Illinois’ fiscal year 2015: The good, the bad and the ugly
The 2014 legislative roller coaster is finally over. The good news is that all Illinois taxpayers are on track to see income tax relief next year. The bad news is that politicians pushed through a last-minute budget deal that relies heavily on gimmicks and budget games. Here’s a snapshot of the good, the bad and...
The 2014 legislative roller coaster is finally over. The good news is that all Illinois taxpayers are on track to see income tax relief next year. The bad news is that politicians pushed through a last-minute budget deal that relies heavily on gimmicks and budget games.
Here’s a snapshot of the good, the bad and the ugly of Illinois’ fiscal year 2015 budget.
The good: tax relief
Illinois’ income tax was the most contentious issue of this year’s budget debates. The failure to make the temporary tax hike permanent is a colossal victory for all of Illinois’ taxpayers. They are finally slated to receive long-awaited tax relief. The tax-hike sunset would mean that over the next five years alone, taxpayers and business owners would keep more than $30 billion of their own money.
The sunset will also make it more difficult for Illinois politicians to avoid real spending reforms at taxpayers’ expense. Despite billions in additional revenue from the 2011 tax hike, Illinois still has $5 billion in unpaid bills, the state’s credit rating was downgraded five times and its unemployment rate is the third highest in the nation. The tax-hike sunset is the first step in a long process to seriously address these failures and begin an Illinois turnaround.
The bad: budget games
Politicians reached deep into their bag of budget tricks to balance the 2015 budget.
The 2015 budget totaled about $35.7 billion. It keeps spending relatively flat and is slated to cover the state’s largest pension payment, nearing $6.5 billion.
To put the budget into context, state revenue totaled about $36.7 billion during the 2014 budget year and $36.4 billion in 2013. In 2012, state revenues were closer to $34 billion. This means that even with the tax-hike sunset, the state is spending more than it was just a few years ago.
The 2011 tax-hike sunset was originally slated to cost the state $1.8 billion – about 5 percent of the state’s revenues. But instead of implementing real reform, politicians took the easy way out at the expense of the state’s already-struggling financial standing. The games they played include:
- Revenue bumps: Lawmakers were able to drop the cost of the sunset from $1.8 billion to around $1 billion with the help of a few tweaks to 2015 revenues. A last-minute revenue revision increased the amount of money the state is expected to bring in next year, while lawmakers also pushed 2014 revenues into 2015 to pay for this year’s spending.
- Fund sweeps: The state has hundreds of special funds that are used for spending outside of the state’s General Revenue Fund. Lawmakers regularly borrow from these funds, a practice known as inter-fund borrowing or fund sweeps, to pay for spending in the general fund. They relied heavily on this trick to balance the 2015 budget – borrowing approximately $650 million from special state funds.
- Pushing bills into the future: Section 25 of the state’s finance act requires the state to pay for fiscal-year spending with appropriations from that fiscal year. But this act specifically excludes some of the state’s largest spending drivers – liabilities for Medicaid, state employee and retiree health insurance, and certain spending by the Department of Public Health. The 2015 budget is slated to push nearly $400 million in health insurance bills into the following year. This trick is known as the “Section 25 loophole,” and is a large driver of Illinois’ $5 billon backlog of unpaid bills.
The ugly: Illinois’ future
The most unfortunate and dishonest result of this year’s political budget games is the fact that the state’s status quo was preserved.
Illinois’ flawed method of funding education will continue. Instead of money following the students, some of it will subsidize economic development projects for TIF districts. The state’s massive pension debt will continue to crowd out resources for schools, roads and public safety. Those who rely on government most will continue to struggle to find the care they need. And it will be no easier for the more than 1 million people who woke up this morning either unemployed or underemployed to find employment in their state.
Things need to change in Illinois. The fiscal shell games played with the 2015 budget will make next year’s budget an even bigger battle. General Fund revenues are projected to drop to roughly $32 billion in 2016, the first full year of the tax-hike sunset. The biggest concern now is the potential to make the tax hike permanent when lawmakers reconvene for the lame-duck session in January next year.
But now politicians have a full year to plan for the big reforms necessary to balance the budget. There’s simply no excuse for playing the same budget games next year. Illinoisans deserve better.