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Illinois and Connecticut’s Unending Fiscal Crises

Friday November 24th, 2017   •   Posted by Craig Eyermann at 5:59am PST   •  

75329450 - high contrast image of a timebomb on a wooden background Among U.S. states, Connecticut competes with Illinois for the title of being the most fiscally distressed as a result of the policies its politicians have implemented over the years, where the two states frequently trade off between each other for being in the worst shape.

This fall, both states showed some progress toward resolving their government-caused money problems where Illinois finally passed a budget after more than two years without one, while Connecticut did so after 123 days.

But all is not well. In Connecticut, the state’s politicians have already overspent themselves to the point where new emergency measures must be taken. Keith Phaneuf reports on the story in the CT Mirror:

Gov. Dannel P. Malloy intensified pressure on the legislature Monday to come into special session to repair the new state budget, projecting a $203 million deficit that exceeds a key risk threshold….

The governor, who warned lawmakers last month that he feared the budget they were crafting was not in balance, projected the deficit in his monthly report to Comptroller Kevin P. Lembo.

“The very challenging level of [savings targets] to be achieved in the adopted budget, along with underlying level of appropriations in several agencies … may lead us to increase our deficit projection,” Office of Policy and Management Secretary Ben Barnes, Malloy’s budget chief, warned in the report.

State law requires the governor to prepare a deficit-mitigation plan whenever the comptroller certifies a shortfall exceeds 1 percent of the General Fund. In the context of the new budget, the threshold is $187 million. Lembo’s next report is due Dec. 1.

The state’s politicians were counting on receiving larger reimbursements from the U.S. government for the state’s Medicaid program than they will be getting, and even though they’ve increased the state’s sales tax rates and have repeatedly increased income tax rates in recent years in a bid to fund their even faster growing levels of spending, the state government looks set to collect much less than it hoped to from those sources of revenue.

Meanwhile, despite now having a budget that succeeded in taking the immediate risk of defaulting on the state’s debt off the table and keeping the state’s credit rating from falling to junk status, Illinois is finding itself once again fiscally strained, as the state appears unable to come to terms with all of its unpaid bills. The Associated Press’ John O’Connor reports via Business Insider:

Illinois is chasing a moving target as it tries to dig out of the nation’s worst budget crisis, and a review obtained by The Associated Press shows $7.5 billion worth of unpaid bills — as much as half the total — hadn’t been sent to the official who writes the checks by the end of June.

Although many of those IOUs have since been paid, a similar amount in unprocessed bills has replaced them in the last three months, Comptroller Susana Mendoza’s office said Monday. That’s in addition to $9 billion worth of checks that are at the office but being delayed because the state lacks the money to pay them.

The mound of past-due bills tripled over the two years Republican Gov. Bruce Rauner and Democrats who control the General Assembly were locked in a budget stalemate, which ended in July when lawmakers hiked income taxes over Rauner’s vetoes.

That is despite the state’s large increase in its income taxes. And that doesn’t even factor the cost of dealing with looming Illinois’ pension crisis, where the plans of state politicians to count upon big investment returns to fund the unsustainably generous pensions that they’ve guaranteed to the state government employees who fund their political campaigns are falling so short that they will likely push the state into the equivalent of bankruptcy proceedings without constitutional reforms.

It’s not too late for either state to turn their fiscal situations around, as both have bought themselves time, but it will require a level of real fiscal responsibility and effective spending restraint that both state’s politicians have been unwilling to consider to date. Otherwise, their growing fiscal time bombs will just keep ticking down to their day of reckoning.

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November 2017