Gov. Bruce Rauner recently said he couldn’t find where Illinois had passed a balanced budget. Federal Reserve Bank of Chicago Business Economist Thom Walstrum backs that up writing for the Chicago Fed Letter that Illinois hasn’t had a balanced budget since the late-1980s.
The root cause? The state’s underfunding of its pension systems.
“It’s spending on compensation for its workers; it was just a type of compensation that it was able to kind of put off as opposed to having to pay out as a salary,” Walstrum said.
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Walstrum said the average U.S. state is bad at balancing its books, but Illinois is really bad.
“I looked at a 17-year period; and over that period, Illinois spent 116 percent of its revenue while the average U.S. state spent 106 percent of its revenue.”
Walstrum wrote that the top two categories that Illinois spent more than other states “were the change in pension liabilities (4.6 percentage points more) and employee retirement (2.8 percentage points more).” He said pension-related spending “makes up almost three-quarters of the difference between Illinois' spending and that of the typical state.”
Debt spending is another problem.
“Illinois also spent 1.3 percentage points more of its revenues on general debt interest than the average state — a sign that Illinois was accumulating debt outside of its pension system as well,” Walstrum wrote.
Walstrum said the state needs a truly balanced budget without gimmicks.
“Because the debt is so large, it will likely be a painful process of deciding between spending cuts and tax increases,” he said.
Along with an unfunded pension liability of more than $110 billion, Walstrum noted that Illinois’ fiscal problems are substantial with a $5.5 billion operating deficit and $7.7 billion in unpaid bills.
Walstrum said Illinois is now coming to terms with more than 20 years of poor fiscal performance.