On May 31, the Legislature passed a $29 billion budget that is $2.5 billion in the red.

In many ways, the action is indicative of a bigger problem in Springfield -- a desire to avoid responsibility for tough decisions.

Just when pretend time will come to an end is anybody's guess, but one thing is certain: Illinois taxpayers face one of the worst financial nightmares in the state's history.

Right now, the state has $64 billion in unfunded debt obligations.

"The alternatives states like Illinois face are pretty clear: cut spending on programs or increase taxes," said Roger Lowenstein, author of the recently published book "While America Aged."

In many ways the situation states and local governments have gotten themselves into by underfunding employee pensions is one of the most intractable challenges facing the nation, Lowenstein said.

He said public employee pension underfunding may be even harder to address than the much-discussed problems with Social Security underfunding.

"Social Security was created by legislative action and benefits have been and probably will be cut," Lowenstein said. "For example, the retirement age can be raised. But on a state level, the (Illinois) constitution prevents such cuts in benefits. There is a good underlying public policy reason for this -- you don't want someone relying on something that can be taken away."

Elected officials got themselves into this predicament because they feared saying "no" to politically powerful public employee unions and angering taxpayers with rate increases, Lowenstein said.

Instead of giving unions as big a pay raise as they would like, elected officials simply promised bigger pensions, figuring funding that promise would be the responsibility of someone elected long after they left office, Lowenstein said.

"We are saddling our grandchildren and even their children with our debt," said state Sen. Gary Dahl, R-Granville. "That's just not right. We ought to take care of our expenses now and not expect future generations to pay for it.

While similar problems have played out in states and cities across the nation, Illinois remains one of the worst offenders, Lowenstein said.

"I think there is general agreement that this is not just the Democrats or just the Republicans that got us into this situation," said Sen. Christina Radogno, R-Lemont. "The pension underfunding really began under (Gov.) Jim Thompson. But the current administration has brought the state into greater debt than any previous administration."

One of the most blatant ways Illinois politicians can get away with being irresponsible with taxpayer money is by redefining basic accounting terms.

For example, Illinois politicians define a "balanced budget" considerably differently than how an ordinary person might describe balancing their own household finances.

In fact, lawmakers can put the state deeper into debt while they are "balancing" the budget. For example, in 2003 when the state was not taking in as much money as it planned to spend, it borrowed $2 billion in a long-term bond issue to pay for day-to-day operating costs. Blagojevich then declared the budget balanced.

"The whole thing is a joke. There are so many ways around balancing the budget," said Charles Wheeler III, a longtime legislative observer and a professor of public affairs reporting at the University of Illinois at Springfield.

"It's like someone using their credit card to pay their bills and then declaring they have balanced their budget because all of their bills are paid off even though they are now paying the credit card company 21 percent interest."

Sheila Weinberg, founder of the government accountability group Truth in Accounting, said drafters of the state constitution mandated a balanced budget as a way of preventing politicians from pushing off the cost of today's government services onto future generations.

"Every year they pass a theoretical balanced budget, but every year their audited financial statements show a $2 billion to $3 billion deficit. Since politicians can use 'political math,' they are able to fool voters and please special interests," she said.

Among the special interests pushing for more money are teacher and state employee unions and associations representing doctors, dentists, pharmacists and road builders. Each group is among the top contributors to Illinois political campaigns and highly dependent on money from Springfield for their members' livelihoods.

"For some reason -- and don't ask me why -- Illinois legislators have simply lacked the political will to what they needed to do -- cut spending or raise taxes," said former state Sen. Denny Jacobs, D-East Moline. "I don't know what it is about Illinois that makes us unique -- why other states had the political will and we don't -- but Illinois clearly has failed to take the responsible course. I'm ashamed to say that I was part of that process for many years.

"But we could have avoided this situation if, a few years ago, we had raised the income tax rate from 3 percent to 5 percent. Then we wouldn't be talking about all of these Mickey Mouse solutions," he said.

With a flat rate of 3 percent, Illinois has the lowest income tax rate of the states with an income tax.

Here are the top income tax rates for the states neighboring Illinois:

Further compounding the problem is Illinois' economy is rapidly changing but the way it collects taxes has remained largely unchanged over the past 40 years.

"Illinois really doesn't have a tax policy," said Mike Klemens, manager of policy and communications for the Illinois Department of Revenue.

Illinois has more local governments than any other state and they have the power to levy property taxes and some others can impose their own sales taxes, he said.

"Illinois' state taxes are relatively low but local taxes are high. So instead of having one tax policy for the state, we have many different ones," Klemens said.

Such a system has left the state with hodgepodge of tax policies and a state government hogtied in its ability to decisively deal with statewide revenue problems.

For example, while many downstate and suburban communities have relatively low local sales taxes, Chicago has the highest rate in the nation.

"If we were to increase the state sales tax, I think we might actually see a decline in revenue from Cook County because people would be traveling elsewhere to shop," Klemens said.

But structural problems with how Illinois taxes don't end there. The state's forms of taxation have failed to adjust to changes in the economy.

David Brunori, a contributing editor for State Tax Notes based in Falls Church, Va., said Illinois has shortchanged itself in two ways -- by not adopting a progressive income tax that taxes wealthier people at a higher rate and by not applying a sales tax on services.

"When the sales taxes were created back in the 1930s, we spent almost everything we had on tangible goods. Now about 60 percent of what we spend goes toward services and states have failed to tax this growing part of the economy," Klemens said.

Although Illinois is moving to a service-based economy, the state taxes virtually no services. In fact, a Federation of Tax Administrators study found only Alaska and New Hampshire tax fewer services than Illinois.

Examples of services taxed in other states include haircuts, lawn care and auto repair.

Illinois also is one of eight states that tax all of its citizens at the same rate. The other 37 states that have an income tax charge a progressively higher rate to those with higher incomes.

There is a national debate over which is a fairer public policy -- a flat tax or a progressive income tax.

But Brunori said there is little doubt a progressive income tax generates more money for government because the benefits of the state's economic growth have disproportionately favored the wealthy.

"We are the fifth-wealthiest state, but we rank in the bottom five for the amount of (state) taxes collected per capita," said Ralph Matire, executive director of the Center for Tax and Budget Accountability in Chicago.

Despite this, Blagojevich ran on a platform he would not increase the state's income or sales taxes. During his first run for governor, Jim Edgar pledged not to raise those taxes but declined to do so during his second gubernatorial bid. George Ryan did not explicitly promise not to raise taxes, but left voters with that impression.

This campaign rhetoric left the state scrambling for alternate revenues such as raising the price of license plates and expanding gambling under Ryan and increasing fees for state services under Blagojevich and Edgar.

Using creations that would make Walt Disney proud, Blagojevich's accountants and policy makers have devised budget schemes that sounded too good too be true -- and often were.

Some of the ideas seemed unusual for the public, such as selling the James R. Thompson Center to French investors and then leasing it back, auctioning off naming rights for state buildings, selling off future anticipated state revenue on Wall Street at a discount to get money now.

"I've got to hand it to this administration -- they're always coming up with something new," said state Rep. Joe Lyons, D-Chicago, shaking his head wearily upon learning of the administration's latest budget ploy.

But there is more than enough blame to go around.

Lawmakers often failed to critically examine the spending proposals Blagojevich presented before approving them.

For example, in 2005 lawmakers essentially gave the governor a blank check when they approved the "All Kids" program. The program made Illinois the first state to offer health insurance to all children regardless of their family's income.

But when lawmakers approved Blagojevich's proposal, they did so without any long-term cost estimates from administration officials.

"Everyone loves children and everyone wants to make sure they are cared for properly," said state Sen. Mike Jacobs, D-East Moline, Denny Jacobs' son. "I voted for All Kids, but in hindsight I should have taken a more critical look at what we were being told. I don't think there is any way that All Kids would pass today. There is a lot more skepticism among legislators about numbers coming out of the administration."

Don Haider, professor of public management at Northwestern University, sees the state's fiscal problems as a product of economic trends and a lack of political will.

"Illinois is moving from a manufacturing-based economy to a service-based one. Those jobs don't pay as well and that means less money for the state. We are losing wealthy people who are retiring to places like Scottsdale, Ariz., and gaining poorer people," he said. "There have been times along the way that we could have tightened up and specified 'rainy day funds' and done many other things."

For decades, he noted, lawmakers have been solving short-term financial problems by ignoring longer-term obligations.

For example, the $44 billion backlog in pension obligations, a figure provided by the bipartisan legislative Commission on Government Forecasting and Accountability in Springfield.

Further aggravating the fiscal picture is during the first five years of the Blagojevich administration, the state expanded spending but failed to create a long-term way to continue to pay for the new spending.

Year after year, the governor proposes one-time fixes that do nothing to address the state's long-term fiscal health, Wheeler said.

In 2003 Blagojevich proposed and the General Assembly approved a plan to borrow $10 billion to refinance the state's pension debt, $2 billion of that money was diverted to pay for day-to-day state expenses.

"Refinancing debt can be a good thing if it reduces the interest rate," Weinberg said. "But what Blagojevich did is the equivalent of someone paying off an $8,000 credit card debt with a home equity loan and borrowing another $2,000 to head off on a vacation. It doesn't make any sense."

In May, the Illinois Senate endorsed a Blagojevich plan to issue $16 billion more in pension bonds. The measure has yet to be considered by the House.

"Pension bonds are like withdrawing your life savings out of the bank and making a stop in Atlantic City -- or an Illinois riverboat -- to gamble. The gamble is each year your pension investments will grow at a rate greater than the interest your paying on the bonds," Lowenstein said.

For Dahl, such moves are the height of irresponsibility.

"Would you go to the bank and borrow money to invest in the stock market? I don't know anyone who would with their own finances," he said. "But that's exactly what the state of Illinois does whenever it issues these pension bonds."