(Bloomberg) -- As Illinois prepares for Governor Bruce Rauner to unveil a proposed budget next week, the worst-rated state is already awash in billions of dollars of red ink, according to Comptroller Susana Mendoza.
Lawmakers and Rauner will have to contend with deficit spending in the current fiscal year as they work to craft a spending plan for next year, according to Mendoza, a Democrat whose office is charged with paying the state’s bills. She outlined the shortfall in an interview at her office in Chicago:
- $2.3 billion of deficit spending in the form of unappropriated liabilities held at state agencies as of Dec. 31
- $8.4 billion of unpaid bills as of Feb. 7
- $1.03 billion of late-payment interest fees incurred as of Dec. 31, 2017
- Note: At least $143m has been paid
- $1.7 billion general fund deficit, according to the governor’s office of management and budget
Rauner on Feb. 14 is scheduled to present his spending plan for the fiscal year that begins July 1. The Republican, who is up for re-election this year, has pledged to roll back an income-tax hike enacted by the legislature in July over his veto. That revenue boost ended an unprecedented two-year budget impasse, which had threatened to send the state to junk-status. Lowering taxes even just a quarter point would shave an estimated $1 billion off the state’s projected revenue, according to the comptroller’s office.
“That would be hard to do if you had a balanced budget already,” said Mendoza, who noted she hasn’t seen the governor’s plan. “The numbers don’t lie. They tell the story of where we’re at.”
Rachel Bold, a spokeswoman for Rauner, didn’t immediately return phone and email requests for comment on Wednesday.
During his state of the state address last week, Rauner vowed to deliver a balanced budget that “will offer a path to reduced spending, and it will show the way to surpluses going forward so we can cut taxes.”
Illinois also is struggling with $129 billion of unfunded pension liabilities as of June 30 across the state’s five retirement systems, according to the Commission on Government Forecasting and Accountability. Illinois had $26.3 billion of general-obligation bonds outstanding as of July, according to Moody’s Investors Service, and the state sold $6 billion of general-obligation bonds in October to pay down some unpaid bills and $750 million of bonds in November for capital projects.
Illinois has the widest yield-penalty of all 20 states tracked by Bloomberg. Investors demand 1.8 percentage points of extra yield over AAA debt to hold the state’s bonds, according to data compiled by Bloomberg. Amid the budget gaps and red ink, Mendoza said she wants to reassure bondholders that debt service remains a priority.
“We are taking every action possible to make sure that the markets see Illinois as a stable place,” Mendoza said. “Illinois will not default on its debt service.”
Unlike in past years, the new debt transparency act, pushed by Mendoza’s office, forces state agencies to report unpaid bills on a monthly basis. Previously, agencies only had to report once a year, creating an uncertain picture of how deep the bill backlog was.
The numbers will help policymakers “really have to make the difficult decisions as to how we’re going to prioritize the limited funds that we have available,” Mendoza said.
(Corrects reference to bond deal in seventh paragraph.)