every $2 it takes in, Governor Pat Quinn has proposed spending and borrowing more - $15 billion more.

If not there already, Illinois is a “deadbeat” when it comes to paying its liabilities. The state shares with California the lowest U.S. state credit rating from Moody’s Investors Service as a result of the widening gap between the states expenses and revenue and their failure to address a long term, structural budget deficit.

No one wants to do business with a deadbeat. Indeed, as noted by the Illinois Policy Institute, late or unpaid bills have already caused Illinois vendors to end business with the state. For example, a company that produces ammunition stopped delivering bullets because the Department of Corrections owed them money. If not addressed, Illinois will not be able to provide its core services to residents. In this instance public safety is in jeopardy.

As if the state has not already borrowed itself into oblivion, Gov. Pat Quinn has proposed borrowing $15 billion more to resolve the issue. Supporters say the outside loan would provide instant cash to schools, doctors and social welfare agencies. Also, they claim it will save the state money as the interest payments on the new debt will be less than penalties incurred by not servicing vendors. The catch is that this is only a short term fix, “solving” the problem for only a year. It’s the classic Illinois example of kicking the can down the road, saddling Illinois taxpayers with yet another loan payment.

Quinn has also proposed a plethora of new taxes – everything from a 33% increase in the state income tax, a $1 hike in the cigarette excise tax, and taxing the sales of online purchases (click here and here to read more). All would further hamper the economic outlook of a state that already ranks nearly dead last according to the ALEC-Laffer State Economic Competitive Index.  

Illinois needs to reverse its deadbeat status. That means it should not enter into unaffordable new obligations and adjust existing spending obligations downward so it can begin paying down debt it already owes. More borrowing will make the problem worse in the long term, further hurting the state’s ability to take out loans or repay vendors.  Tax and expenditure limits are another way to ensure that government outlays do not grow faster than the public’s ability to pay. The Illinois Policy Institute has been tracking  HJRCA 61and its amendments which seeks to tie spending to per capita personal income growth. More to come on this issue…