Foggy crystal ball leads to 21 years of Illinois budget deficits

Foggy crystal ball leads to 21 years of Illinois budget deficits

The first step of passing a budget is to determine how much is available to spend. Illinois routinely misses the mark in estimating future revenues. There is a solution.

Whether sitting around the kitchen table at home or negotiating a multibillion-dollar state spending plan, figuring out how much you have available to spend is the first step of budgeting.

Illinois state estimates are routinely wrong: 19 of the past 26 estimates have been off, some by billions.

Worse, the Illinois General Assembly has not even officially adopted a revenue estimate since 2014. This leaves the public in the dark about assumptions lawmakers use when crafting the budget, and makes it nearly impossible to hold Springfield accountable for statutory and constitutional requirements to balance the budget.

When the Illinois budget process is broken from the start, it is easier to get 21 consecutive years of deficit budgets.

Lawmakers should adopt a consensus revenue estimate to minimize politics and improve accuracy

Revenue estimates are prepared by two separate agencies: the Governor’s Office of Management and Budget and the Commission on Government Forecasting and Accountability. Both routinely are off, and too often by billions. According to standards from the National Association of State Budget Officers, “on target” estimates fall within 0.5% of actual revenues. Since 2008, COGFA has only been on target with its predictions five times; GOMB estimates performed even worse, hitting the mark only twice in the past 13 years.

Budget forecasting is inherently difficult, as it requires making educated guesses about the future which rely on economic conditions that no one can predict with perfect accuracy. Illinois revenue collections are also somewhat more volatile than the national average, meaning the state sees larger swings from year to year that make forecasting more difficult. This is largely because Illinois relies on personal and corporate income taxes for most of its state revenue, which are harder to predict than consumption taxes. Revenue volatility would have grown even worse under a progressive tax system, such as the one state leaders keep advocating but voters rejected in November 2020.

Additionally, an already difficult task is made more difficult by partisan politics making their way into forecasts. Academic literature suggests political bias plays a role in the formulation of revenue estimates.

Republican governors might push for higher revenue estimates to show the need for tax cuts, while Democratic governors might support lower revenue estimates that could indicate a need for increases in taxes. Even non-partisan civil service staff often feel pressured to produce estimates that complement the objectives of their elected bosses.

Illinois has seen this phenomenon from both parties. In 2012 and 2013, Gov. Pat Quinn’s office proposed estimates that, respectively, underestimated revenue by $2 billion and $1 billion. These estimates were given at the same time Quinn was arguing for the necessity of extending a temporary income tax hike. Similarly, in 2016, Gov. Bruce Rauner’s office, while advocating for a balanced budget that didn’t require tax hikes, proposed revenue estimates that ended up exceeding actual revenues by $1.3 billion.

Considering the difficulty of formulating revenue expectations and the partisan environment in which they are generated, problems with inaccurate revenue estimates are not unique to Illinois. Many states routinely miss the “on target” mark. What sets Illinois apart and what ostensibly led to it receiving a C average for budget forecasting from the nonpartisan Volcker Alliance, is how it responds to the challenge of these consistent inaccuracies.

Most other states recognize erroneous revenue predictions as a problem. As a result, 28 of them have implemented consensus budget forecasting.

The practice is defined by the National Association of State Budget Officers as a revenue projection developed in agreement through an official forecasting group representing both the executive and legislative branches. A similar consensus process uses two estimates which are then averaged. There is some evidence this second consensus approach yields more accurate results than a process creating a single estimate.

Illinois is in the minority, one of just 12 states that use separate, and sometimes competing, forecasts from the legislative and executive branches. This reliance on outdated methods is problematic.

There is evidence a consensus formula is more accurate and can cancel out the political biases that inevitably permeate the budget forecasting process.

It is important to note consensus forecasting does not automatically yield on-target results. But its ability to depoliticize revenue estimation and potential to improve accuracy have led the National Advisory Council on State and Local Budgeting, the Volcker Alliance and many others to recommend consensus forecasting for states wishing to improve revenue forecasting.

When crafting the budget, Illinois lawmakers get the first step wrong

Worse than failing to adopt a consensus approach to forecasting, Illinois has not even bothered to formally and publicly adopt a revenue estimate in recent years. Since 2014, the General Assembly has not gone on record to state the funds it estimates to be available for the budget, despite being required to do so under state law:

“The House and Senate by joint resolution shall adopt or modify such estimates as may be appropriate. The joint resolution shall constitute the General Assembly’s estimate, under paragraph (b) of Section 2 of Article VIII of the Constitution, of the funds estimated to be available during the next fiscal year.”

This state mandate was reinforced in 2014 by an informal opinion by Illinois Attorney General Lisa Madigan, holding that “[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.’”

Absent a public and formal “ceiling” for the budget, it is nearly impossible to hold lawmakers accountable for their duty to achieve balance.

To most Illinoisans, adopting a revenue estimate would seem like common sense – to balance a budget, a household must know how much it has available to spend. But at the state level, a seemingly simple exercise gives way to political considerations.

Illinois political leaders don’t want to adopt such an estimate because it forces them to be accountable with the taxpayers’ money. If lawmakers don’t adopt an official estimate, they have much more flexibility and have more avenues by which they can pass a budget that seems balanced.

In 2018, Rauner pointed out this dynamic, saying, “There is a reluctance to be pinned down” regarding lawmakers’ refusal to adopt a revenue estimate.

This is no excuse. Taxpayers deserve transparency and accountability from their legislators. Practices that would spell disaster for a household or business finances should not be expected to yield different results in the legislature.

Lawmakers are failing their duty to uphold the Illinois Constitution when they fail to balance the budget.

Article VIII, Section 2 of the Illinois Constitution mandates “proposed expenditures shall not exceed funds estimated to be available for the fiscal year as shown in the budget.” This requirement is similar to that of 48 other states, all of which, to varying extents, are obliged to balance their budgets.

Illinois lawmakers consistently find themselves among the minority of states, avoiding their constitutional mandate through accounting gimmicks. The exploitation of these constitutional loopholes has resulted, as seen below, in a balanced budget last seen in 2001 and $63 billion of debt racked up in the process.

Overall, this trend of budgetary malfeasance shows no signs of changing and is costing Illinoisans – borrowing money is ultimately a form of future taxation. Sooner or later, the bill will come due.

There are opportunities to begin changing this trend. The literature is clear and the fix is easy: implement consensus budget forecasting and formally adopt revenue estimates.

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