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Is Illinois on the Brink of a Financial Armageddon?

The state's lawmakers have until the end of the week to pass a budget -- something they haven't been able to do in years. If they don't, the consequences are dire.

Illinois State Comptroller Susana Mendoza sitting at her desk.
“Doomsday is right around the corner,” says Illinois State Comptroller Susana Mendoza.
(AP/G-Jun Yam)
For two years, Illinois has managed to operate without a budget. Unless lawmakers pass one by the end of the week, the state is likely staring at an unprecedented credit rating downgrade to junk status. But that's just the beginning of its financial Armageddon: Illinois is also projected to not have enough cash this summer to fund all of its basic services like schools.

According to State Comptroller Susana Mendoza, Illinois' flagging revenues and shrinking liquidity likely mean the state will soon be $185 million short on meeting even its basic, court-ordered obligations. “Doomsday is right around the corner,” she says. “It means any number of things: road projects stopping, pension [payments] being skipped, employees not getting paid -- which will likely make people not show up to work.”

Mendoza is not alone in voicing her concerns.

Earlier this month, S&P Global Ratings Analyst Gabe Petek said during a conference call that if lawmakers don’t pass a budget, his agency sees the state’s fiscal situation deteriorating more quickly. Although the state has kept up its debt payments, he said, the impasse -- combined with its shrinking liquidity -- has "undermined" the state's ability to make its payments in the future.

If there's no budget, this latest twist on Illinois' fiscal crisis could come as soon as July. If that happens, Mendoza says paying the state's debt will take priority. “The minute we default on debt service you can kiss the state goodbye,” she says. “Nobody in their right mind would lend us money [after that], thinking they’re going to get paid back.”

Given the dire scenarios, government agencies have already begun preparing for the cash shortage. School officials are making plans to spend down reserves, borrow money and even close schools without a 2018 budget. The Illinois Department of Transportation has asked construction contractors to be prepared to stop all work on road projects in July if a budget isn’t in place.

One thing is certain, though: The state’s bill backlog will continue to swell.

At the beginning of Gov. Bruce Rauner’s term in 2015, the unpaid bill backlog totaled around $5 billion. Since then, as the Republican administration and the Democratic legislature have deadlocked on a budget, the backlog has grown to more than $15 billion.

Mendoza says she has prioritized payments to vendors who serve the state’s most vulnerable populations. The benchmark for determining who gets paid usually rests on one sobering factor: If the state doesn’t provide immediate assistance to a group, will it potentially result in a severe crisis or even death?

But if the state in fact can't afford its core obligations come this July or later, Mendoza says there will be no triaging the unpaid bills. In other words, the human cost of not having a budget will only increase. According to the nonpartisan Responsible Budget Coalition, those costs have already resulted in 80,000 people losing access to needed mental health services and 130,000 low-income college students not receiving tuition grants.

Higher education has already been battered with $2.3 billion in cuts that have roiled public universities throughout the state. The Higher Learning Commission says those cuts have led to declining enrollment, cancelled academic programs, a loss of faculty and higher tuition.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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