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Wednesday, Feb. 11, 2009 10:20 am

The chickens are angry about the budget deficit

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Medicaid seniors would see hard times if the state decided to leave the Medicaid payment cycle where it is to help make up some of the state’s budget deficit.
PHOTO BY NEAL LAURON/MCT

The chickens are coming home to roost.

In fact, more chickens are on their way than we’ve ever seen before.

And they’re mad.

Gov. Rod Blagojevich spent years ignoring and exacerbating the state’s structural budget deficit. What that means is he did a lot of one-time budget fixes with one-time revenue sources to stem the tide of red ink, while at the same time expanding state spending exponentially.

You can get away with that as long as other revenues are growing enough to help patch the rest of the budget holes, but state revenues have tanked along with the national economy, and we’re in big trouble. Hence, that ginormous flock of angry chickens heading our way.

Comptroller Dan Hynes predicted last week that next fiscal year’s budget deficit could be as high as $9 billion. Considering that the budget is about $60 billion, and the money the state actually controls in the budget is about half that amount, we’re looking at a problem unseen since the Great Depression. The fiscal year, by the way, begins July 1.

Hynes’ estimate is based on a $4.3 billion deficit in the current fiscal year and a relatively flat growth in state revenues in the coming fiscal year.

Comptroller Hynes’ deficit projection also relies on no spending growth for the rest of state government. Every dollar of growth adds to the deficit. But expecting flat growth is probably not realistic, as recessions traditionally provoke and even require more government spending, not less.

There are two areas of hope.

First, the federal stimulus plan could bring $3 billion into state coffers next fiscal year, lowering Hynes’ projected deficit to $6 billion. But as I write this, the stimulus package has hit rough waters in the U.S. Senate. While a deal still looks likely, nobody really knows yet what the states will get out of the final package.

Hynes also reported that if state revenues for July and August match last year’s take from the same period, then the current year’s deficit would be lowered to around $2 billion. Still, Hynes reported last week, “Without a major infusion of cash from borrowing or another source, the state will be virtually insolvent.”

There are some very difficult choices ahead.

One option, albeit distasteful, would be to leave the Medicaid payment cycle where it is, which would be hotly opposed by not-for-profit service providers of all stripes. They’re already struggling mightily to make ends meet, and some are actually going out of business while they wait for state checks that never seem to come. The deficit could be lopped further, perhaps about $1 billion, if the political heat could be sustained, which it probably can’t.

The state’s mandated pension payment will rise by $1.2 billion next fiscal year, which may get a closer look by legislators. Some $500 million of that payment will be required to make up for investment shortfalls by the pension funds, according to Hynes. The rest is a mandated increase in order to eventually reach “full funding” of the systems.

So, if the General Assembly decides to shaft Medicaid providers and short the pension funds, and if revenues bounce back in late summer and the stimulus passes Congress intact and legislators completely rein in spending for next fiscal year, the budget deficit could be pared to a bit over $2 billion.

It might be possible to bond future proceeds from the recent sale of the 10th state casino license, which would lower the deficit a bit more. Huge state employee layoffs, giant cuts to schools and universities, significantly reduced services for the poor would be required to balance the rest of the budget without a tax increase, if the General Assembly could somehow defy logic and muster up the insane courage required to do all that.

That’s a whole lot of “ifs.”

Cue the chickens.

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