Illinois is one of several states named by Standard & Poor's Global Ratings as significantly unprepared for another financial lightning strike, thanks to a slow economic recovery from the Great Recession and growing demand for state services.
According to a new report released Aug. 8, the ratings company studied the financial stability of 10 states and discovered the budget reserves in Illinois, Pennsylvania, New Jersey and Connecticut are each less than half of the "potential revenue underperformance" anticipated in the first year of a moderate-intensity recession.
The research found Washington, Florida and New York, with reserves topping expected shortfalls, would weather another downturn the best, while California, Massachusetts and Wisconsin would be somewhat prepared.
"We first developed measures to gauge how each state's economy, economic base would react under a national recession," John Sugden, an S&P senior program director and one of the analysts who focused on Illinois' financials, said.
The Prairie State, he said "was one of the four states least equipped to deal with a recession...we're not predicting one, we're just not ruling it out."
The report noted a collective revenue shortfall among the focus states would surpass their combined budget reserves by $5.4 billion.
The analysis determined the states' instability was the result of ongoing fiscal imbalances, slower state tax revenues and growing spending on social services, particularly public welfare programs like Medicaid.
In 2013, state spending on entitlements accounted for 40 percent of their total budgets, up from the average 34 percent in 1995, said the S&P study.
"It's the second highest expenditure for most state budgets, and that clearly increases as people are unemployed and they rely more on their safety net services to provide for themselves," Sugden said, adding that Illinois had $275 million in reserve, which was recently appropriated for the fiscal 2017 budget to cover "stopgap measures."