State of Illinois confirms new budget is out of balance by $1.2B

Despite claims from some state lawmakers that the fiscal year 2019 budget is balanced, official reports to bond buyers admit a deficit of more than $1 billion.

According to state government itself, Illinois’ most recent spending plan is yet another in an unfortunate string of unbalanced budgets. State lawmakers have not passed a truly balanced budget since at least 2001.

In the preliminary official statement to potential bond buyers dated Aug. 16, the Governor’s Office of Management and Budget, or GOMB, notes the fiscal year 2019 budget is out of balance by $1.2 billion. Furthermore, the report states, “The State provides no assurances as to how, when or in what form this structural deficit might be addressed.” The statement was released as part of the state’s plan to sell over $920 million in new general obligation bonds.

The Illinois Policy Institute projected the General Assembly’s spending plan was out of balance by as much as $1.5 billion shortly after the bill was made public.

On May 30, state senators cast their votes on the 1,245-page bill less than five hours after it was made public. The measure passed by a vote of 56-2. On May 31, the Illinois House of Representatives approved the fiscal year 2019 spending bill by a 97-18 margin. The spending plan received significant support from Democrats and Republicans in both chambers.

Because the General Assembly never adopted a revenue estimate – as required by the Illinois Constitution and state law – and because the budget is out of balance despite a constitutional balanced budget requirement, the measure should not really be considered a budget: It is simply a spending plan.

Lawmakers also took no action to address the two primary factors leading to the state’s near-junk credit rating: a massive backlog of unpaid bills, which stands at nearly $8 billion as of Aug. 20, and roughly $130 billion in unfunded pension liabilities.

To make the budget appear balanced on paper, lawmakers relied on a number of common but deceptive budget gimmicks, including:

• Ignoring a potential $412 million in automatic raises for government union workers resulting from a contract dispute between Gov. Bruce Rauner and the state’s largest employee union, the American Federation of State, County and Municipal Employees
• Counting on $300 million in revenue from divesting the James R. Thompson Center – planned for the third year in a row – despite no concrete signs of progress in selling the building
• Sweeping and borrowing $800 million from other state funds, in violation of good budgeting practices
• Using accounting methods that mask the true size of deficits
• Counting on around $422 million in pension savings that are entirely speculative

The speculative pension savings are based on a good policy solution – pension buyouts – but are uncertain to create the expected savings in the first year. GOMB Director Hans Zigmund relayed this in a recorded message to investors, saying, “While these buyout programs have yet to be implemented, it is expected to create savings for the state in the long term.” Zigmund added, “[T]he state can provide no assurance as to the amount of savings actually realized from the implementation of such programs.”

A better path forward

Taxpayers don’t need to settle for a false choice between bad budgets and no budgets at all.

Illinois lawmakers have proved time and again they cannot exercise fiscal restraint or meet the existing balanced budget requirement on their own. 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 in 2018. Proposed amendments would cap annual increases in general funds spending to the 10-year average growth rate in the state’s per capita GDP.

It is too late for a constitutional amendment to save this year’s budget, and a constitutional amendment cannot be placed on the ballot until the next general election in 2020. However, lawmakers can always voluntarily adopt a spending cap as a budgeting principle for next year. 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.