Today’s number: 1.4 days in reserve, if that
Friday, Mar 15, 2019 - Posted by Rich Miller
* Illinois News Network…
A lesser-mentioned consequence of the budget battle between Democrats in the General Assembly and then-Gov. Bruce Rauner was the depletion of Illinois’ rainy day fund, which still sits nearly empty.
A state’s rainy day fund is used to avoid having to make cuts or tax hikes in the event of a sudden drop in revenue like what many states saw during the recession. In 2017, Illinois lawmakers voted to drain the state’s Budget Stabilization Fund and include the hundreds of millions of dollars that were in it to keep services going during the budget battle. Today, there’s less than a percentage of Illinois’ annual budget in that fund.
Justin Theal, an officer with Pew Charitable Trusts, said that goes against the national trend. Most other states have been bolstering their funds during times of higher revenue.
“The state had about $10 million in its rainy day fund, or the equivalent of just one-tenth of one day’s worth of operating cost,” he said. “Fiscal Year 2018 saw thirty-two states add nearly $10 billion to their rainy day funds. That’s largely the result of a healthy economy, robust stock market returns, specific state policy actions, and at least a portion of that was due to tax revenue growth from the recent federal tax reform package.”
Illinois also relies on its end-of-year balance, which Pew reports would cover 1.3 days, hence the headline.
Daily operating costs are based on a 365-day year.
* From Pew…
States use reserves and balances to manage budgetary uncertainty, including revenue forecasting errors, budget shortfalls during economic downturns, and other unforeseen emergencies, such as natural disasters. This financial cushion can soften the need for severe spending cuts or tax increases when states need to balance their budgets.
Because reserves and balances are vital to managing unexpected changes and maintaining fiscal health, their levels are tracked closely by bond rating agencies. For example, S&P Global Ratings downgraded Massachusetts’ debt rating in June 2017, citing its “failure to follow through on rebuilding its reserves.” A year later, Massachusetts deposited more than $492 million into its reserve fund. If left unaddressed, credit downgrades can lead to increased state borrowing costs for years to come.
Building up reserves is a sign of fiscal recovery, but there is no one-size-fits-all rule on when, how, and how much to save. States with a history of significant economic or revenue volatility may desire larger cushions. According to a report by The Pew Charitable Trusts, the optimal savings target of state rainy day funds depends on three factors: the defined purpose of funds, the volatility of a state’s tax revenue, and the level of coverage—similar to an insurance policy—that the state seeks to provide for its budget.
- wordslinger - Friday, Mar 15, 19 @ 12:48 pm:
Do you really have a rainy-day fund when you have an $8 billion backlog of old bills?
That’s like saying I have $1,000 in a savings account and $25,000 in overdue credit card bills.
- PublicServant - Friday, Mar 15, 19 @ 12:52 pm:
IPI-INN: Useless DebbieDownerism
- ChicagoVinny - Friday, Mar 15, 19 @ 1:03 pm:
Bemoaning the size of the rainy day fund when they were cheerleading Rauner’s policies that exploded our unpaid bill backlog over the last 4 years makes me think IPI/INN might not be operating in good faith here.
- Smalls - Friday, Mar 15, 19 @ 1:04 pm:
Well said wordslinger. I wish Pew said how they calculated the 1.3 days. Because if you look at the state’s most recent CAFR (6/30/17), they have an Unassigned General Fund balance of -16.6 Billion (yes, that is a negative 16.6 billion).
- Shemp - Friday, Mar 15, 19 @ 1:06 pm:
With WS on this… if you have that big of a backlog, our rainy day fund should already be emptied.
And this isn’t useless info…. The public should know the dire level of the situation that’s been left to us by years of incompetence on both sides.
- Rich Miller - Friday, Mar 15, 19 @ 1:14 pm:
===if you look at the state’s most recent CAFR (6/30/17===
Pre tax increase.
- Anonymous - Friday, Mar 15, 19 @ 1:17 pm:
Thanks for that two year budget impasse, IPI.
- Smalls - Friday, Mar 15, 19 @ 1:19 pm:
==Pre tax increase.==
Rich, I know that, but unfortunately, 9 months later, they have not put their 6/30/18 CAFR on their website yet. And I am guessing that number has not changed significantly. It probably just didn’t increase (or technically, decrease) as much as the $5.8 Billion that it did from 2016 to 2017.
- Honeybear - Friday, Mar 15, 19 @ 1:35 pm:
Yep,
broadside on the waves,
heavy seas coming third quarter of next year.
Setting sails as fast as we can
with depleted crew.
IPI sea lawyers arguing on deck about knots and the devil to pay,
Is not getting canvas aloft.
We have so little time to get bow or stern towards the waves.
hand and reef shipmates, hand and reef
- BenFolds5 - Friday, Mar 15, 19 @ 1:37 pm:
Makes sense to offer all spending plans with no cuts. Yes, elections have consequences. Let’s all remember we are the state that hopefully just broke our Governors in prison streak. As a state, that’s apparently our only good news.
- Collinsville Kevin - Friday, Mar 15, 19 @ 1:40 pm:
Every day is a rainy day when you’re billions in the hole and nobody in charge intends to pay it off.
- Huh? - Friday, Mar 15, 19 @ 1:42 pm:
Whelp, with friends like 1.4%, who needs enemies.
As I recall, 1.4% was critical of local agencies that carried large reserves. Claiming the local agencies could easily afford reduced or eliminated state funding by dipping into their reserves.
Has the autopsy of the state’s financial position from 1.4% been completed? What other land mines are going to be discovered?
- Honeybear - Friday, Mar 15, 19 @ 1:50 pm:
“nobody in charge intends to pay it off.”
Really?
So why are we discussing all these new taxes and revenue streams?
Jeez, man
Why don’t you become part of the solution(s)
instead of obstructing solutions
- Steve - Friday, Mar 15, 19 @ 1:57 pm:
Just think Illinois has a constitutional amendment that demands a balanced budget. Politicians , in many states, can’t be restrained easily . Illinois needs a constitutional limit on issuing state debt like Nebraska to restrain things.
- Sue - Friday, Mar 15, 19 @ 1:57 pm:
Wasn’t the Quinn Madigan Cullerton temp tax increase supposed to solve the States fiscal problems. LOL
- BenFolds5 - Friday, Mar 15, 19 @ 1:57 pm:
Honey Bear What specifically is JB saying he will cut? Nothing. Just increases. The reality is, that will be as disastrous as the last guy doing nothing. We are broke, there is no reasonable measure that we can defend the last 4 years or the future 4 on this path. Scary stuff.
- Romeo2 - Friday, Mar 15, 19 @ 2:02 pm:
Capitalism always has boom and bust cycles. The boom cycle has been in effect for the past several years. But the next bust cycle is just going to decimate what little reserves we have.
- Honeybear - Friday, Mar 15, 19 @ 2:09 pm:
You IPI folks on here crack me up
with your “spending” bullcrap.
Oh my God,
Not one of you is actually
in the trenches
of state government
trying to pump the water out
restore propulsion
and get our bow/stern to the wave.
You just sit there sea lawyering
pathetic and feckless
- BenFolds5 - Friday, Mar 15, 19 @ 2:12 pm:
When I put my foil hat on, that’s exactly what I think our leaders are waiting for. If the debt is insurmountable, we go to the Feds. Do we pay the pension obligation or close roads and services? I realize the state constitution. But at that point what can happen? I think anything we can do to make the tough decisions now, the better. Not saving WIU at first response by JB, makes me hope he gets there is tough decisions to be made. The ones none of the predecessors made. I hope.
- Honeybear - Friday, Mar 15, 19 @ 2:34 pm:
I think anything we can do to make the tough decisions now, the better
agreed
so
let the wealthy pay more in taxes
let the corporations actually pay something
- Anonymous - Friday, Mar 15, 19 @ 2:35 pm:
Sue & Steve are getting desperate. Minimum wage happened. Progressive income tax is coming. IPI and their ilk are flailing. “When are you guys gonna fold up your tent?”
- Nick Name - Friday, Mar 15, 19 @ 3:14 pm:
===Wasn’t the Quinn Madigan Cullerton temp tax increase supposed to solve the States fiscal problems. LOL===
It was doing that, until it lapsed at the request of Gov.-elect 1.4 percent. Then came two years of no budgets, also thanks to Gov. 1.4 percent. LOL
- Huh? - Friday, Mar 15, 19 @ 3:58 pm:
HB - the Admiral is trying to set a sea anchor to bide his time while patching the caved ribs and stove hull. Hands are at the pumps. Quartetmasters have the helm alee. Bosun needs to escort sea lawyers to the brig.
Situation desperate, SOS pennants are bent on the halyard, ready to haul. Ensign still flying proudly.
- BenFolds5 - Friday, Mar 15, 19 @ 4:08 pm:
I was in the public sector. Now the private, Honey Bear, for all the demonizing big business i see what we pay to do business in Illinois. We are in other states as well. We certainly didn’t expand here. Why, because our share is more than fair here. It’s just less in Texas.