CHICAGO – Illinois is so short on cash without a balanced budget in place that it won’t make its $560 million monthly pension fund payment next month and could also skip its December payment, state Comptroller Leslie Geissler Munger announced Wednesday.
“The consequences of inaction are severe and they grow more dire” every day without a budget for the fiscal year that began July 1, Munger warned.
Munger stressed that her intention is to make up any missed pension payments before the close of fiscal 2016 on June 30, but said that will drive up the state’s bill backlog. The backlog of unpaid bills currently stands at $6.9 billion, up from $6 billion last month, and is on pace to hit $8.5 billion by the end of the calendar year, Munger said at Wednesday’s news conference.
The state is carrying $111 billion of unfunded obligations in its five pension funds and lengthy payment delays will only worsen the funds’ condition. The state’s monthly payments through the fiscal year remain at the $560 million level.
"This decision came down to choosing the least of a number of bad options and it saddens me that we've reached this point. But the fact is that our state simply does not have the revenue to meet its obligations," Munger said. "We will use every available dollar in the higher revenue months this spring to catch up with our commitments and ensure that our retirement systems are paid in full."
The office is holding off on the pension payments because it’s one obligation the state has some flexibility to manage.
The comptroller’s office is operating under more than a dozen court orders and consent decrees and federal mandates to continue paying for some social service commitments and employee payroll. Debt service and pension payments are made under a continuing appropriation that doesn’t require a fiscal 2016 budget to be in place, but the state is not mandated to make the pension payment.
General obligation debt holds a top priority on available state revenues.
“We had to pick something,” Munger said. Retirees will continue to receive their annuity checks, she stressed.
Munger said the state has just $142 million in the bank and $7 billion of bills to pay. The state’s cash flow is growing more dire as it continues to pay obligations based on fiscal 2015 levels even though the state faces a roughly $5 billion revenue shortfall.
Munger, who was appointed by freshman Gov. Bruce Rauner, underscored the negative toll on not-for-profits and social service providers and students who rely on state funds. She called on state leaders to reach an agreement on the budget.
"State government is not serving anyone well right now," she added. "It is incumbent on the General Assembly and governor to lock arms and pass an agreement that will allow Illinois to regain its fiscal footing."
Munger offered two recommendations: that the budget adopted be truly balanced and that it send a clear message to businesses that state finances will be predicable.
Rauner, a Republican, and the General Assembly's Democratic majority remain mired in political gridlock over the budget and policy initiatives and the state is now in the fourth month of the new fiscal year with no resolution in sight. Rauner initially offered a $32 billion plan while Democrats want a $36 billion general fund. The state is running short on revenue because a temporary income tax hike partially expired on Jan. 1.
The rating agencies are watching closely for a resolution to the state’s budget impasse warning that without progress on structurally balancing the budget further credit deterioration awaits. The budget woes come on top of the state’s pension strains following the Illinois Supreme Court’s voiding of pension reform legislation as unconstitutional. Several plans have been pitched but no consensus has emerged on future pension reforms or how to address the state’s growing pension burden.
The state's A-minus level ratings from all three ratings agencies are the lowest of any state. Fitch Ratings and Moody's assign the state a negative outlook and Standard & Poor's has its rating on CreditWatch with negative implications.
Moody’s warned in a summer report: “Addressing this projected deficit becomes increasingly challenging as time remains in the fiscal year elapses…continued political gridlock and the inability to reach an agreement by late September, the end of the state's first fiscal quarter, will greatly increase the likelihood of the deficit moving from projected to actual."
Democrats were not swayed from their position by Munger’s announcement Wednesday. “Our state budget should not be held hostage a political agenda that will not produce a dime to resolve these fiscal issues.,” Rikeesha Phelon, a spokeswoman to Senate President John Cullerton, said in a statement.
In a statement, the Rauner administration said: “The fiscal challenges facing the state are the direct result of the legislature’s decision to pass an out-of-balance budget that is more than $4 billion in the hole. The governor has compromised repeatedly, and it is now time for Democrats who control the legislature to either come to the table with the governor to pass reforms that grow the economy and produce a balanced budget or use their super-majority to pass a truly balanced budget on their own.”
