Bleak Illinois forecast warns of ballooning deficits, bill backlog

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Without new revenue or deep spending cuts, Illinois’ structural deficit will swell to more than $3 billion in five years, driving the state's unpaid bill backlog up to a record $19 billion from the current $6.9 billion.

That’s the bleak picture laid out in the Governor’s Office of Management and Budget annual economic and fiscal forecast. It was published Wednesday.

Deficits of $1.8 billion are projected in fiscal 2021, $2.4 billion in fiscal 2022, $2.9 billion in fiscal 2023, $3.1 billion in fiscal 2024, and $3.2 billion in fiscal 2025.

The projections reflect baseline growth in existing revenues and no significant changes in state spending policy so the forecast anticipates the deficit will be piled onto the state’s current accounts payable backlog.

Rating agencies have warned that movement is needed toward structural balance and any material hike in the backlog could trigger downgrades. With two ratings on the final notch above junk a third only one notch higher, the state has little room to falter if it wants to keep investment-grade ratings.

The forecast projects the state will end fiscal 2020 on June 30 with the backlog at $5.9 billion. It will grow to $7.7 billion in fiscal 2021, $10.1 billion in fiscal 2022, $12.9 billion in fiscal 2023, $16 billion in fiscal 2024, and $19.2 billion in fiscal 2025 absent revenue or spending changes.

The state expects to tap a $1.2 billion borrowing authorization to pay down the bill backlog in the spring, according to the forecast. The state had not previously announced the deal’s timing. The bill backlog was $7.3 billion at the end of fiscal 2019 on June 30.

Gov. J.B. Pritzker used the forecast to highlight what he believes is the best option to stabilize state finances over the long term: a shift to a progressive income tax structure as 33 other states impose. The governor, if voters change the constitution and state lawmakers approve his proposed rates, would impose increases on higher earners that would raise an estimated $3.6 billion in new annual revenue after dolling out the local share and covering tax credits that were included in rate legislation earlier this year.

Voters will decide on the constitutional amendment to repeal the flat income tax rate requirement in November 2020. If approved, the state would put $100 million annually toward establishing a rainy day reserve and another $100 million toward paying down its pension tab that stands at $133.7 billion.

Pension contributions rise to $9.65 billion in fiscal 2025 from $8.1 billion this year, according to the forecast.

“Without structural changes like the Fair Tax, Illinois will continue to struggle to make ends meet, pay our bills on time and deliver vital services, like public education and public safety,” Pritzker said in a statement.

There are few alternatives if the amendment fails, the report warns.

“Illinois would need to consider dramatic budget cuts of approximately 15% to many essential services such as education funding and public safety, or the state would need to consider revenue enhancements equivalent to a 1% increase in the individual income tax for all households under this existing flat tax,” it says.

The financial forecast does not reflect revenue expected from the sale of legalized recreational cannabis that was approved in the spring. Once implemented, revenue between $25 million and $150 million annually is expected.

Fiscal 2020 spending and revenues in the $40 billion general fund budget are performing as expected with an additional $30 million being added to the projected end-of-year balance originally forecast at $150 million.

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State budgets Deficits J. B. Pritzker State of Illinois Illinois