Unbalanced – Written by, Adam Schuster – Illinois Policy, 5/30/18

Once again, state lawmakers have kicked the can on making the tough choices necessary to put Illinois on a path toward fiscal health. On May 30, the Illinois Senate approved a spending bill that exceeds realistic revenue projections by as much as $1.5 billion, while failing to enact meaningful reforms to rein in the cost of government.
The budget, introduced by Senate President John Cullerton, D-Chicago, passed by a 56-2 margin. The 1,245-page bill was made public less than five hours before lawmakers cast their votes.
The Illinois House of Representatives is expected to vote on the budget by May 31, with party leaders stating publicly that they have the votes to pass it.
Bad budgeting, especially during election years, is a long-running practice in Illinois. The state has not had a balanced budget since at least 2001.
Multiple state senators said on the Senate floor that this budget is balanced. But that claim is based on a number of assumptions that should invite skepticism from Illinoisans, including higher projected investment returns, higher tax revenues than originally projected due to federal tax policy and various projected savings. The Illinois General Assembly is no stranger to budget gimmicks.
Based on previous state revenue estimates, the fiscal year 2019 budget passed by the Senate is out of balance by between $635 million and $1.5 billion, and includes no structural reforms to the key cost drivers of state spending. In fact, because the General Assembly never adopted a revenue estimate – as required by the Illinois Constitution and state law – this is not a budget at all: It is simply a spending plan.
Without reforms to curb the rise in out-of-control state spending – driven by pensions, Medicaidgovernment worker compensation and administrative bloat – Illinois will continue to pile on debt and drive residents out of the state.
Uncertainty around the state budget – and the looming possibility of future tax hikes to close deficits – makes it difficult for families and businesses to plan their futures in Illinois and harms the state’s economy.
Lawmakers should not declare victory if they pass this spending plan by the May 31 deadline. Taxpayers deserve a truly balanced budget that puts Illinois on a path to paying down its debt, saving for the future and providing tax relief.
This spending plan fails taxpayers, but there is a better path forward.
Lawmakers are still flying blind
Illinois taxpayers know that agreeing on how much money one has to spend is a basic first step of creating a responsible budget and living within one’s means.
Imagine a family sitting down to plan their budget around the kitchen table. Instead of starting with their expected income and prioritizing within that limit, they create a list of all the things they would like to buy: a new Ferrari, dining out daily at their favorite restaurant and whatever else they can think of. Any spending that they cannot immediately afford can just be placed on a high-interest credit card.
Sound ridiculous? Unsustainable?
That’s how Illinois lawmakers have been crafting budgets since 2014, and they did it again this year. Cullerton publicly stated during the negotiating process that he did not believe a revenue estimate was necessary. Sources inside the negotiations reported Cullerton did not want any sort of limit on his spending wish list.
Revenue estimates, while imperfect, impose a limit on state spending. According to an informal opinion issued by Illinois Attorney General Lisa Madigan in 2014, “[T]he General Assembly’s appropriation authority is limited by its estimate of funds available, which serves as ‘a ceiling of revenues within which they must appropriate and beyond which they may not go.’”
By refusing to pass a revenue estimate, the General Assembly has robbed Illinois’ constitutional balanced budget requirement of all meaning and effect.
Unbalanced budgets add to state debt and threaten further deterioration of the state’s credit rating
While the General Assembly failed to formally adopt a revenue estimate, the spending plan approved by the Senate is $635 million to $1.5 billion out of balance, according to projections made by both executive and legislative agencies.
The Commission on Government Forecasting and Accountability, or COGFA, projects that the state will have $37.865 billion to spend this year. The Governor’s Office of Management and Budget, or GOMB, predicts the state will have about $99 million more than that.
There are good reasons to criticize these estimates. First, both projections include about $300 million in proceeds from a sale of the James R. Thompson Center. The state has included this money in the prior two fiscal years’ budget projections, and both times the funds failed to materialize. Second, both projections include $600 million of “interfund borrowing.” This type of borrowing is an unsustainable budgetary gimmick that Illinois lawmakers have often used as a crutch to avoid reducing spending to a level taxpayers can truly afford. Finally, because economic projections are inherently imperfect, revenue estimates from both COGFA and GOMB have historically failed to match actual revenues.
Still, even if one takes the COGFA estimate as given, that means lawmakers are planning to spend about $635 million more than expected revenue. Including only base revenues, minus the sale of the Thompson Center and the interfund borrowing, the budget will be out of balance by about $1.5 billion.
Unbalanced budgets naturally lead to more unpaid bills. The state’s unpaid bill backlog is already anticipated to reach $7.7 billion by the end of the current fiscal year, according to GOMB. Along with the state’s $130 billion in unfunded pension liabilities (which some have pegged as high as $250 billion), credit rating agencies commonly cite the bill backlog as a reason for the state’s worst-in-the-nation bond rating.
In fact, Moody’s Investors Service analyst Ted Hampton told Reuters in May that budget substance will be more important for future credit ratings than simply passing a budget on time.
Illinois lawmakers should not view doing the bare minimum of their job requirements as a reason for optimism. The only way to give taxpayers and investors confidence in the future is for the state to rein in the long-term cost of Illinois government and put the state on a path toward paying down its debt, without tax hikes.
A better path forward
Illinois lawmakers have already proved they cannot exercise fiscal restraint on their own and have skirted the existing balanced budget requirement in the state constitution. To fix this problem, Illinois should adopt a spending cap amendment to the Illinois Constitution that ties lawmakers’ ability to spend money to taxpayers’ ability to pay for it.
A spending cap is a commonsense solution that received bipartisan support in the General Assembly this year. Proposed amendments would cap annual increases in general funds spending to the 10-year average growth rate in the state’s per capita GDP. While it is too late for constitutional amendments to save this year’s budget, lawmakers can always voluntarily adopt a spending cap.
Rather than arguing over unreliable revenue estimates, a spending cap would give lawmakers a reliable number to plan around. For the most recent 10-year period, Illinois’ economy grew at an average rate of 2.4 percent each year. The fiscal year 2018 budget called for $36.054 billion in spending, according to COGFA. Applying a 2.4 percent growth rate means the fiscal year 2019 budget would be able to increase by $865 million, for roughly $36.9 billion in total spending.
Using the COGFA revenue estimate as a base, this would have given the state a surplus of hundreds of millions of dollars that could be used to help pay down the bill backlog. In the long run, a spending cap could help the state get out of debt, build a rainy day fund to save for recessions and eventually cut taxes.
After adopting a spending cap, Illinois lawmakers need to get serious about reducing the cost drivers of the state budget and addressing unfunded pension liabilities – which likely also requires changing the state constitution. Pension costs have already risen to consume 23 percent of the state budget, up from 6.8 percent in 2008, according to the Civic Federation.
According to GOMB, growth in spending on government worker pensions and employee health insurance has far outpaced spending in every other area. From 2000 to 2018:
  • Spending on pensions has grown 663 percent 
  • Spending on employee health insurance has grown 215 percent 
  • Spending on preschool through high school education has grown 65 percent 
  • All other spending has grown by just 16 percent 
Pensions and administrative bloat are crowding out core government services.
House members should immediately reject the unfunded spending plan passed by the Senate and adopt a responsible budget in its place. Doing so would finally send a signal to Illinois residents that lawmakers are serious about ending Illinois’ fiscal crisis.
Adam Schuster 
Director of Budget and Tax Research