Budgeting for tax relief: Rauner’s balancing act begins with fiscal year 2015

Fiscal year 2015 will be a key to future budget success. Is the governor-elect up to the task?

Governor-elect Bruce Rauner is just eight weeks away from taking over the reins of Illinois government from Gov. Pat Quinn. And Illinois taxpayers are just six weeks away from gaining some relief from the temporary tax increase initiated in 2011 by Illinois’ Democratic leaders.

Now, the governor-elect will assume the challenging task of fulfilling promises of tax relief made years ago, even though those who made the promises failed to properly steward more than $30 billion in supplemental tax revenues to stabilize the budget in the meantime. Regardless, it remains the case that Illinois workers deserve the promised relief.

To deliver on that relief, state government must shift its focus from revenues to spending and make tough choices so the state can live within its means.

This arduous process begins with addressing the inadequacies of the current fiscal year’s budget, which is seriously underfunded and out of balance. Earlier this year, state lawmakers used duct tape and baling wire to craft a “balanced” budget in name only.

We know that lawmakers have borrowed $650 million from various state funds to make up for budget shortfalls. We know, too, about the $4.6 billion backlog of bills with which the state comptroller started the year (a backlog that has grown to $5.4 billion as of Nov. 1). And the governor’s office claims that enacted appropriations failed to provide for at least $470 million in known operating expenses.

So where should the new administration begin its work? For the current fiscal year, the governor-elect must use cost-cutting methods that can be implemented unilaterally, because there is no time for legislative action. Spending must be stopped in its tracks now.

Rauner must prioritize programs, identify discretionary, nonessential spending, and make tough executive decisions to stop spending money the state doesn’t really have. Zero-based budgeting methods, which start from a “zero base” budget (instead of a “maintenance level” budget based on the prior year) to identify and analyze every governmental function and program and determine the actual needs and costs, can help determine priorities and essential levels of spending. This prioritization process should begin with a comprehensive review of executive agencies, their programs and their budgets.

Executive departments and agencies receive about $15.8 billion in general fund appropriations, excluding the $1.1 billion appropriated for state employee pensions. The governor has discretion to control and restrict nonentitlement spending in these budgets without legislative approval.

The governor-elect can give executive agencies budget targets below their appropriated levels, and direct them to tighten their own belts to meet the targets. The agencies could accomplish the goal with staffing reductions, limitations on new purchases of equipment and supplies, or even the elimination of some nonessential programs.

Also, the new governor can institute a moratorium on new spending commitments, such as new project approvals, grants or tax credit agreements. For example, a moratorium on grants and tax-credit agreements from the Illinois Department of Commerce and Economic Opportunity could reduce spending and increase revenues simultaneously.

The moratorium could extend to new commitments under bond-funded capital programs such as Illinois Jobs Now. The program has been a drain on general revenue funds because revenues in the capital projects fund, intended to finance the program, have been insufficient to pay debt service on the bonds. This would help ease the budget by slowing the project spending and delaying the need for new borrowing.

A request to institute such a moratorium from Rauner to Quinn could jump-start the savings, if Quinn were willing to abide by the request.

The Rauner administration faces the overwhelming challenge of balancing the Illinois budget in coming years. How it handles the more immediate task of getting the state through fiscal year 2015 will be a key preliminary test of its capacity to face that challenge.

Responsibility must be restored. Let us hope that Governor-elect Rauner and his team are up to the challenge.