Springfield: When the state’s 5% income tax reverted to 3.75% in January, 2015, it cost the state of Illinois about $5 Billion in annual revenue.
That loss of revenue was followed by an historic budget battle, that saw the state going through the summer of 2015, 2016, and most of 2017, without a full-year budget being passed.
As a result of not having a budget passed into law for several years, Judges issued court orders that required the state to spend money far above what it was taking in. Those court orders drove spending higher by billions of dollars, at the same time the state’s revenues were plunging due to the rollback in the income tax rate.
The result was a massive funding gap, of about six to seven Billion dollars annually.
That lost of tax income and judicial orders demanding higher rates of spending, led to an inability by the state to pay its bills, or even remotely state current. This resulted in billions of dollars being owed to hospitals, doctors, universities, school districts across the state, non-profits funded by a state appropriation, and businesses which allowed the state to make purchases based on credit.
Now the state HAS a budget, that’s both raised revenue and lowered spending from around $39 Billion annually, based on those court-orders, to a spending level of $36.5 Billion. The increase in the income tax to 4.95%, along with an increase in corporate taxes, basically restores the $5 Billion in lost revenue under the January, 2015 tax cut.
BUT… the cash flow back to those owed money is just beginning to come in and move through the system. Yet as we move into the fifth month of the state’s fiscal year, which begins July 1, the Comptroller’s office is reporting the backlog of unpaid bills remains as high as ever.
Now, the state is looking to use about $6 Billion in borrowed money [bonds], to pay down a chunk of those past-due bills, and recently had a bond issue to do that, with an interest rate below 4%.
The interest on thos bonds, is far less than the 9 to 12% interest the state was paying on top of paying the principal owed, on past due bills. That high rate of interest the state pays on bills that remain unpaid after 60 days, is required by the state’s “Prompt Payment Act”, which was intended to force the state to pay up, or pay unreasonably high interest rates.
But according to the Comptroller’s website, where she posts the latest amount owed by the state, that borrowed money, nor the increased income tax rate, has yet to make a dent.
Here’s a look back at some of the mile markers on Illinois’ highway of debt, which shows the state’s level of past-due bills has more than doubled since September, 2015.