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Comptroller: Budget Deficit Could Reach $15 Billion

By Kevin Lee, Illinois Statehouse News

SPRINGFIELD  –  The state’s record budget deficit is likely to get worse before it gets better, according to a recent report released by state Comptroller Dan Hynes.

The Comptroller’s report said lawmakers and the next Illinois governor could face “the very real possibility” of a $15 billion hole when crafting next year’s budget.

That amount would total more than half of the current budget for the state’s general fund budget.

“The ability of the state to maintain any reasonable level of education and social service funding — and just as importantly, to pay for those services on a timely basis — will be severely jeopardized,” the report said.

The deficit is the result of a combination of factors. Income and sales tax revenues have dropped in recent months in large part due to the economic recession.

The comptroller’s report showed a slight rebound in income tax revenues over the past few months, though some of that revenue will be diverted to a fund for tax refunds to individuals and corporations.

Consumer confidence in the economy remains low as sales tax revenues remained level over the past three months. The report indicated it is too soon to tell the effect the sales tax holiday in August on school supplies and clothing has on sales tax revenues.

With the state still mired in a recession, the report cautioned against relying on large increases to income and sales tax revenues.

“A strong rebound in economy driven revenue sources cannot be counted upon,” the report said.

Jim Muschinske, revenue director with the legislative Commission on Government Forecasting and Accountability, said this fiscal year would be a “transitional” year marked by very modest economic growth.

“At least there’s no surprises, but clearly the state financial picture is still quite grim at this stage,” he said.

The state’s backlog of bills also remains a constant pressure on the state’s budget situation. According to the report, more than $6.4 billion of this budget year’s revenues will be used to pay bills from last year.

The report goes on to say that a mix of one-time revenue sources must come through to help the state pay some of those bills in a timely matter, including $1.2 billion in tobacco securitization, $1 billion in inter-fund borrowing and money from late taxpayers through a recently initiated tax amnesty program.

A spokeswoman for the Governor’s Office of Management and Budget said inter-fund borrowing would be used to help pay off bills.

“These funds (from which money was borrowed) will be repaid within 18 months and are being utilized daily to expedite payments to many of the states vendors who are facing hardship due to lack of payment. Governor Quinn is fully committed to making good on all (2010 budget year) payments by or before December 31, 2010,” the spokeswoman said in a statement.

State Sen. Dave Syverson, R-Rockford, criticized the way that Democrats have handled the state’s finances.

Democrats have held control of both legislative chambers and the Governor’s office since 2002, when former Gov. Rod Blagojevich won the November election to the office.

“We have warned now for eight years, both under Blagojevich and then Quinn, that this kind of spending has to stop and that behavior continued, and it’s going to be difficult to get out,” he said.

But state Rep. Frank Mautino, D-Spring Valley, said the state’s economic struggle is a symptom of nationwide economic troubles.

He added that recovery in Illinois could be later than for other states because Illinois has the fifth-largest economy out of all states.

“We’re going to need some help from the national economy because we’re a creature of that. It seems like things start on the coasts and it takes nine to 12 months to get to here in the heartland,” he said.

The state still faces enormous spending pressures for this budget, with debt from last year’s pension bonds, heightened Medicaid reimbursement payment rates that are tied to federal stimulus money, and payments to education and public employee salaries.

The comptroller’s report said unpaid obligations for this year could exceed $8 billion, especially if state government cannot make its pension commitment of $3.7 billion for this budget year.

Lawmakers debated a borrowing plan to make the pension payment, but the plan stalled in the Illinois Senate.

Mautino said a borrowing plan makes more sense than the other two options — deferring the payment and losing interest that would have been accrued or transferring funds that normally would go to hospitals and schools.

“If this piece which is $3.7 billion isn’t included, then that makes next (fiscal) year that much harder,” he said.

The next governor could shape the state’s approach to its financial crisis.

Gov. Pat Quinn has called for a 1-percentage point income tax increase, but has wavered between offering property tax relief and using the full amount from the increase for state services.

His gubernatorial opponent, state Sen. Bill Brady, R-Bloomington, has offered widespread, “dime-out-of-every-dollar” spending reductions, but has not detailed specific cuts to specific agencies.

Syverson defended his GOP colleague and said that Brady would help bring balance to state government.

“We all know unfortunately that when you start becoming specific, the opposition immediately politicizes that and that makes it more difficult to get good results,” he said.

Either candidate will have to cooperate with a state legislature to shape a budget plan in an increasingly dire situation.

But before the state’s next gubernatorial term begins in January, Quinn and the Illinois legislature could still take significant action on state finances.

Lawmakers are scheduled to return to Springfield after the election on Nov. 2 to consider Quinn’s vetoes.

To view the Comptroller’s report, visit:

http://www.ioc.state.il.us/common/getLocalFile.cfm?fileName=CQ_October_2010.pdf

Originally reported by Illinois Statehouse News. Read the original article here.

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