CHICAGO – Illinois Gov. Bruce Rauner's administration released sobering fiscal projections Wednesday that show the state's bill backlog could top $47 billion in fiscal 2022 if lawmakers don't resolve a political stalemate and make progress on balancing the books and reforming pensions.
The projections were included in Office of Management and Budget director Tim Nuding's annual fiscal and policy report to the General Assembly and were discussed by Gov. Bruce Rauner and legislative leaders who met Wednesday. Lawmakers are at the state capital for a post-election, six-day veto session.
The report painted a stark picture of the state's fiscal ills based on its current trajectory. It came on a day when the Illinois comptroller's website reported that the state's bill backlog stands at $10.7 billion. It's a record that exceeds a former highpoint hit before funds from a temporary 2011 income tax hike began to flow to state coffers, helping to bring down a near $10 billion tab.
Rating agencies follow the figure and its growth closely as it provides a good view of the state' cash flow struggles.
"Illinois can no longer afford to continue with the status quo economic and fiscal policies. The state's fiscal trajectory is unsustainable and the General Assembly and the governor must take responsible actions to improve the state's economic conditions," wrote Nuding, who used the figures to underscore the administration's position that so-called "turnaround agenda" reforms opposed by Democrats are needed to improve the state's economy.
The state's fiscal report has the state's bill backlog rising to $13.5 billion this year, exceeding $20 billion in fiscal 2018, $27 billion in 2019, $34 billion in 2020, $40 billion in 2021, and landing at $47.1 billion in 2022. The fiscal report also reiterates Rauner's support for borrowing to help chip away at the backlog if a balanced budget deal is reached.
The deficit currently stands at $5.3 billion. That does not include $3 billion of unpaid fiscal 2016 bills. The red ink then exceeds $7 billion in each of the next two fiscal years. It then drops into the $6.4 billion to $6.5 billion range as revenues grow.
Pension contributions rise to $9 billion in 2022 from $7 billion this year, a number that could further increase based on various actuarial assumptions that impact state contributions. General fund and other source revenues of $33.7 billion this year rise to $36.7 billion in 2022 while expenses rise from $39 billion this year to $43.2 billion in 2022.
"The projections used for fiscal year 2017 and the five subsequent fiscal years assume moderate natural growth in revenues under existing law driven by the blended economic forecast scenario, increases in pension payments as projected by the pension systems under existing laws, projected debt service amounts and moderate increases in other spending, all assuming no significant reforms or spending controls," Nuding wrote in the report.
"The governor will work with the legislature and pursue a combination of structural reforms, spending reductions and new revenues to balance the state's budget and resolve these shortfalls," Nuding added.
The impasse over fiscal 2016 and 2017 budgets has been driven by the Republican governor's feud with the Democratic majority over his insistence on support for worker's compensation, tort and redistricting reforms; curbs on local government union powers; and term limits in exchange for tax hikes.
Unable to reach a compromise in June, Rauner and lawmakers passed a six-month stopgap budget in hopes of returning after last week's election to settle their differences and pass a budget. Rauner also wants to pass pension reforms to chip away at a record $126.5 billion unfunded pension tab although state constitutional protections complicate changes.
The budget and pension mess has dragged the state's credit to the lowest among states, in the BBB category with warnings of further deterioration if progress is not made in tackling its fiscal strains.
Rauner and Democrats remained at loggerheads Wednesday. House Speaker Michael Madigan, D-Chicago, is pressing for an agreement on a spending plan to get through the remaining half of the current fiscal year. Republican minority leaders say they won't support another temporary plan that doesn't include long-term structural reforms.
"Although we had a productive meeting the Democrats have to understand that we will not pass a budget unless it is balanced," said House Minority Leader Jim Durkin, R-Western Springs.
The administration handed out worker's compensation and term limit legislation at the meeting Wednesday, signaling that those are now Rauner's top priorities in the budget negotiations. He previously had put redistricting and pension reforms at the top.
The report underscores Rauner's support for revenue hikes if Democrats agree to some of his proposals. The report notes that each one percentage hike in the state's income tax could generate $3.8 billion annually. Rauner also has supported extending the state's sales tax to cover some services.
The forecast projects 2.5% growth in personal income tax revenues in 2018 and 2019 but a recession would cut the growth. The report also warns that without economic reforms the state's long term growth prospects are dim.
"Barring significant budget and policy changes, Illinois' rate of economic growth is expected to continue to lag the national rate of economic growth over the next five years," the report said.
The state saw spreads to the Municipal Market Data AAA benchmark of 200 basis points on its recent general obligation bond sale.