CHICAGO

Illinois Budget Crisis: Solutions Few And Unpopular As Legislative Session Nears End

07/06/2010 05:12 am ET | Updated May 25, 2011

The Illinois State Legislature is set to adjourn at the end of this week. Looming large over the close of the legislative session is the state's massive budget crisis.

The Capitol Fax blog estimates today that the gap in the budget is around $12.7 billion -- "$6.2 billion to get rid of the structural deficit and another $6.5 billion or so to pay off past due bills."

In broad strokes, the state has three ways to close that gap: it can increase revenues, mainly by raising taxes; it can cut spending; or it can borrow money to pay its current obligations, repaying its debts when times are better.

Any solution to the state's deficit would probably require some combination of the three.

But so far, none of those options has found support in the legislature.

BORROWING

The least politically painful option of the three, borrowing was proposed by Democratic leaders to pay the state's upcoming pension obligation. A bill put forward by House Majority Leader Barbara Flynn Currie would have given the state license to borrow $3.8 billion to that end. That money would have come largely from selling state bonds, although a proposal was in the works to use private borrowing sources as well.

But the plan is all but doomed, after it received 61 votes in the House on Wednesday. The measure would need a three-fifths majority, or 71 votes, to pass.

Currie was frustrated with failure to act on the borrowing proposal. "We are...broke, and we need to be concerned about our contributions to the pension systems," she said.

REVENUES

Since Gov. Pat Quinn's budget speech in March of this year, he has been aggressively pushing the notion of an income tax increase. The state has a flat 3 percent income tax, which is one of the lower rates in the nation. Quinn proposed increasing it to four percent (either a 1 percent or a 33 percent increase, depending on how you want to make it sound).

The measure would raise an estimated $2.8 billion, which would offset draconian education cuts proposed by the governor.

In a tough election year, however, very few legislators are willing to back the plan. And Gov. Quinn has endured repeated attacks from his opponent, State Sen. Bill Brady, over the idea. With support thin, even Quinn himself has backed down from the plan recently.

Other potential sources of new revenues include a cigarette tax, which would raise roughly $300 million annually, although such a measure also faces opposition from legislators worrying that customers would cross state lines to buy their smokes.

A tax amnesty plan, which would allow late tax filers to pay the state with no penalty, is also on the table. Such a measure would raise $250 million; while the governor previously dismissed tax amnesty, he now appears more open to it.

CUTS

With progress stalled on borrowing, and strong Republican opposition to increasing revenues, spending cuts are a widely discussed alternative. Bill Brady, the GOP candidate for governor, has talked about a 10 percent across-the-board spending cut. Such severe slashes in spending, which have been decried by Democrats and Republicans alike as "heartless" and "naive," would still only raise less than $3 billion.

Simply put, while politicians and voters both like the sound of cutting spending, when it comes to cutting any particular spending project -- education, health care, unemployment, etc. -- there simply isn't the desire or political will to get it done.

WHAT'S LEFT

With borrowing, revenues and cuts all seemingly off the table, what's left for the state to do?

Well, get creative, and start shirking.

Top lawmakers have sketched the broad outlines of a resolution to the budget crisis that, while by no means finished, may allow the legislature to slip out of Springfield with the budget crisis temporarily addressed.

A prominent feature of this solution is allowing the governor to borrow from some $6 billion of state money in existing bank accounts. This money would have to be paid back within 18 months, with 1 percent interest. Another proposal would sell some of the state's portion of a massive legal settlement from big tobacco, which could net roughly $1.2 billion.

But also seeming more and more likely is a delayed payment of state pensions. Putting off the $3.8 billion the state owes in pensions may seem irresponsible, but in an election year, few other alternatives seem likely.

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