Powerball and Mega Millions Will Pull Out of Illinois

Just how bad is Illinois’ three-year-long budget impasse? The two multi-state lotteries — Powerball and Mega Millions — announced that if there was no budget agreement by June 30, 2017, they would drop Illinois from the games. From Illinois Policy:

Concerns about the Illinois Lottery began in August 2015, when the state had gone without a budget for nearly two months, and the comptroller’s office announced it would not be able to make payments on winnings over $25,000. A month later, the Illinois Lottery announced it would not pay lottery winners until the state government passed a budget. As payout became unlikely, Illinois Lottery ticket sales sank, and disgruntled winners sued the Illinois Lottery, demanding their payouts with interest. In December 2015, the state passed legislation that freed up some cash to disperse to unpaid winners of the preceding five months, along with others who had gone without state payments during the budget gridlock, including highway departments and social service providers.

The effort temporarily quieted complaints, but Illinois’ fiscal crisis dragged on. In 2016, the Illinois Lottery threatened to again cease payouts, but a last-minute stopgap compromise postponed a second disaster.

2017 has seen no progress toward a sustainable, balanced budget, and Illinois’ fiscal situation remains unstable as ever. In fact, just two weeks before MUSL’s announcement, S&P downgraded Illinois’ credit rating to BBB-minus. At the beginning of June, Moody’s lowered Illinois to a Baa3 credit rating. Both ratings are just one rating above junk status. Illinois is the only state with such a poor credit rating.

Not paying lottery winners is the tip of the iceberg. State Comptroller Susana Mendoza warns that Illinois finances are in “massive crisis mode.” Here are just a few of the consequences of not having a state budget for three years.

• If there is no state budget by June 30, 2017, the Illinois Department of Transportation announced that they would be forced to halt all state projects that could cost 30,000 jobs.
• The Illinois Lottery faces threats of removal from the Powerball and Mega Millions if there is no budget by June 30, 2017.
• Illinois owes school districts more than $1.1 billion in categorical payments for special education, transportation, bilingual and early childhood services.
• Illinois’ backlog of unpaid bills stood at record $14.5 billion as of May 31, according to Comptroller Susana Mendoza.
• The state’s Medicaid managed care organizations are owed $2 billion.
• Centerstone, a non-profit behavioral health organization that helps 16,000 clients in southern Illinois and the metro-east region, has shuttered offices and cut services amid the budget impasse, affecting 700 clients and 39 staff members throughout the state.
• The Wells Center, a drug treatment facility in downstate Jacksonville that has been operating for 50 years, was forced to shut down operations because of the budget impasse.
• Illinois’ unpaid bill backlog could hit $25 billion by FY 2019 if the state continues without a budget.
• Students and parents are looking to out-of-state colleges due to the unstable climate within Illinois’ higher education system.
• More than 1,500 employees have been laid off at public universities and community colleges throughout the state.

The dismal list of the catastrophic effects of not having a budget goes on and on. Hundreds of thousands of people who depend on state services will lose them. Small businesses with state contracts have had to cut staff and even go out of business because the state isn’t paying its bills.

The legislature adjourned at the end of May without a budget deal, meaning there is only a slim chance that a budget agreement can be reached by the June 30 deadline. That’s when the fiscal snowball will begin rolling downhill with no way to stop it.

The failure of the state to pay its bills has created its own cost spiral. More than $800 million has been spent by the state in penalties for late payment. That number is only going to get larger.

Comptroller Mendoza’s warning about a fiscal crisis is understated:

A mix of state law, court orders and pressure from credit rating agencies requires some items be paid first. Those include debt and pension payments, state worker paychecks and some school funding.

Mendoza says a recent court order regarding money owed for Medicaid bills means mandated payments will eat up 100 percent of Illinois’ monthly revenue.

There would be no money left for so-called “discretionary” spending – a category that in Illinois includes school buses, domestic violence shelters and some ambulance services.

The stop-gap measures passed by the legislature have been like putting a band-aid on a bullet wound. They have been worse than useless.

So what’s the problem? GOP Governor Bruce Rauner has proposed a draconian austerity budget, including pension reforms that have been fiercely resisted by government employee unions. He has proposed drastic cuts in funding for Illinois universities. He has also proposed property tax relief for long-suffering residents, but he can’t pay for them without eviscerating funding for a host of state services to the poor and elderly.

Meanwhile, the Democrats and the Chicago machine have proposed a fantasy budget that massively increases spending, raises some taxes, and refuses to deal in any way with the state’s — and the city of Chicago’s — failing pension systems. They assure residents that their budget numbers will all add up and the projected growth they envision (in a state losing more than 200 businesses a month) will really, really happen and everything will come out fine in the end and we’ll all live happily ever after.

Or something.

Will the state of Illinois become a ward of the federal government? Any bailout of the state will be resisted — at first. But as bad as the situation is now for millions of Illinois residents who live on the margins, it is going to get much, much worse. What does that mean for ordinary people? No one knows because no state has ever experienced what Illinois is going through. But it’s probable that some day soon the problems of the poor, the sick, and the elderly are going to end up in President Trump’s lap. And the pressure for him to do something about the crisis will be intense.