Lawmakers plan to short pensions by $4.4 billion in 2024 budget
No matter what rhetoric about passing a balanced budget comes out of Springfield, the state budget will automatically be unbalanced because of inadequate pension contributions.
As lawmakers work to finalize a budget leading up to their final scheduled session day on May 19, they plan to short pension funding by $4.4 billion.
Illinois’ budget process has routinely gotten poor marks from fiscal watchdog organizations. The state historically has struggled to transparently produce a budget, often waiting until the 11th hour of the legislative session to pass a budget with very little input or debate from most lawmakers. Even now, lawmakers have yet to introduce budget legislation on the floor of the General Assembly, despite being scheduled to adjourn on May 19.
This corrupt process has led to budgets thousands of pages long and riddled with errors. They are passed with virtually no time for lawmakers or the public to scrutinize Springfield’s spending plan. Every year this practice disenfranchises voters on the most important piece of legislation their representatives produce.
Another faulty aspect of Illinois’ budget process comes from its reliance on flawed revenue projections and volatile tax revenue sources. April 2023 revenues came in $1.8 billion below April 2022 revenues, dropping far more than anticipated. State forecasters had built in an anticipated drop in personal income tax revenues to account for waning pandemic-era federal stimulus activity, but they were still way off – $986 million off.
On top of faulty revenue projections, the state suffers from high tax revenue volatility. Tax revenue volatility happens when the taxes a state relies on for its budget fluctuate up or down excessively thanks to external factors such as economic conditions. Illinois ranks No. 8 in the nation when it comes to tax revenue volatility, meaning it sees far more fluctuation in its tax revenues than most other states. That volatility creates instability for the state budget because, along with faulty revenue projections, it means policymakers rarely have an accurate idea of how much money will be available to spend.
With the prospect of a recession coming soon and experts saying the economy is “unwell,” policymakers in Illinois should be concerned about the future. They have been quick to embrace recent and rare credit rating upgrades and stronger than expected revenues generated artificially by one-time federal aid and unusual economic conditions in the wake of the pandemic. Should a recession strike, Illinois’ financial condition will worsen again and drive its pension debt even higher while crowding out even more critically needed programs and services.
Rather than patching a budget together at the last minute every year so the public and even other lawmakers have no time to read it or challenge it, lawmakers in Springfield should pursue reforms that will put Illinois in a better position financially. Allowing for a vote on a constitutional amendment for pension reform would help get pension debt under control and alleviate the single biggest anchor on state finances. A spending cap tied to long-term economic growth would ensure the budget grows annually at a rate taxpayers can afford and give lawmakers a definite amount of money available for the budget each year.
Without those structural reforms to truly improve the state’s financial position, the state is likely to revert back to a sinking credit rating, rising pension debt, an empty reserve fund and more pushes for higher taxes.