By Shibani Mahtani and Douglas Belkin
SPRINGFIELD, Ill. -- This is what happens when a major American
state lets its bills stack up for two years.
Hospitals, doctors and dentists don't get paid for hundreds of
millions of dollars of patient care. Social-service agencies help
fewer people. Public universities and the towns that surround them
suffer. The state's bond rating falls to near junk status. People
move out.
A standoff in Illinois between Republican Governor Bruce Rauner
and Democratic Speaker of the House Michael Madigan over spending
and term limits has left Illinois without a budget for two years.
State workers and some others are still getting paid because of
court orders and other stopgap measures, but bills for many others
are piling up.
The unpaid backlog is now $14.6 billion and growing. Illinois is
even late paying its utilities bills to Springfield, its own
capital city. On July 1, the beginning of the next fiscal year,
billions of dollars in road projects are scheduled to grind to a
halt.
"Right now, our state is in real crisis," said Gov. Rauner last
week, on the eve of a special legislative session where lawmakers
are trying to hammer out an agreement before the state enters its
third budgetless year.
Susan Mendoza, the state's Democratic comptroller, is in charge
of doling out limited funds to organizations demanding payment -- a
job she likens to handing out crumbs to starving children. She
predicted unpaid bills will soon top $16 billion. "It is almost
hard to say those numbers out loud because they seem so insane, but
that's where we are right now, " she says.
Any solution to the state's dismal finances will need a
three-fifths legislative majority to pass. Looming behind the
fiscal train wreck are an estimated $250 billion in unfunded
pension liabilities, the worst in the nation, according to Moody's
Investors Service. S&P Global Ratings has warned that it could
lower the state's rating to junk as early as this week if it
doesn't pass a budget.
The Republican draft budget includes a temporary income-tax
increase. Gov. Rauner has also pushed for spending cuts in areas
including state pension benefits, which are protected under the
state constitution, and social services. He also wants to freeze
property taxes and ease workers-compensation protections to attract
new businesses.
Democrats, who are completing their own spending plan, complain
that some provisions in the Republican plan, such as changes to
workers-compensation insurance and a local property-tax freeze, are
outside the scope of the budget.
The governor's spokeswoman says mismanagement of the state's
finances predated his term, and that the governor is working "to
find consensus on a budget that is truly balanced and...will ensure
Illinois thrives in the long-run."
A spokesman for Mr. Madigan, the house speaker, says a
compromise has been hard to broker because the two men's visions on
how to fix the state are so far apart.
Illinois remains the business center of the Midwest with
numerous Fortune 500 companies based in and around Chicago, major
rail infrastructure and one of the nation's busiest airports. That
hasn't stopped the deadlock from rippling through towns from Rock
Island on the Mississippi River to Charleston in central Illinois.
Hospitals and doctors are feeling the brunt as the state delays
Medicaid payments and insurance payments for state employees.
Peoria-based OSF Healthcare, a network with 10 Illinois
hospitals, is owed about $115 million for bills over four months
old, the equivalent of 18 days of operating expenses, says Chief
Financial Officer Michael Allen. "We have to be cautious about our
future," he says. "There's just no end in sight."
The state owes Illinois dentists $225 million, and some of those
bills go back 23 months, according to the Illinois State Dental
Society. Some dentists in college towns or other areas with lots of
state workers are selling their receivables to keep their heads
above water. Others are asking state employees to pay in cash, says
Ronald Lynch, a dentist in Jacksonville.
"There are dentists who have to do this just to survive," says
Dr. Lynch. "It's very stressful." Dr. Lynch, who hasn't asked for
such cash payments, says he is owed about $250,000, forcing him to
forgo a salary so he can continue to pay bills and his
employees.
Health care is the capital's biggest employer apart from the
state itself. Springfield's two hospital systems -- Memorial Health
and HSHS St. John's -- say they together are owed more than $200
million by the state. Edgar Curtis, Memorial Health's chief
executive, says he has put off a $100 million capital-expansion
project because of the uncertainty. "We hate to see projects being
shelved because of what is going on at the state level," he
says.
The Coliseum building at the state fairgrounds in Springfield
closed indefinitely earlier this year after the state failed to
come up with funds needed for repairs. The closure has cost the
city tourism dollars from horse shows and other events.
Springfield Mayor James Langfelder, a Democrat, says sales-tax
revenue has declined by $2 million since 2015, which he attributes
to state employees making fewer purchases. On top of that, the
state owes the city $5 million for utilities on buildings it rents
from the city.
"At first, we tried to meet with legislative representatives, we
tried to highlight the urgency of this," says Mr. Langfelder,
referring to the impact of the budget crisis on the city. "Now, you
are almost numb to the fact. We just do whatever is in our
control."
Over the past two years, Eastern Illinois University has
received at least $53 million less than it would have if the
average funding levels of the prior five years had held.
Professors in the chemistry department haven't been able to
print in color since the department's printer ran out of yellow ink
a year ago. Biochemistry professor Mary Konkle says she decided to
leave her tenured position when she no longer had funding to order
equipment or chemicals for her research.
"It wasn't my plan to just be here a couple of years and move
on," she says.
Less than a decade ago, university enrollment was at its peak of
12,000. Then it began slipping by a few hundred a year. The decline
picked up speed after the state's budget troubles began in 2015.
Since then, enrollment has dropped by about 1,500 to 7,400 last
fall.
Rallies and press coverage about the state budget mess raised
fears the school might close, keeping students away. Administrators
say it is doubtful that they will have even 7,000 students this
fall.
In Charleston, where the university is based, empty storefronts
litter Lincoln Avenue, the main thoroughfare running by campus.
Jerry's Pizza, a staple for professors and students since 1978,
closed last October, citing the university's shrinking population.
"For Rent" signs are posted outside rows of apartments that cater
to students, with one ad offering free iPad minis to students who
sign a lease.
"Had we had 12,000 students here, the businesses would probably
all still be here," says John Inyart, a former Charleston mayor who
owns an auto-repair shop across from the university's main hall. He
has had to cast his net wider for customers as faculty and students
dwindle, he says.
"Any community that had a university was kind of like Teflon.
You had that stability in your community, with stable good paying
jobs," says Cindy White, chairwoman of the local chamber of
commerce. "Well, now, that's not so much anymore."
If the state doesn't pass a budget in the current special
legislative session or allocate emergency funding, about 700 road
projects under way across the state -- worth $2.3 billion and
employing 20,000 people -- will come to a stop.
"While we are hopeful the situation is resolved before then, the
department is notifying contractors that all construction work is
to shut down on June 30," says Gianna Urgo, spokeswoman for the
Illinois Department of Transportation. "Contractors will be advised
to secure work zones to ensure their safety during any potential
shutdown."
Among the projects under way is a multiyear, $40 million
rebuilding of several main thoroughfares that cut through the heart
of Urbana, home of the state's flagship university.
The roads are now effectively closed, limiting access to retail
businesses, says Urbana Mayor Diane Marlin.
"We're on a very tight construction schedule, and a lot of the
work has to be done this summer before 44,000 students come back,"
she says. "So even a slight delay is a big problem."
Some social-services agencies have given up on receiving state
funding. Others have closed entirely, leaving some rural
communities without mental-health clinics, domestic-violence
shelters and drug-treatment clinics, despite an opioid crisis
gripping some towns downstate.
Illinois has lost more residents than any other American state
for the third year in a row, with 90% of the state's counties
seeing a drop in population, shrinking the state's tax base. In
2016, a net of 37,508 people left, according to census data,
putting the population at its lowest in nearly a decade.
Illinois was one of just eight states in the country, and the
only Midwestern one, to lose residents last year.
"It's not just the budget crisis; it's that people don't have
any confidence in what the state is going to do next," says
Laurence Msall, president of the Civic Federation, a nonpartisan
Chicago-based government-watchdog group backed by business leaders.
"There is fear of an enormous tax increase. The uncertainty is
driving people from the state."
In 2014, the state's gross domestic product was growing faster
than any other bordering state. In 2016, Illinois grew slower than
all bordering states except for Iowa, with which it was tied.
In the Quad Cities, a metro area that spans the Mississippi and
encompasses both Illinois and Iowa, population on the Illinois side
has decreased by 2.5% between 2010 and 2015. Cities on the Iowa
side have grown 3.7%.
Among those who have crossed the river is Kelly Daniels, an
English professor at Augustana College in Rock Island, Ill.
Mr. Daniels bought a home in Rock Island a decade ago, in part
because of an incentive that helped cover part of his down payment.
Now married with a young child, Mr. Daniels was looking for a
larger house when he decided to move. He was tempted by lower
property taxes and what he saw as Iowa's relatively brighter
prospects, compared with Illinois's dysfunction.
"It's not like Iowa is paradise," said Mr. Daniels, who grew up
in California.
--Heather Gillers contributed to this article.
(END) Dow Jones Newswires
June 27, 2017 15:30 ET (19:30 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.