For the first time in a decade, America’s second largest county–Cook County, Illinois–has been forced to authorize a multimillion-dollar line of credit to pay current bills. It’s a reflection of what’s happening across America as state and local governments slide deeper in debt despite growing revenues.
Even though state and local tax receipts and other revenues are enjoying handsome growth, state and local government debt ballooned 55 percent in the first half of this decade, according to the Federal Reserve Board.
Cook County commissioners in July authorized an 18-month, $200 million line of credit, at 10 percent interest, to cover an expected deficit of approximately that size. Cook County includes Chicago and its inner suburbs.
State Stiffs County
County officials say the borrowing is necessary because the state has underpaid the county for spending on Medicaid patients at the county-owned Stroger Hospital, and for other reimbursable expenses.
The state, in turn, faces its own budget predicament. According to Illinois Comptroller Dan Hynes (D), the state’s revenue growth is “strong,” but the state is also borrowing to pay its bills.
Hynes’ periodic financial reports help explain the apparent paradox. Hynes pointed out that as of June 30, the end of Illinois’ fiscal year 2006, “revenues driven by an expanding economy surpassed expectations and spurred a $1.2 billion, or 4.6 percent, growth in base revenues.” Of that, income and sales tax revenues increased $750 million above initial estimates.
Hynes’ accounting of state expenses for FY2005, however, show the state carried a deficit of $3.064 billion into FY 2006, a 22 percent increase over 2004’s deficit of $2.495 billion. Illinois, Hynes noted, hasn’t run a surplus since 1985.
Liabilities Carried Over
Much of that deficit came in deferrals of Medicaid payments owed to Cook and other counties. Under state law, these can be carried over from one year to the next. The amount of so-called Section 25 deferrals more than doubled from the close of FY 2004 to the close of FY 2005–to $2.949 billion from $1.348 billion. Altogether, the “accrued liabilities” rolled over into FY 2006 amounted to $7.581 billion, in a $52 billion budget. In effect, the state is getting an interest-free ride on the backs of Cook County physicians, pharmacists, and other health care providers.
Hynes has pushed for legislation to pay down these accrued liabilities but has been unsuccessful. Rather than pay down the debt, Gov. Rod Blagojevich (D) and the Democrat-controlled legislature continue to create expensive new programs, such as a universal child health care plan. (See “Illinois Lawmakers OK Program to Insure ‘All Kids,'” Budget & Tax News, December 2005.)
State’s Debt Soars
Hence the state is borrowing as a budgeting tool. In just three years, the state government has nearly tripled its general obligation bonds, to $20.3 billion from $7.6 billion. Blagojevich also has sought to sell or lease Illinois assets, such as the state lottery and state-owned buildings, to help balance the budget. The state is also raiding its state pension system for billions of dollars in order to pay current bills.
Cook County officials say they never saw the problem coming. Barely three months before the Cook County board authorized the $200 million line of credit, chief of staff James Whigham denied the county needed to borrow money to pay day-to-day bills. That was shortly after a weekly business publication, Crain’s Chicago Business, disclosed the county was shopping local banks for a loan. Whigham’s turnaround was met by anger from some board members, who said they had been misled.
“We were arrogantly told everything was OK,” Commissioner Mike Quigley (D) said at a July 7 board meeting. “It wasn’t.”
Months Without Leader
The situation is complicated by an incapacitating stroke suffered by then-County Board president John Stroger a week before the March Democratic primary, which, in true Chicago style, he won anyway. For months, a seriously ill Stroger was incommunicado as the board treaded water to give Democratic Party leaders time to maneuver behind the scenes to name a successor. In July the board selected an interim president, and the party leaders named Stroger’s son Todd as his replacement on the November ballot.
The county’s $3 billion budget and its fiscal future remain clouded.
Also murky are the fiscal situations of state and local governments across the nation. A recent Cato Institute report found the federal government isn’t alone in amassing huge debt. While total state and local debt remained steady during the 1990s, from 2000 to 2005 it ballooned from $1.19 trillion to $1.85 trillion.
Dennis Byrne ([email protected]) is a Chicago-based writer.
