Illinois’ ongoing budget crisis just created another headache; the state’s rainy day fund is nearing a zero balance.
As of Friday, the fund was down to $180 million dollars from its original $275 million dollars, which financial experts say is well below what a state should keep in a rainy day account.
Morning Shift’s Tony Sarabia spoke with Civic Federation president Laurence Msall about how the current condition of the fund impacts Illinois.
What is the history of the rainy day fund?
For most well-run states, they have a long history of [setting aside] at least 10-20 percent of their unreserved funds as part of the budgeting process. There are always unexpected events — snowstorms, economic downturns, revenue hiccups, things like that — so generally it’s recommended somewhere in the range of 10 percent is a minimal amount.
How has Illinois treated its fund differently than other states in how they use it?
Well, the state of Illinois has basically looked at the stabilization fund not as a rainy day fund. Instead it has tended to use [the fund] as a cash-flow accounting gimmick, where basically it uses that money even though it’s supposed to be held in reserve, unallocated, for other expenditures.
This year, even though the state of Illinois does not have a budget — we’re now in the 14th month without a budget — they drained or are planning to drain the entire stabilization fund down to zero.
What does this mean for taxpayers?
What it means for taxpayers is that we end up letting our unpaid bills grow tremendously. We have more than $7 billion in unpaid bills for which the state pays considerable interest, sometimes as much as 9-12 percent annually on those bills. That’s all wasted money.
In addition, and probably most directly, the credit rating agencies look at the state’s financial recklessness and say, “This is not a good, well-run state.” So they lower our credit rating and that increases the cost of borrowing, which the state needs to do just for cash flow purposes as well as for capital and other needs.
Are the Governor and his budget director justified in using the current crisis to deplete the rainy day fund?
It could be justified if you were actually solving the crisis. But it’s not raining in Springfield. This is a crisis of the state legislature and the administration’s own making: operating without a budget. They have left the water on in the bathroom and they’ve left the windows open and gone on vacation. So now it’s dripping down into the basement. That’s not a rainstorm.
Democratic state Sen. Heather Steans is sponsoring legislation to build a more permanent rainy day fund. Would this help? And even if it passes, how long would it take to rebuild the rainy day fund?
It will take a long time to rebuild this fund. But it is one part of fiscal discipline, something that Illinois lacks very much.
Do you think this proposed legislation is more symbolic than anything else?
The best thing the state of Illinois could do is have a budget, and Senator Steans knows that. Creating long-term things to avoid us getting in this situation is a good idea, but it doesn’t get us out of this situation. We need a balanced budget.
This interview was edited for clarity and brevity.