State finances are in better shape, but still far, far from healthy.
When Governor JB Pritzker presented his proposed state budget for 2022-23 a few weeks ago, he received praise – in some quarters he was particularly generous – for the improvement in the budget situation of the Illinois.
His $45.5 billion budget plan, by his calculations, included a surplus. There was also an additional $500 million payout to the state’s woefully funded public pensions and a contribution to the state’s rainy day fund.
No more arrears of unpaid invoices of $7.9 billion and late penalties of $1.2 billion in late payment interest for non-payment of these invoices. Instead of the state’s financial rating being one notch above “junk” status, Pritzker boasted that he had climbed two notches above junk status and was on the to increase further.
Indeed, the circumstances are so much better that Pritzker, who is running for re-election, has offered tiny temporary cuts in sales, property and gas taxes.
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What is the explanation for the dubious version of Illinois’ healthy financial situation? The answer is, at least in part, multi-billion dollar federal bailouts and improved state tax revenues beyond what was expected.
Calling the state’s financial situation “considerably better than it was when Governor Pritzker took office,” Laurence Msall, president of the Civic Federation, praised.
“The governor’s use of federal revenue support has been efficient and fiscally sensible, and it has helped improve the state’s fiscal position, as has revenue growth,” he said. “There are a lot of positives in this budget.”
Msall is right. But Illinois is still far from good fiscal health. The state public pension contribution consumes 25% of the operating budget and the federal money will eventually run out.
It is important to keep these realities in mind.
This is why the recent proposals of controller Susana Mendoza must be taken with a grain of salt.
She proposed scrapping a state law that imposes a 12% annual interest rate on unpaid bills on state sellers and another that allows private investors to purchase debt owed to sellers and collect the interest penalty.
For starters, Mendoza makes a good point about the 12% interest penalty. The outrageous amount – 1% per month – was established by the Prompt Payments Act 1993, the idea being that the high rate would discourage sloppy financial management.
The law presumes that state officials would never be irresponsible enough not to pay bills promptly and be penalized to that degree. But that is exactly what our elected officials have done.
The second program – the one that allows wealthy investors to buy seller’s debt, sit down and cash out – is nasty. But while they were taking advantage of an ugly situation, these investors were also bailing out cash-strapped business owners who needed cash to avert financial disaster.
Mendoza seems convinced that Illinois will not fall back into the sordid situation that has resulted in unpaid bills that private investors have exploited for financial gain.
But that confidence, in our view, is unwarranted given the severe financial challenges that Illinois still faces.
Change the interest rate from 12% to something less? Absolutely, especially in this era of zero interest rates.
But bet on the kind of future solvency
that meeting monthly bills requires seems like a long shot.
Mendoza aptly said that the people of Illinois finally have their “heads above water”. She also said – and most would agree – that “now is the time to take a hard look at what happened and reform our policies so that taxpayers don’t have to pay these exorbitant costs”.
No one is against reform, especially one that saves money. But let’s reform first before taking action based on the premise that future Illinois financial news will be all good.
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