Fiscal Cliff Could Cost Illinois More Than $1 Billion

State officials warned that Illinois stands to lose more than $1 billion if Congress and President Barack Obama cannot reach an agreement to prevent the "fiscal cliff" brought on by preset tax increases and budget cuts.
by | November 16, 2012

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State officials warned Thursday that Illinois stands to lose more than $1 billion if Congress and President Barack Obama cannot reach an agreement to prevent the "fiscal cliff" brought on by preset tax increases and budget cuts.

The prediction came during a hearing held by House lawmakers, where a top aide to Gov. Pat Quinn also said the administration plans to float a proposal to borrow money to help pay off more than $8 billion in overdue bills. Similar proposals pushed by Quinn have failed to gain traction in Springfield.

But it's possible the backlog could grow even larger if the fiscal cliff is reached, according to revenue officials, who say the state could lose $1 billion. That's because federal tax increases that would automatically go into effect would send a ripple through the state's economy, leaving less money for people to spend and resulting in less tax revenue for the state.

Such a loss could be detrimental to the state's already shaky financial situation, and the $1 billion estimate does not even include federal budget cuts that could mean less money from Washington for a variety of state agencies.

"The picture looks really bleak," said Natalie Davila, who heads the research department for the Illinois Department of Revenue. "And in our opinion, things could only get worse."

If an agreement is reached to prevent the fiscal cliff, officials say Illinois would see "modest" increase in tax money collected. But it won't be enough to cover all of the state's expenses, including an expected $1 billion increase in the state's annual pension contribution, which is projected to jump to $6.8 billion in the next budget year. The pension payment is made out of a state operations budget that is $33.7 billion.

Quinn budget director Jerry Stermer said the growing pension payment underscores the need for lawmakers to reach an agreement on how to overhaul the state's employee retirement system. Without major changes, he argued, the required contribution will continue to swell, leaving less money for other things, including education, health care and public safety.

The governor wants lawmakers to revisit the issue and pass changes by Jan. 9, when a new set of legislators is scheduled to be sworn in. Reaching a deal, however, is anything but certain.

Rep. Frank Mautino, D-Spring Valley, said that while he understands the importance of changing the pension system, he is just as concerned with finding a way to pay down the backlog of bills. He argued that it's a major drain on service providers, who have maxed out credit lines, cut programs and laid off staff as they wait months to be paid by the state.

Stermer said the governor is interested in working with lawmakers on a plan to borrow money to pay down the bills and said the administration plans to "come to the General Assembly with a proposal in the next number of weeks to consider a refinancing of some of that."

Stermer did not provide details, and Quinn spokeswoman Brooke Anderson later said that no new proposal was in the works. Anderson said that while the governor "has always been interested in refinancing as an option to help pay down old bills," he is focused on pension reform.

The governor previously has pushed a plan to borrow $8.75 billion to whittle down the backlog and rush payments to the thousands of vendors waiting on money. The loan would be repaid over 14 years using money generated by a portion of last year's income tax hike.

The plan historically has been met with skepticism by Republicans who say more borrowing would only worsen the state's money woes. Supporters argue that the state already is borrowing the money, but is getting it from small businesses who need it instead of Wall Street investors.

Talk of the fiscal cliff came as lawmakers were discussing a proposal by House Speaker Michael Madigan that would allow the General Assembly to limit how much the state can spend on employee pay increases when unions negotiate new contracts. Currently, that's an agreement reached by the governor's office and union representatives without input from legislators, who drive much of the budget-making process. The proposal was not voted on.

©2012 the Chicago Tribune


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