The University’s Institute of Government and Public Affairs conducted the Fiscal Futures Project, which compared the fiscal situation in California and Illinois, determining that Illinois has the worst fiscal problems in the nation.

Nancy Hudspeth, study author and IGPA resource and policy Analyst, used bond ratings, personal income taxes, corporate income taxes, sales taxes, cigarette taxes, general fund spending, budget enforcement, unpaid bills and pensions to compare the two states. She said while California’s fiscal situation is improving, Illinois continues to struggle.

“For years, California’s bond ratings have been the worst, and Illinois (was) next to worst of the 50 states,” Hudspeth said in the study. “But in January 2013, Illinois moved to last place.”

According to the study, Illinois’s bond ratings, or the ratings that gage credit worthiness of a state’s debt problems, are now negative, while California’s are stable. This change in bond ratings moved Illinois into 50th place below California.

“They both have avoided making difficult choices about raising taxes and also have not made major budget cuts,” Hudspeth said. “They tended just to avoid the problems they were having and push things into the future.”

Governors of the two states assessed the problem when creating budgets for the fiscal year.

In January, California Gov. Jerry Brown signed California’s All Funds Budget for fiscal year 2012-2013, cutting state spending by $12.5 billion.

“These cuts will be painful, requiring sacrifice from every sector of the state, but we have no choice,” Brown said in a Jan. 10 press release. “We must now return California to fiscal responsibility and get our state on the road to economic recovery and job growth.”

Illinois, with a population about one-third of California’s, approved a $61 billion All Funds Budget for fiscal year 2013.

Gov. Pat Quinn, though, said he thinks pension reform is the key to correcting Illinois’s fiscal crisis.

“Illinois cannot move forward without pension reform,” he said in a Jan. 2 press release.

Senate Bill 1, which proposes pension reform, has been postponed in the executive committee since Feb. 13. As debt rises by $17 million per day, Illinois still has the highest unfunded pension liability in the nation.

Hudspeth said pension reform and budget cuts would have direct impacts on the University and its students.

“If the state ends up making cuts to the university system, then the students will experience tuition increases,” she said. “The pensions affect the University as well because…if they do something more to reduce benefits for new employees, it’s going to be difficult to attract good, new employees.”

California, though, reformed its pension problem in Sept. 2012 by increasing retirement age and worker contribution and capping annual payout. Their unfunded liability sank to $3,636 per capita, while Illinois’s has grown to $7,622 per capita. According to the study, this reform, and Illinois’s lack thereof, dropped Illinois into last place for worst fiscal climate in the country.

Hudspeth said pensions need to be addressed, but there are other pressing issues.

“Pensions are definitely a serious issue,” she said. “However the income taxes that Illinois enacted in January of 2011 are temporary, and they are supposed to be phased out after 2014, and I would say they should consider keeping those tax increases permanent.”

According to the study, personal income taxes in Illinois rose from 3 percent to 5 percent in 2011 and should drop to 3.75 percent after 2014. By 2025, they will likely be permanent at 3.25 percent.

Similarly, corporate income taxes are temporarily increasing by 7 percent but are predicted to drop over time until they reach 4.8 percent in 2025.

Hudspeth said the personal and corporate tax increases should remain permanent to pay Illinois’s current debt of $9 billion.

“The income tax increase has been offset by the decline in federal funds, so the income taxes have just kept things the same,” she said. “But we need more to improve to the level that people want.”

Chrissy can be reached at [email protected].