“Financial watchdogs” fretting over a “rainy day fund” that’s almost meaningless, in more ways than one.
By: Mark Glennon*
“Illinois drains state’s savings account due to budget crisis” was the headline on an Associated Press article yesterday. It was widely republished across Illinois today.
Somebody needs to wake up and take a broader look at the money on hand in the Illinois Treasurer’s office. The most recent balance posted by that office (as of the end of July) is $14 billion, up from $12.2 billion just three months ago. Not that it matters, however, because even that is far eclipsed by the enormity of our fiscal crisis. The “rainy day” fund discussed in the A. P. article is almost meaningless, in more ways than one.
You may recall our article in May about $11.5 to $14 billion that sits idle, indefinitely, with the Illinois Treasurer. It’s invested short term, earning very little. It’s not seasonal. It predates the budget crisis and the Rauner Administration. It’s not explained by the recent stop-gap budget. It goes back as far as records show on the Treasurer’s site. Nobody has a good explanation for keeping so much cash on hand, including the Treasurer’s office, as we detailed in that earlier article. Only some of it can be explained away. (A radio interview I did on that earlier article is linked here.)
The A.P. article focuses on a particular “rainy day fund.” It says,
Financial watchdogs and at least one major credit rating agency say Illinois’ move to drain the $275 million fund to pay for items such as food and medicine for people in state-run facilities in the 16-month absence of a full budget means that when — not if — a recession hits, new taxes or spending cuts will have to be even more ‘draconian.’
“Experts say,” according to the A.P., that the fund should have $1.5 to $3 billion.
First, a reserve usable once of $275 million, or even $3 billion, isn’t a huge deal if you remember the state is officially running $8 billion annually in the red (and more like $14 billion if you include pension underfunding). The state also has over $7 billion of unpaid invoices sitting in the drawer.
More importantly, focusing on just one “fund” held by the state is almost pointless. That $14 billion is in 750 different “funds.” Whether one is earmarked for “rainy days” or some other purpose really doesn’t matter. Those earmarked funds are often raided for other things. Their use can be changed and the money released either through a simple statutory amendment or a budget line item. The major exceptions are funds holding Federal grant money that’s truly earmarked by law and monies held for bond payments. Most of the $14 billion, however, is fungible.
None of this is to deny that Illinois’ fiscal crisis is deepening. No survivable tax increase alone can fix it. Raiding that $14 billion won’t help in the long term, either, because that would be only a one-time windfall.
It’s just that it would be nice if somebody — anybody — had an explanation for why so much money sits idle indefinitely with the Illinois Treasurer during a financial crisis. It’s especially hard to explain why some of it shouldn’t be used to pay down at least part of that $8 billion of unpaid bills — on much of which the state is paying 12% annual late fees.
And it would be nice if we didn’t confuse a one-time depletion of a $275 million fund with Illinois’ problem. That problem is something like 50 times that, repeated annually.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.