Illinois’ fiscal health ranks worst in the nation

Bobby Shaw

Bobby Shaw is a research intern at the Illinois Policy Institute. He attends Wake Forest University.

July 9, 2015

Illinois’ fiscal health ranks worst in the nation

A new study puts Illinois’ state finances in dead last among the 50 states.

Illinois’ fiscal condition is the worst in the nation, according to new research from the Mercatus Institute, an economic research center based out of George Mason University.

Mercatus ranked the 50 states based on various fiscal metrics, such as fiscal solvency and debt-to-income ratios.

Here’s how Illinois’ report card looked:

Cash solvency: F

Illinois falls well below the national average when it comes to paying off short-term bills, such as vouchers and warrants. Most states have between two and three times the amount of cash to cover their short-term bills. Illinois only covered its short-term bills with 26 percent to spare. The stipulation to this is that it includes the evaluation of less liquid forms of cash as well, which are rarely used to pay off short-term bills. If one looked at the most liquid forms of cash, Illinois would only be able to cover between 49 percent and 79 percent of its short-term bills.

Budget solvency: F

Illinois revenues exactly matched its expenses in the 2013 fiscal year. While at face value this seems like a good sign, it is a false indicator. Illinois is constitutionally required to pass a balanced budget each year. Despite this constitutional requirement, state politicians have found various loopholes to be able to say the budget is balanced when in reality it is not – politicians mask state debt by pushing it into the next year, making the budget appear balanced. This is also noted in the Mercatus report.

Long-run solvency: F

Simply put, long-run solvency assesses the safety net a state has in place to cover long-term liabilities. Illinois does not have one. Illinois does not have enough assets to protect itself from shocks and disruptions in the market. Illinois has more liabilities than it does assets, and because of this the long-term fiscal outlook is bleak.

Service-level solvency: C

This metric measures whether a state government could raise taxes if it needed an increase in revenue. Illinois’ economy is average in this respect. Illinois’ “fiscal slack” is on par with the rest of the nation. On average, state revenues and expenses total 14 percent of state income. In Illinois they account for 12 percent of state income.

Trust-fund solvency: F

Finally, Mercatus researchers analyzed the amount of debt each state holds. These debts were compared to personal income to guarantee payment of debts. Researchers found that Illinois’ unfunded pension liabilities account for 45 percent of total personal income. Other post-employment benefits and bonded debt account for six percent of total personal income.

This problematizes the only area where Illinois met the average. According to the study, “How much fiscal slack a state has not only is a matter of its capacity to increase taxes or revenues or decrease spending, but also hinges on overall debt loads and their impact on future resources.” This means that while Illinois might have the ability to raise taxes or decrease spending, this would be ill-advised with the current levels of debt the state has.

Illinois has been floundering for far too long. Policy changes are needed if the state hopes to resuscitate its economy. If politicians continue business as usual, the state will continue ranking last in financial health.

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