New study ranks Illinois 2nd-worst in fiscal health

New study ranks Illinois 2nd-worst in fiscal health

New findings from the Mercatus Center highlight how Illinois’ reliance on debt and costly pension and other employment benefits have put the state on the wrong fiscal track.

Illinois has the second-worst fiscal health among U.S. states, according to a new study from the Virginia-based Mercatus Center.

Based on states’ 2015 financial statements, the study ranked states’ fiscal health according to short- and long-term debt, unfunded pensions and health care benefits. Poor-performing states had growing pension liabilities, other postemployment benefits and additional long-term obligations.

The study ranked Illinois 49th for fiscal health, citing a heavy reliance on debt, unfunded pension obligations totaling nearly $350 billion and long-term liabilities at 317 percent of total assets, New Jersey was the only state to receive a lower rating.

The study looked at five categories and shared the following findings.

Cash solvency

A state with a high cash solvency rating would have enough cash on hand to cover its short-term bills, such as account payable, vouchers, warrants, and short term debt. Illinois does not and rates 48th for cash solvency. At any given moment, the state has between 52 percent and 134 percent of the cash needed to cover short-term obligations. 

Budget solvency

With revenue covering only 96 percent of expenses, Illinois falls short of covering fiscal year spending with current revenue, placing the state 49th in budget solvency.

Illinois’ budget problems culminated over the July 4 holiday as the Illinois General Assembly passed a $5 billion income tax hike to fund a $36.1 billion budget plan (that is out of balance by $2 billion).

Long-run solvency

Long-run solvency assesses the safety net a state has in place to cover long-term liabilities to protect itself from shocks and disruptions in the market. Illinois does not have one, and the state’s long-term liabilities are 317 percent of total assets. Illinois ranks 49th in long-run solvency.

Service-level solvency

As of the 2015 fiscal year, Illinois was average for service-level solvency, or how high taxes, revenues and spending are when compared to state personal income.

However, this rating does not take into account that, as of 2016, Illinoisans pay the highest property taxes in the nation, and that as of July 2017 individual income taxes increased by 32 percent. Additionally, Illinois’ personal income growth is one of the worst in the country. 

Trust fund solvency

Finally, Mercatus researchers analyzed the amount of debt that each state holds. These debts were then compared to personal income to guarantee payment of debts. Researchers found that Illinois’ unfunded pension obligations as of 2015 ($344.85 billion) accounted for 54 percent of state personal income. An additional 8 percent of state personal income accounted for other postemployment benefits. Illinois also has over $14.7 billion in unpaid bills.

Additionally, Moody’s Investors Service has placed Illinois under review for a possible downgrade to junk status, a rating that would severely restrict future financial transactions.

Illinois’ financial troubles are not new. Instead of settling for short-term budget plans that overspend and rely on higher taxes to make ends meet, state legislators need to focus on reviving Illinois’ economy by creating a long-term plan that cuts back spending and pays off bills.

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