SPRINGFIELD – The state of Illinois ran up a deficit of more than $7.7 billion in the fiscal year that ended June 30, 2018. But as bad as that sounds, it was only about half as bad as the $14.6 billion deficit amassed the year before.
That’s one of the conclusions from the latest Comprehensive Annual Financial Report that Comptroller Susana Mendoza released Thursday. It’s the first such report released since the end of the state’s historic two-year budget impasse during former Republican Gov. Bruce Rauner’s administration.
The 397-page report offers an intensely detailed look at the state’s overall financial condition as well as an analysis of economic factors that could affect state finances into the future.
It notes, for example, that spending on health and social services accounted for the largest single area of state spending during the year, totaling nearly $28.9 billion, or almost 41 percent of the state’s budget. That was followed by education, including K-12 and higher education, which accounted for $20.2 billion, or 28.5 percent of state spending.
According to the report, the state’s overall financial condition improved during that fiscal year, which began July 1, 2017, largely because the final budget plan that passed in late August of that year included significant increases in both individual and corporate income tax rates coupled with authority to issue bonds backed by future tax receipts that were pledged to pay down debts that were incurred in prior years.
The 2017-18 budget plan also gave the state authority to transfer money out of various funds into the general fund, and to borrow from other funds, in order to defray operating costs. It also provided options for certain state employees to accept voluntary buyouts of their pension benefits – cash now in exchange for future pension payments.
Even with those measures, the report noted that the state’s overall “net position” – essentially the difference between all of its tangible assets and all of its liabilities, a statistic used to measure the overall financial health of a business or government – was a negative $136 billion.
Still that was also better than the negative $184 billion net position reported at the end of the 2017 fiscal year, an indicator that the state’s overall financial health improved during the year.
Looking forward, the report noted the state faces a number of “continuing underlying financial weaknesses” that will affect the state’s ability to meet its financial obligations in the future.
Chief among those, according to the report, is the state’s ability to manage its cash flow. Almost consistently since November 2000, during Republican Gov. George Ryan’s administration, Illinois has been running a deficit – bills on hand exceeding available cash – in its general revenue fund.
That’s largely the result of something that has become a common practice in Illinois over the past 20 years, known as “deferred liabilities,” which allows the state to incur obligations in one year and to pay them off with revenue from the following year.
Illinois ended the 2018 fiscal year with just over $2.2 billion in deferred liabilities, a decrease of nearly $3.9 billion from the previous year.
Illinois also faced an estimated $133.6 billion in long-term unfunded pension liabilities at the end of the 2018 fiscal year, plus another $55 billion in “other postemployment obligations,” including health, dental, vision and life insurance for retired state and university employees.
Finally, the state faces a large amount of long-term debt. Illinois ended the year with roughly $30 billion in general obligation debt – or debt backed by the full faith and credit of the state – plus another $2.3 billion in “special” obligation debt, which is backed by revenues specifically pledged to pay off that debt.
Interest and principal payments on that debt totaled nearly $3.8 billion during the fiscal year.
Although improvement was dramatic in fiscal year 2018, the state is far from recovery of the damage during the two-year budget impasse, and systematic budgetary issues still impede further significant reductions in the state’s unpaid bills, the report stated.