Illinois’ low level of cash is just one reason the state ranks No. 47 in the latest fiscal health analysis from the Mercatus Center at George Mason University.
Eileen Norcross, Mercatus senior research fellow, said last year Illinois ranked 50th for fiscal health. Norcross said Illinois’ apparent improvement in its position to No. 47 is insignificant because Illinois has some very bad habits.
“They tend to rely on debt finance. There’s a habit of underfunding pensions and health care benefits. There is a sort of budget-to-budget mentality where there’s not enough set aside,” Norcross said.
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Norcross said the lack of planning for the future puts Illinois on a path toward more debt. “This starts building in these structural drivers that lead to these deficits and these large unfunded obligations.”
Norcross estimates the state’s liability for public-sector pensions and health care at nearly $300 billion. “Illinois is in a situation where it’s going to be requiring much more money each year to be paying out benefits.”
For Illinois to get through an average recession, Norcross said the budget stabilization fund, which could act as a rainy day fund, would need between $5.6 billion and $15 billion. “And right now they’ve got a very small amount, $276 million, which tells us that they are just simply not ready for any kind of economic downturn.”
Norcross said tax dollars being spent on growing liabilities will take away needed funds from the state’s already low cash reserves.
Illinois outperformed only New Jersey, Massachusetts, Connecticut and Puerto Rico in the fiscal health report.
Highest-ranked states Alaska, Nebraska, Wyoming, North Dakota and South Dakota either have cash reserves to cover a potential recession or, at 2014 data, had booming economies from increased oil production.