What Pritzker said vs. what Pritzker should have said about new Illinois budget projections – Wirepoints

By: Mark Glennon*

Financial dupery is heading for another term in Illinois government, so it’s time to give you the full story. If details aren’t for you, at least read the bold faced points.

Gov. JB Pritzker last week issued a press release celebrating a revised a five-year budget forecast by GOMB, the Governor’s Office of Management and Budget. The highlight is an upward revision of $3.7 billion to expected state revenues for the current fiscal year.

“As we celebrate the tremendous progress we’ve made with our partners in the General Assembly, we remain committed to working tirelessly for Illinois taxpayers and responsibly managing the state’s finances,” he said in the release. “We’ve closed a seemingly insurmountable structural deficit that I inherited.…”

As usual, the press release or a summary were widely published unchallenged around the state. The only notable dissenting viewpoints were reported in The Center Square, Crain’s and the Champaign News-Gazette. Pritzker, in other words, is getting away once again with more hokum about Illinois’ fiscal crisis.

Let’s go through what he said versus what he should have said.

What Pritzker said: “Even with troubling national economic indicators, income and sales tax collections so far this fiscal year continue to exceed budget forecasts by significant margins. Coupled with other one-time revenues, the General Funds revenue forecast for fiscal year 2023 is revised upward by $3.69 billion.” 

What Pritzker should have said: Our estimated revenue for the current 2023 fiscal year is about $1 billion lower than actual revenue for the 2022 fiscal year. That’s $3.69 billion better than we earlier estimated, but it’s sure not because of anything we did.

Explanation:

The new estimate for this year’s revenue is higher than the old estimate. Big deal. The new estimate is still lower than last year’s actual number.

Those facts are in the most recent report by the state’s Commission on Government Forecasting and Accountability (page 30). It includes GOMB’s new, higher revenue projection but shows that the total will still be lower than last year by about a billion dollars.

Here’s the question that’s key: What has Pritzker or the General Assembly done to improve Illinois’ finances, other than tax increases? Nothing material. For Pritzker to include the higher estimates in the context of his claim that “we celebrate the tremendous progress” they have made is unfounded for the simple reason that he has nothing to point to.

The primary factor propping up the state’s finances has been the gush of federal money which has likewise propped up most other state finances, covered below.

What Prtizker said: “Illinois is in its best fiscal shape in decades.”

What Pritzker should have said: “Illinois is in worse fiscal shape than ever despite the torrent of federal bailout money and the biggest income tax increase in its history that was made just before my Administration started.”

Explanation:

How do you measure Illinois’ “fiscal shape”? Use the measure that both fiscally conservative Truth in Accounting and Comptroller Susana Mendoza said to use (before she changed tunes upon becoming Comptroller).

That measure is the state’s net position from its actual, audited financial statements, which includes its growing liabilities. It plummeted by $178 billion over the last fifteen years, as explained last week by Truth in Accounting, dropping from negative $45 billion to negative $223 billion.

The picture is basically the same if you use a slightly broader measure of net position that includes restricted assets that Mendoza used and we have been using. Negative net position worsened by $11 billion from 2019, the first year of Pritzker’s administration, through 2021, the most recent year reported.

Those numbers would be much, much worse if not for the federal cash spigot, discussed below.

What Pritzker said: “Illinois’ significant improvement to its fiscal outlook has been noticed by the state’s credit rating agencies, which have upgraded Illinois’ General Obligation Bond credit ratings a total of six times during the past year.”

What Pritzker should have said: Our recent credit upgrades accomplished nothing, and they may be reversed when the federal cash runs out. Besides, we would need around 17 more credit upgrades to get back where we were when the downgrades started 12 years ago.

Explanation:

Illinois’ recent credit upgrades are nice, but their virtue is supposed to be lower borrowing costs and that hasn’t happened. Despite the upgrades, Illinois “remains the weakest rated state that pays the highest yield penalty,” as reported by The Bond Buyer last week.

In fact, the “penalty” or “spread” that Illinois has to pay has actually worsened this year. That penalty spread is how much more in interest Illinois must pay compared to industry benchmarks. Illinois’ 10-year bond is trading 1.71% percentage points over the Municipal Market Data’s AAA benchmark and 1.85% over on its 25-year bond. That’s far above the 0.63% and 0.66% spreads on those bonds at the start of this year, according to The Bond Buyer.

Above and beyond those higher penalty rates, the same federal spending binge that helped enable the upgrades also helped spike inflation and much higher interest rates on everything – roughly doubling.

What Pritzker said:  “Illinois’ bills are being paid on time.”

What Pritzker should have said: “We paid down one credit card by running up the others. And don’t you dare mention the P-word.”

Explanation:

This is Pritzker’s go-to whopper, repeated often by him and Mendoza. He’s referring to reducing trade payables down to a normal level. But those bills are just one batch among many batches, most of which have grown and grown.

Start with the P-word, pensions.

First, Pritzker’s new projection ignored about a billion dollars per year that the state pays pensions from sources other than its General Fund.

That’s a fundamental problem with his projection. There is much more to the state’s finances than the General Fund he focused on exclusively. It’s also why annual claims that the budgets are balanced are meaningless. Those budgets cover only cash elements, not debt, in the General Fund, as we have explained often in detail.

More importantly, even counting that other money, Illinois underfunds its pensions year in and year out so the unfunded pension debt grows and grows.

That’s uncontested but consistently ignored by Springfield and most of the press. The new GOMB projections also ignore it entirely.

The newest actuarial report has fresh information on that underfunding. It’s from last month for TRS, the Illinois Teachers Retirement System, which represents roughly two-thirds of Illinois’ state-level pension problem.

It includes the usual bold face warning that Illinois’ pension funding schedule, which politicians made up, is inadequate, “resulting in TRS being among the worst funded public employee retirement systems in the United States.”

It recommends instead, payments that are ultimately at least enough to cover normal cost, interest on the unfunded actuarial accrued liability and the principal balance. It calls that proper payment schedule a “Board-Adopted Actuarial Funding Policy.”

That would take an additional $3.2 billion this fiscal year and $3.5 billion next fiscal year to accomplish that proper funding, the report says, just for TRS, Add in the other state pensions and the annual shortfall is around $4.2 billion for this year, more than wiping out the additional $3.7 billion of revenue for this year that Pritzker is celebrating.

Pritzker’s recent announcement proposes that part of the unexpected revenue this year — $200 million of it — will be used for as supplemental pension contribution. That’s nice, but trivial, being about six percent of what would be needed, and we would prefer to see real pension reform before throwing additional money at them.

Aside from shorting pensions, the reduction in ordinary trade payables that Pritzker boasts about has been accomplished primarily by more debt and the biggest income tax increase in Illinois history.

Bond proceeds of $6 billion sold during the Pritzker Administration were used to reduce the bill backlog. In other words, the state borrowed to pay off debt. That’s a can-kick, moving debt from one credit card to another.

And Pritzker came to office just after the biggest income tax increase in Illinois history, bringing in about $5.5 billion per year. It raised the personal income tax rate from 3.75% to 4.95%, a 32% increase. The corporate rate also rose by 33%.

What Pritzker said about the impact of federal bailout money: (Nothing.)

What Pritzker should have said about the impact of federal bailout money: “Washington sure did keep us from crashing. Too bad we weren’t able to soar like so many other states with all that federal money.”

Explanation:

Fourteen trillion federal dollars of “pandemic assistance” goes a long way, far beyond covering pandemic damage. It kept Illinois from crashing but most other states have done much better, being awash in cash.

Illinois’ share has included things like $29 billion of individual stimulus checks, $15.8 billion of airline industry support, $26 billion for additional unemployment benefits, $8.2 billion for education funding, $12 billion for health spending, $1.8 billion for child and family services, $2.6 billion for additional Medicaid grants and much more.

All told, federal money to Illinois has now surpassed $200 billion. About $8.6 billion of that went directly to the state, but revenue from sales, income and other taxes soared as the rest was spent.

And the federal spigot is still open. Last month, the IRS began sending letters to more than 9 million individuals and families who appear to qualify for a variety of key tax benefits but did not claim them by filing a 2021 federal income tax return.

The Urban Institute recently published a report detailing what a bonanza the federal cash has been for states and warning that it won’t last. The report also shows that Illinois revenue improvement since the start of the pandemic through March is no better than the national average.

States are “swimming in cash,” as the Wall Street Journal put it earlier this year. At least 20 states are sending some of that cash back to taxpayers. Stories about states topping their revenue estimates, which Pritzker takes credit for, are in fact popping up all over as, for example, in Virginia and Indiana. Florida recorded a whopping $22 billion surplus. Even Massachussetts, or Taxachussetts as it’s called, will be sending cash back to taxpayers, having triggered its mandatory refund obligation for the first time since 1987.

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Sheila Weinberg from Truth in Accounting put much of this in simple terms last week:

Illinois is in its best fiscal shape in decades.

• • This is akin to a person saying they are in good financial shape if you do not look at the $200,000 that has been accumulated on their credit cards.

The report projected the state’s long-term budgetary deficits will be nearly eliminated.

• • This is like a person touting they are not going to spend more money than they take in, but they are only going to pay $1,100 a month to their credit card companies, while the minimum payments are $1,500.

Extra money will be put into the pension systems and added to the rainy-day fund.

• • This is similar to someone flaunting they are going to put $1,300 into their savings while they are paying $400 a month less than their credit card minimum payments.

There’s a simple reason why Pritzker described an alternate reality last week about Illinois’ finances: he gets away with it. The few like us outside of regular Illinois media who question it he dismisses as “carnival barkers.”

The circus will go on. Illinois’ fiscal crisis will reemerge in full when the federal cash runs out, and pensions will remain a lead ball chained to the state’s neck, assuring that the state remains uncompetitive with others.

*Mark Glennon is founder of Wirepoints.