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BGA David Greising: Illinois needs to rely on the right voices to get its financial house in order

Chicago Tribune | Greising, D. – the president and CEO of the Better Government Association —

Listen to this interview.

In her first days on the job in December 2016, Illinois Comptroller Susana Mendoza grabbed the purse strings of a state in the midst of a fiscal unraveling.

The “rainy day” fund in Illinois stood at $60,000, enough to run the state for just a matter of minutes. In the middle of a 17-month budget impasse between Gov. Bruce Rauner and the Democrat-controlled legislature, the state’s backlog of unpaid bills was on a steep climb toward $16.7 billion in overdue IOUs.

The state’s unfunded pension liabilities were rising toward $145 billion, and credit rating agencies were on a run of eight straight rating downgrades that ultimately would leave Illinois one notch above “junk” status.

Fast forward five years. Mendoza has whittled down the bill backlog to $3.8 billion and is paying bills within 15 days. Illinois was the only U.S. state to borrow from the federal government’s Municipal Liquidity Facility at the peak of the COVID-19 pandemic in 2020, but Mendoza repaid a $2 billion debt two years early, avoiding $82 million in interest payments.

Getting to this point took some creative cash management. At one point, Mendoza borrowed $1 billion from the state treasury in order to pay down Medicaid bills. Here’s why: For every $1 Illinois pays to Medicaid beneficiaries, it receives 57 cents back from the federal government. The move saved millions.

Satisfied as Mendoza is about the progress so far, she certainly doesn’t want to go through that again.

It’s no wonder Mendoza is renewing her push for a law that would require the state to make large contributions — $200 million a year — toward pensions and its rainy-day fund, whenever the bill backlog stands at $3 billion or less at the end of a fiscal year.

Mendoza introduced the concept before the pandemic hit in 2020. She’s bringing it back because the economy is recovering and the strong outlook for state revenues makes the idea of mandatory payments toward pensions and the rainy-day fund more politically palatable.

Pritzker’s budget proposal, delivered earlier this month, could set the stage for what Mendoza is trying to accomplish. He has earmarked $500 million between now and the end of the next fiscal year toward one-time pension payments and roughly $900 million toward rebuilding the rainy-day fund, formally known as the budget stabilization fund.

“You can see where it’s not traditionally in the wheelhouse to put $800 million or $500 million or $200 million into the rainy-day fund because there are so many interests that want that money right now,” Mendoza said. “But saying we’re going to put that money to protect ourselves from a fiscal downturn is a very disciplined approach.”

Such a law would mark a sharp change for one of the most profligate states in the union. Gov. J.B. Pritzker has celebrated the state’s credit upgrade last year, its first in two decades, with reduced taxes on gas and groceries and a property tax rebate: $1 billion in all. He calls the package the Family Relief Plan, which has a nice election-year ring to it.

Mendoza supports Pritzker’s plan to forgo $1 billion in state revenue. She is encouraged by his proposal to meet the state’s obligation to contribute $350 million toward the evidence-based education-funding formula. She even calls on lawmakers to consider spending more than the governor is proposing to help support programming for people with disabilities.

“We as a government, if we do nothing else, we should be focusing on the most vulnerable people in our state,” she said.

But Mendoza also is the one who needs to pay the bills and woo the credit-rating agencies. This helps explain why she combines her support of tax cuts and social spending with a push for discipline on debt repayment, pension funding and the rainy-day fund — measures of fiscal discipline that the credit analysts carefully track.

The tension between spending and discipline is coming to a head as leaders in the legislature and the Pritzker administration focus on how to make the most of $8.3 billion in federal American Rescue Plan Act funds.

The General Assembly has earmarked $2.8 billion for COVID-19 relief and related economic development projects. Pritzker has pared back an earlier plan to set aside $2 billion this fiscal year to pay down state debt, and instead will pay back $1.5 billion, Mendoza said. Pritzker also has allocated just over $500 million toward a supplemental appropriation request for this fiscal year.

That leaves about $3.5 billion of ARPA funds not yet allocated.

Mendoza expects all manner of suggestions for how to spend that money. But true to her fiscal form, she is urging policymakers to reinforce the state’s unemployment insurance trust fund. Illinois owes about $4.5 billion on money it borrowed from the federal government to make unemployment payments during the pandemic. That obligation is costing about $2 million a week in interest payments, she said. And payments could total $100 million by October if not addressed.

“This is something we need to address,” Mendoza said. “To me, that’s a legitimate use of ARPA money to pay down that debt.”

Illinois policymakers historically have no trouble finding ways to spend taxpayer money. We need more influential voices finding ways to use federal largesse in ways that help get Illinois’ fiscal house in order.

David Greising is president and CEO of the Better Government Association.


Listen to this interview: Greising, D. (2022, Feb 17). David Greising: Illinois needs to rely on the right voices to get its financial house in order. Chicago Tribune. Retrieved from www.chicagotribune.com.

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