Is Illinois really the worst state for fiscal stability? We asked an economist
A recent analysis from U.S. News & World Report named Illinois No. 50 in the nation for fiscal stability, but is the state’s economy really the country’s worst?
The report found Illinois scored poorly for long-term fiscal stability, but ranked a little better at 41st for short-term stability.
The U.S. News analysis evaluated each state’s government credit rating, pension fund liability, liquidity and budget balancing to compile the ranking. U.S. News reported in the ranking the Illinois state government has just 28.1 days of general fund expenditures in total balances, or liquidity, compared to a national average of 99.4 days.
The Land of Lincoln performed better for its government credit rating, which is an “A- Stable” as of May 22, according to S&P Global.
What Illinois is doing right
However, one important factor for Illinois wasn’t properly considered in the U.S. News report, according to one economist.
“It doesn’t really take into account the trend, and that’s really the key part,” Frank Manzo IV, an economist with the Illinois Economic Policy Institute, told the News-Democrat in a recent interview.
Manzo said the Illinois government dug itself a hole under governors from both political parties in the past, but is now better-positioned than it’s been at any point in the past 20 years.
“Illinois’ recent fiscal improvements have been among the strongest of any states’,” Manzo said. “It has eliminated massive budget deficits of past years, earned 10 credit rating upgrades since 2020, it’s built its largest ever rainy day fund at over $2 billion, and then its pension funded ratios are at their highest level since 2008.”
Some of the ways in which the Illinois state government has strengthened its financial position have included building up the unemployment insurance fund, making more robust public investments, balancing the budget and paying down debts, he added.
“This type of ranking doesn’t consider other items that are important, like whether Illinois is performing better than other states at investing in infrastructure or in education, you know, these proactive investments that actually reduce cost over time,” Manzo said.
Another positive indicator for the state has been three consecutive years of population growth, although Illinois still has a smaller population than it did in 2020, according to U.S. Census Bureau data.
“Illinois has a lot of room for improvement, but it has been going in the right direction since really 2020, while there are other states that have seen their fiscal situations worsen,” Manzo said.
Illinois subsidizes other states, but faces federal cuts
One unique factor in Illinois’ economic situation is its financial relationship with the federal government — it’s considered a “donor state” because it contributes billions more in federal taxes than it receives in federal expenditures and investments.
The reason Illinois contributes more to the federal government than some other states is because Illinois has higher incomes and a “more robust” middle class, according to Manzo.
“We are subsidizing neighboring states already,” Manzo said.
In addition, proposed cuts to federal funding by the Trump administration pose another challenge to Illinois, he added.
“Those are cuts to healthcare, they’re cuts to infrastructure, they’re cuts to food assistance and then some of them are just targeted political cuts,” Manzo said.
The Illinois Economic Policy Institute estimates federal cuts, rescissions and freezes to the state could cost a cumulative $7.8 billion by 2029, and the only possible routes to address the disparity are to cut services or potentially raise taxes, Manzo said.
Lowest-ranked states for fiscal stability
Here’s how the top 10 lowest-performing states compared in U.S. News & World Report’s analysis on fiscal stability:
- Illinois (50th place)
- New Jersey
- Connecticut
- Mississippi
- Louisiana
- Rhode Island
- Alaska
- Colorado
- California
- Vermont
Utah was named the No. 1 state for fiscal stability, according to the publication, with Delaware, New York, Iowa and Georgia rounding out the top five.
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