Report slams Illinois' unsound budgeting practices

CHICAGO (Reuters) - Illinois has bent or broken every sound budgeting practice and should adopt reforms to help dig its way out of a huge pile of debt, according to a report released by the University of Illinois on Monday.

The skyline of Chicago is seen with the steam fog coming off Lake Michigan in Chicago, Illinois, January 28, 2014. REUTERS/Jeff Haynes

The report by the Fiscal Futures Project at the university’s Institute of Government & Public Affairs said the fifth-largest U.S. state “is badly in need of reform.”

Illinois has the lowest credit ratings and worst-funded pensions among all 50 states. An impasse between the Republican governor and Democrats who control the legislature has left Illinois without a budget halfway through fiscal 2016. The state’s unpaid bill backlog, a barometer of its chronic structural budget deficit, is projected to hit $8.5 billion by the end of this month.

The report slammed the state for faulty budget forecasting, not calculating the potential cost of new legislation, insufficient funding for pensions and retiree healthcare costs, and the lack of a meaningful rainy day fund.

“(Illinois’) balanced budget requirement is one of the weakest you can imagine,” Richard Dye, one of the report’s authors, said at a conference on state budget practices.

The state has also borrowed, delayed bill payments and relied on nonrecurring revenue to cover operating costs, as well as neglecting its aging infrastructure, according to the study.

“But because of the underlying structural deficit, high levels of bonded debt service costs relative to other states, and large legacy liabilities for pensions and (retiree healthcare), there is little state funding available to address the large and growing backlog of infrastructure needs,” it said.

Among the reforms the report recommended for breaking Illinois’ “bad habits” were expanding current three-year budget projections to five or more years, modifying cash-only budget reporting to include significant changes in liabilities and assets, requiring fiscal impact notes for legislation, implementing enhanced reporting and tracking of spending and revenue, and disclosing the use of one-time revenue.

The report was released along with a working paper on sound state budgeting practices by the Volcker Alliance, a nonpartisan organization established in 2013 by former Federal Reserve Board Chairman Paul Volcker.

Richard Ravitch, an Alliance director and a former New York lieutenant governor, told the conference that the resolution of state budget problems rests with politicians willing to make “very tough and very painful” decisions.

“Nothing tells me we are electing those people,” he added.

Reporting by Karen Pierog; Editing by Dan Grebler