Illinois state budget already in deficit despite record $5 billion tax hike

Illinois state budget already in deficit despite record $5 billion tax hike

With the 2018 budget set to spend at least $1.3 billion more than it takes in, members of the General Assembly have hoodwinked Illinoisans once again.

For two decades, Illinois government has been spending far more than it takes in.

Unfortunately, the 2018 budget that hit Illinoisans with $5 billion in new income taxes does nothing to address this fundamental problem. In fact, the new budget contributes to the mess. The 2018 budget is already on track to spend at least $1.3 billion more than it takes in, according to an analysis by the Illinois Policy Institute.

And as time passes, expect there to be more negative surprises that will push that deficit even higher.

That deficit calculation contradicts what lawmakers who voted for the budget say. They claim the budget they passed includes a $360 million surplus. But even their starting point is on shaky ground because it depends on the sale of the Thompson Center, which could bring in less than expected, and might not even happen in 2018.

Here’s what accounts for the majority of that $1.6 billion swing in the budget’s bottom line:

  • 2018 revenues are overstated by at least $300 million. The budget’s 2018 revenue estimates were based on 2017 revenue estimates that turned out to be overly optimistic. 2017 full-year revenue estimates (total state sources) available for 2018 budgeting purposes were about $300 million higher than they eventually turned out to be, according to the Commission on Government Forecasting and Accountability. As a result, the estimated 2018 budget revenues were inflated.In addition, the Governor’s Office of Management and Budget has reported that revenue is likely down $300 million-$500 million compared with the estimates used for the fiscal year 2018 budget plan.Getting the revenue base right matters since Illinois has been suffering from a decline in income tax revenues. 2017 fiscal year revenues (total state sources) ended 2.1 percent lower than in fiscal year 2016, or more than $600 million lower.

    Given that trajectory – and the negative economic impact of the 32 percent income tax hike – 2018 base revenues may be even lower than this year’s.

  • An expected $500 million in pension savings from the budget’s pension changes can’t happen in 2018. Part of the budget’s pension reform was erroneously estimated to save the state $500 million in 2018. Not only is there no official public analysis and verification of those savings, but officials say it could take two years or more before they can even enact the new pension reform plan. So no savings – if there are any to be had – can occur in 2018.
  • The budget accelerates state payments to local governments in 2018, costing the state an additional, and unaccounted for, $220 million. The 2018 budget moves money for the Local Government Distributive Fund and Public Transportation Fund out of the state’s general fund. As a consequence, municipalities will get 14 payments from the state next year instead of the usual 12, costing the state at least an additional $220 million in 2018.
  • The budget failed to fully account for $600 million in borrowing costs to pay down $6 billion in unpaid bills. The budget authorized and the governor has agreed to borrow $6 billion to pay down a portion of the state’s nearly $16 billion in unpaid bills. However, borrowing the $6 billion will cost the state about $600 million a year. The full amount of that annual borrowing cost was never accounted for in the budget.

Expect these problems to be masked. The government will dig into its usual bag of tricks – more fund sweeps and interfund borrowings – that will eventually bring the budget into “balance.”

But soon enough, as the state’s problems compound again, legislators will call for more tax hikes.

Reforms, not deficits

Despite claims to the contrary, the 2018 budget leaves Illinoisans worse off. They’re paying for the highest permanent income tax hike in state history only to watch the same problems fester.

This sort of deficit spending is why the state’s unpaid bills have jumped to a record $16 billion. It’s why Illinois’ pension debt has spiraled to what Moody’s Investors Service has said is now $250 billion. And it’s why promises to government retirees for retiree health insurance now total nearly $60 billion – none of which is funded.

The 2018 budget proves the General Assembly has hoodwinked Illinoisans once again.

Only when Illinoisans demand structural spending reforms that bring the cost of government in line with what taxpayers can afford will Illinois’ chronic crises slowly be resolved.

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