Senate Week in Review: January 14-18

Springfield, IL – Three weeks before Governor Quinn is set to give his annual State of the State message, his budget office has released a summary of three-year financial projections and chart which preview just how challenging the state’s already precarious financial condition is likely to become over the next few years, State Senator Sue Rezin (R-Morris) said.

Despite an expected increase in state revenues of $600 million in the coming fiscal year, the gains will be offset by nearly $950 million in increased pension costs, the budget office predicted in an annual projection mandated by state law.

In related news, audits of the state’s five pension systems released Jan. 16 confirmed that Illinois had an unfunded liability of more than $94 billion in its pensions when the fiscal year ended on June 30, Sen. Rezin explained.

The audits reveal that the volatile stock market took a toll on pension system investments during the past fiscal year, with the investment portfolio of the Teachers’ Retirement System (TRS) falling by $968 million. As the largest of the five state pension systems, TRS took the biggest hit in the market.

Because the audits only cover the fiscal year that ended in June, the investment returns do not reflect improvements in the market that occurred over the past six months.

In something of a “trifecta” of challenging state budget news, one of the major debt rating agencies issued a warning that Illinois is on a “negative watch.” While not actually lowering the state’s credit rating, the action by Fitch Ratings Services, means that if the state does not take action to improve its credit, the agency will likely downgrade the state in the near future, Sen. Rezin said.

Illinois already holds the country’s lowest rating from Moody’s Investors Service.  Fitch cited concerns over a lack of progress on meaningful pension reform as the catalyst for the change in Illinois’ credit outlook.

For years Illinois and California have seemed to be fighting for the top spot as the most fiscally dysfunctional state in the nation. However, Illinois appears to be taking the lead in the dubious honor with Fitch’s threat, coupled with the news that California is projecting its first budget surplus in a decade.

Returning to the Governor’s Budget Office projections, Sen. Rezin added that, the projections serve as a brief snapshot of the financial outlook for the state. It is a preview of the targets the Governor must attempt to hit in his annual budget proposal. But, as it did last year, the brief four-page document and its accompanying chart offer no direction on how the Governor proposes to meet the spending targets set out.

In the broad category of education, the budget office predicted Illinois would spend about $450 million more next year than this year. However, included in the education allocation is more than $700 million in increased retirement fund payments for public school teachers and administrators and about $100 million more for university employees. Once those figures are backed out of the total, the Governor’s office predicted the amount available for other education spending would drop by about $400 million.

The Governor’s budget office also predicted that healthcare spending would go up by about $250 million, pension fund payments for state employees would increase by just under $100 million and Department of Human Services spending would go up about $200 million more than what was authorized for the current fiscal year.

The three-year projections presume that the bulk of the 67% tax hike approved in 2011 will expire as scheduled on Jan. 1, 2015. The expiration of the tax hike, coupled with other expected changes in revenues, will likely result in a $1.8 billion drop in revenues for the final half of Fiscal Year 2015 and another $2.7 billion drop for the full year in fiscal year 2016.

Although paying down old bills was cited as a key rationale for hiking taxes when Democrats approved the tax hike in 2011, little progress has been made on that front. The budget office predicts that the state bill backlog will drop from $8.28 billion in fiscal year 2013 to $7.42 billion in fiscal year 2014 and then remain unchanged for the next two fiscal years.

Finally, lawmakers continued filing measures for consideration during the coming spring legislative session.

Bills filed included:
•    A ban on semi-automatic weapons and large capacity magazines (SB 42);
•    A measure allowing lawmakers, the Governor and other eligible officials to drop out of the controversial and chronically underfunded General Assembly Pension System (SB40);
•    Regulations on smoking in outdoor patios of restaurants and other establishments (SB53);  and
•    A proposal affecting the mandatory prison sentence for persons under age 18, who have been convicted of murder (SB55).

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