The
chickens are coming home to roost.
In fact, more chickens are on their way than we've
ever seen before.
And they're mad.
Gov. Rod Blagojevich spent years ignoring and
exacerbating the state's structural budget deficit, What that means is he did a lot of one-time budget fixes
with one-time revenue sources to stem the tide of red ink, while at the same
time expanding state spending exponentially.
You can get away with that as long as other revenues
are growing enough to help patch the rest of the budget holes, but state
revenues have tanked along with the national economy, and we're in big
trouble. Hence, that ginormous
flock of angry chickens heading our way.
Comptroller Dan Hynes predicted last week that next
fiscal year's budget deficit could be as high as $9 billion. Considering that the budget is about
$60 billion, and the money the state actually controls in the budget is about
half that amount, we're looking at a problem unseen since the Great Depression.
The fiscal year, by the way, begins July 1st.
Hynes' estimate is based on a $4.3 billion deficit
in the current fiscal year and a relatively flat growth in state revenues in
the coming fiscal year.
Flat revenue growth may be overly optimistic. The legislature's Commission on
Government Forecasting & Accountability's latest report, headlined,
"The patient has taken a turn for the worse," suggests that expected
state revenues could be $1.6 billion lower in the current fiscal year than they
were last fiscal year. And things
aren't exactly looking up for next year, either.
Comptroller Hynes' deficit projection also relies on
no spending growth for the rest of state government. Every dollar of growth adds to the deficit. But expecting flat growth is probably
not realistic, as recessions traditionally provoke and even require more
government spending, not less.
There are two areas of hope.
First, the federal stimulus plan could bring $3
billion into state coffers next fiscal year, lowering Hynes' projected deficit
to $6 billion. But as I write
this, the stimulus package has hit rough waters in the US Senate. While a deal still looks likely, nobody
really knows yet what the states will get out of the final package.
Hynes also reported that if state revenues for July
and August match last year's take from the same period, then the current year's
deficit would be lowered to around $2 billion. Still, Hynes reported last week, "Without a major
infusion of cash from borrowing or another source, the state will be virtually
insolvent."
There are some very difficult choices ahead.
One option, albeit distasteful, would be to leave
the Medicaid payment cycle where it is, which would be hotly opposed by
not-for-profit service providers of all stripes. They're already struggling mightily to make ends meet, and
some are actually going out of business while they wait for state checks that
never seem to come. The deficit could be lopped further, perhaps about $1
billion, if the political heat could be sustained, which it probably can't.
The state's mandated pension payment will rise by
$1.2 billion next fiscal year, which may get a closer look by legislators. $500 million of that payment will be
required to make up for investment shortfalls by the pension funds, according
to Hynes. The rest is a mandated
increase in order to eventually reach "full funding" of the
systems.
So, if the General Assembly decides to shaft
Medicaid providers and short the pension funds, and if revenues bounce back in
late summer and the stimulus passes Congress intact and legislators completely
rein in spending for next fiscal year, the budget deficit could be pared to a
bit over $2 billion. It might be
possible to bond future proceeds from the recent sale of the 10th state casino
license, which would lower the deficit a bit more. Huge state employee layoffs, giant cuts to schools and
universities, significantly reduced services for the poor and everyone else
would be required to balance the rest of the budget without a tax increase, if
the General Assembly could somehow defy logic and muster up the insane courage
required to do all that.
That's a whole lot of "ifs."
Cue the chickens.
Rich Miller
also publishes Capitol Fax, a daily political newsletter, and thecapitolfaxblog.com.