Midwest Economy Blog

Charting Illinois’s Fiscal Future—Conference Preview (Rick Mattoon)

May 28, 2010

On June 17 and 18, the Federal Reserve Bank of Chicago and the Institute of Government and Public Affairs at the University of Illinois will co-host a program examining Illinois’s current and future fiscal prospects. (To register and view complete agenda, visit the event page.) The conference comes at a time when the national recession has left states and local governments with significant budget stress and falling revenues. The Center on Budget and Policy Priorities estimates that states face deficits of –$180 billion in FY2011 and –$120 billion in FY2012. For Illinois the problem is acute, given that the state had a structural deficit prior to entering the recession. Simply put, as Illinois’ expenditures outpaced its revenues, the state responded by building up a backlog of unpaid bills and otherwise issuing debt to balance the books.

How bad are things in Illinois? Current estimates suggest that Illinois’s budget gap for the upcoming fiscal year ranges from $11 billion to $14 billion and that its total indebtedness is approaching $120 billion if pension and other potential retiree liabilities are included. A recent Pew Center for the States study listed Illinois among the 10 worst states in terms of fiscal condition. The same organization also cited Illinois in a separate study for its underfunded pension liability, which it pegged at over $54 billion in 2007.

The conference will focus on strategies for improving the fiscal performance of Illinois in both the short run and the long run. For example, Allan Proctor, who serves as a consultant to governments and has worked as both the Deputy Budget Director for New York City and the Executive Director of the New York State Financial Control Board, will discuss strategies New York used to improve fiscal discipline and budgetary transparency in the wake of its financial crisis in the 1970s.

What systems and governance structures can be helpful in improving budget decision making? The Institute for Government and Public Affairs has been working on a multi-year project in Illinois to produce a consolidated state budget that provides a clearer picture of state obligations and available resources. This tool will help with future budget projections and allow for better budget planning.

On the important topic of pension liabilities, the conference will feature three experts—Lance Weiss (Gabriel, Roeder, Smith) Fred Giertz (University of Illinois) and Jim Spiotto (Chapman and Cutler). They will discuss how Illinois developed such a massive underfunding of its pensions and assess recent pension reform legislation and how much more needs to be done. In addition, this session will analyze the state’s responsibility for meeting unfunded pension obligations and whether any new mechanisms might help municipalities restructure pension debt.

Laurence Msall of the Civic Federation will give his perspective on how Illinois might best restore fiscal stability. The Civic Federation has launched a special initiative (The Institute for Illinois Fiscal Sustainability) that has suggested many short- and long-term strategies for cutting spending and restructuring revenues. Matt Murray from the University of Tennessee will give a multi-state perspective on which tax and expenditure strategies make the most sense in meeting the budget needs of the state while minimizing economic disruption.

The conference will also look at measures other states have used to either limit budget growth or improve fiscal decision making. These include the Priorities of Government program in the state of Washington and the local tax limitation measure, Proposition 13, in California.

The conference will conclude with a session on the implications of fiscal insolvency for the economic climate of the state and, in particular, for businesses looking to make significant investments in Illinois.

Illinois is at a fiscal crossroads. We hope you will be able to join us in investigating how we can improve fiscal performance in the state.

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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