CHICAGO — Illinois will spend $2.5 billion more then it expects to collect in the coming months, putting it on course to end December with a bill backlog of $10 billion, the state comptroller warned Thursday.
"Cash flow will remain extremely limited…for the foreseeable future," Munger said at a news conference called to outline her office's payment priorities following the recent passage of new spending measures. "Those severe cash shortages mean my office will continue to perform triage to help those most in need and protect our most critical services."
The latest figures from Munger reflect a legislative agreement Gov. Bruce Rauner and his fellow GOP legislative members struck with the General Assembly's Democratic majorities.
Unable to resolve political and policy differences that have delayed fiscal 2016 and 2017 budgets, the two sides on June 30 settled on a stopgap, six month-budget and other spending measures that included full fiscal 2017 funding for K-12 education.
Munger's warnings came on the same day a report from the non-partisan Illinois Commission on Government Forecasting and Accountability offered another sobering look at the state's balance sheet. State spending with passage of the stopgap budget will out-pace expected revenues for the full fiscal year by nearly $8 billion, according to the analysis requested by a state lawmaker. The state will collect nearly $32 billion of revenue in the current fiscal year while spending will reach nearly $40 billion. Revenue is projected to grow by only $400 million which will fail to keep pace with rising costs and appropriated funding.
After accounting for the new appropriations, Munger said the state will spend $2.5 billion more in revenue then is expected through December, which is the halfway point for the state's fiscal year. The state is on course to push its current bill backlog of $7.7 billion up to $10 billion, possibly surpassing a previous high of nearly $10 billion.
That's $3 billion more than the state carried over from the previous calendar year. The revenue shortage will result in six-month payment delays for some.
"While the stopgap is a positive step forward, it is a very short-term step. It does not address our larger financial issues and our limited available cash, nor does it provide a predicable funding stream" for organizations that rely on state funding, Munger said.
Debt service, which enjoys a strong priority on available revenues, is at the top of the payment list, Munger said. The office will also prioritize elementary and secondary school aid payments.
Munger said she would also put fiscal 2016 bills owed to human service providers and businesses that provided services and have yet to be paid for their work at the top of the pile. While debt service continued to be paid under a continuing appropriation and some services funded through special appropriations or court orders and consent agreements, many social service agencies and business vendors have not received any compensation for fiscal 2016 services.
The office will also prioritize the $1 billion lawmakers approved in higher education funding that will flow to public universities, community colleges, and cover low-income student grants.
The state's bill backlog is closely followed by rating agencies, which have warned that the state could see its ratings slide further, because it illustrates the state's strained liquidity as lawmakers fail to solve the state's financial mess. The state lost about $4 billion in revenue in 2015 due to the partial expiration of a 2011 income hike and Republicans and Democrats remain at odds over how to balance the state's books. Rauner won't agree to a tax hike without Democratic support for his governance and policy proposals but Democrats are opposed to the measures, which would curb union powers, overhaul worker's compensation and impose tort reforms and term limits.
The stopgap spending approved late last month is designed to see the state through contentious November elections and pave the way for a long-term solution early next year.
The legislative package provided full fiscal 2017 K-12 general aid funding of $5.1 billion, up by $361 million from the previous year. The education package includes an additional $250 million for schools with a large number of low-income students. Chicago Public Schools' aid will go up by about $130 million under the package.
Human services, higher education and government agency operations were provided some funding for fiscal 2016 and the first half of fiscal 2017.
"Although the stopgap authorizes funding for many struggling areas of state government, it is far from a complete budget," the Civic Federation of Chicago's Illinois Institute on Fiscal Sustainability wrote in a review of the legislation.
Human services grants and programs receive $667 million, which represents 65% of the total funding needed to complete the fiscal 2016 budget and fund the first half of fiscal 2017. No general fund payments have been made for group health insurance in fiscal 2016 and they were not included in the stopgap budget.
To help cover the spending, legislation allows the state to forgo repayment of $450 million of interfund borrowing done in fiscal 2015 and drain the state's $276 million budget reserve.
The package relies on $20 million in savings this year from a proposed $2 billion general obligation bond refunding. The state would use $150 million from a new assessment on hospitals to help cover Medicaid costs and will dip into personal property replacement tax collections for $97 million. That could reduce what's distributed to local governments, who typically receive about $1.4 billion annually from the tax.
The legislative package also expanded Chicago's ability to use tax-increment financing to spur development. The city now has authority to establish TIFs around transit lines to help fund proposed projects and it could help leverage between $800 million and $1 billion in federal funding, according to Chicago Mayor Rahm Emanuel's administration and lawmakers. The Chicago Transit Authority is struggling to come up with new funding streams to fund maintenance and upgrades.
Ahead of a recent sale, Moody's Investors Service dropped Illinois one notch to Baa2, two notches above junk while S&P Global Ratings lowered the state one notch to BBB-plus from A-minus. Both assign negative outlooks. Fitch Ratings affirmed its BBB-plus rating but placed it on negative watch.
