Illinois Comptroller Susana Mendoza said the state’s financial condition is moving in the right direction despite a structural deficit, multi-billion dollar backlog of bills and one of the highest unfunded pension liabilities in the nation.
During a virtual conversation Friday with Southern Illinois University’s Paul Simon Public Policy Institute, Mendoza said that wasn’t the case last year when things looked dire when the COVID-19 pandemic caused a delay in tax collections.
“That is why we had to rely on borrowing from the Federal Reserve at a lower rate just to get us through April and May, which typically would be our best months,” Mendoza said.
Once per calendar quarter, the state of Michigan conducts a Consensus Revenue Estimating Conference that provides updates on both the national and state economies and the state’s fiscal outlook. The May conference each year is especially significant because it sets the official revenue targets for the next fiscal year’s state budget.
Another chart broke down the components of personal income. Over the previous four quarters, personal income was nearly $3,000 higher than pre-pandemic forecasts had expected. However, employee compensation actually declined by about half that amount. The entire increase is the result of the 53 percent increase in federal transfer payments that have floated U.S. households over the past year.
Wirepoints calculates that retirement costs will consume 26 percent of the 2022 budget. The state is set to contribute $9.4 billion in General Funds to pensions, pay $777 million in pension bond costs, and pay an estimated $1 billion in retiree health costs.
In total, that’s $11.2 billion of the $42.3 billion budget consumed by retirement expenditures.
On top of the payments from the General Fund, another $1.2 billion in pension payments will come from other budget funds, meaning the state’s total retirement costs will be an estimated $12.4 billion in 2022.
State, city and county governments this week will receive their first infusion of direct aid from $350 billion in emergency funds approved in the American Rescue Plan, two months after President Joe Biden signed the COVID-19 relief package into law.
The Biden administration launched an online portal Monday that will allow local and state governments to access their share of funds from the Treasury Department. The amount allocated for each state and municipality was determined by unemployment data.
Most will receive money in two tranches – one this year, the second in 12 months – but states that have seen their unemployment rates increase by 2% or more since February will receive funds in a single payment. Payments will begin within days. Money must be spent by the end of 2024.
Like many cities, Nashville is also in hock to pensioners, with $4.3 billion in unfunded promises for retiree healthcare. And though Nashville’s pension system is well-funded, it is also expensive to maintain because employees contribute almost nothing, leaving taxpayers on the hook for about $110 million in annual contributions—and potentially more when investments tank. Despite the burden, the city resisted adopting reforms the state enacted in 2013, when Tennessee switched to a pension plan that requires employees to contribute 5% of their wages.
Nashville’s balance sheet wasn’t in any shape to endure a massive pandemic hit. Led by a 50% decline in tourism, the city’s economy slumped last spring, and unemployment soared above 15%. That punched a $332 million hole in the fiscal 2021 budget, prompting then-Tennessee Comptroller Justin Wilson to warn in September of a state takeover. The city could become “kind of like a teenager coming to their parent asking for $20 to go to the movies,” he said.
U.S. Senate Majority Whip Dick Durbin (D-IL) and U.S. Senator Tammy Duckworth (D-IL) today released the following statements after the Senate passed President Biden’s American Rescue Plan, which will provide emergency relief to Illinois:
To avoid dramatic budget cuts at every level of government:
Estimated $13.2 billion in state and local funding for Illinois including $1.8 billion for Chicago.
The bill provides an estimated $7.5 billion for the state and $5.5 billion for Illinois locals ($2.3 billion for counties; $2.4 billion for larger cities; $681 million for smaller municipalities).
Multiemployer Pension Relief:
By prolonging the solvency of the Pension Benefit Guaranty Corporation (PBGC), more than 100,000 Illinoisans will have their hard-earned pension benefits preserved
“If the point of the stimulus bill is to just prevent state and local governments from having to cut back on spending or having to implement tax increases, then the $350 billion is way too much,” said Dan White, director of public-sector research at Moody’s Analytics. “Is that money better spent directly in terms of federal fiscal stimulus, as opposed to it flowing through states? If you use that money for PPP or for enhanced unemployment insurance, does it have a bigger bang for the buck in terms of economic stimulus?”
Moody’s Analytics now pegs the state and local budget shortfall at $61 billion when taking existing federal help into account. The left-leaning Center on Budget and Policy Priorities recently estimated that the budget gap is around $225 billion, but it noted that that doesn’t include states’ and localities’ costs to continue fighting the virus or helping their struggling residents and businesses.
Look at Illinois, of all places. Next week, Gov. J.B. Pritzker plans to introduce his budget for the next fiscal year. While the details are sketchy, his office estimates the state will need to close a $3 billion deficit, less than the $5.5 billion his office originally estimated. A stronger than expected economy is partly due the credit. While closing a $3 billion hole is not great news, we’ll take what we can get around here.
Yet, rather than take into account rosier economic pictures states like Illinois are projecting, Democrats in Washington are pressing for another big spending bill, even as they juggle the other big news of the week, the start of former President Donald Trump’s impeachment trial in the Senate. They insist an undersized response during the Great Recession slowed that recovery. But keep in mind during that far worse slump, President Barack Obama’s stimulus program had a price tag around $800 billion. Since the pandemic hit, by contrast, Congress has responded with $4 trillion in new outlays.
Does that sound like “too little?” More than $1 trillion of that sum has not even been spent yet, according to the Committee For a Responsible Federal Budget.
Of those states suffering at least a 3% drop in revenue since the start of the pandemic in March 2020, two-thirds (eight in 12) are red states. Alaska, Florida, North Dakota and Texas are seeing some of the worst revenue losses of 9% or higher over the comparable period in 2019, according to the latest data from the Urban Institute.
Across the 47 states from which the institute has full data, total state tax revenues were down by $14 billion in the first ten months of the pandemic (between March and December 2020) compared to the same period a year earlier. That’s an average drop of 1.8% and is largely driven by declines in sales tax revenue.
Gov. Tony Evers’ biennial budget proposal fulfills many Democratic priorities with big spending increases, but Republicans have raised concern that the $91 billion proposal would almost entirely drain the state’s coffers — by close to $2 billion — and leave Wisconsin in a more precarious financial position down the road.
The state is projected to have a nearly $2 billion surplus in its general fund by the end of the year, but Evers’ projected budget, which includes $1.6 billion in new tax revenue from marijuana, big manufacturers and the wealthy, still reduces that to around $143 million by mid-2023.
“It’s not necessarily inappropriate to draw down a big chunk of your reserves when you’re facing a once-in-100-years pandemic,” Wisconsin Policy Forum research director Jason Stein said. “You don’t have the reserves just to put them on a wall and admire them, but at the same time … you have to think about what’s going to be sustainable for the state budget because some of these challenges are not just going to evaporate either.”
Author(s): Mitchell Schmidt | Wisconsin State Journal , Riley Vetterkind | Wisconsin State Journal
Lamont’s budget does nothing to address the fact that Connecticut has some of the highest property taxes in the country. This massive tax burden hurts young families looking to settle down and grow; it hurts small businesses that have already been crushed by the pandemic; and it pushes seniors to find greener and cheaper pastures for retirement. The average Connecticut homeowner pays an astounding $5,327 per year — the highest property tax rate in New England. This puts us at a competitive disadvantage when our neighbors in New York and Massachusetts have more affordable property tax rates.
Nor does the governor do anything to address the structural budget deficits looming just over the hill. Instead, he reminds us we have a well-funded rainy-day fund and friends in Washington to bail us out. When your strategy is to drain your reserves and count on a global pandemic, you, in fact, have no strategy.
The Governmental Accounting Standards Board has proposed changes it calls “improvements” to the accounting standards for governments. However, watchdog groups such as Truth in Accounting have criticized the proposed changes and urged the adoption of more stringent standards that would require governments to balance their budgets the way most businesses are required to do. Illinois has grown accustomed to using lax accounting methods to hide its budget deficits, racking up debt year after year. The state’s taxpayers would benefit from tougher standards that impose fiscal discipline.