Rauner’s budget proposal needs more spending reforms

Ted Dabrowski

Vice President of Policy

Ted Dabrowski

John Klingner

Policy Analyst

John Klingner
February 16, 2017

Rauner’s budget proposal needs more spending reforms

The governor should reject tax hikes and push for the structural spending reforms Illinois needs to fix its fiscal crisis and improve its economy.

In his Feb. 15 budget address, Gov. Bruce Rauner called for $32.7 billion in revenues versus $37.3 billion in total spending for fiscal year 2018. The shortfall, totaling $4.6 billion, is to be filled through negotiations on a “grand bargain.” The governor wants to reach a compromise with the General Assembly on a combination of cuts and revenues that equals $4.6 billion. If they can’t reach a compromise, Rauner wants the General Assembly to give him the authority to directly cut the budget.

But while the governor spoke against relying solely on tax hikes to balance the budget, demanded a permanent property tax freeze, and supported a strict spending cap, his proposal still falls short of providing the spending reforms necessary to avoid a tax hike altogether.

The governor delivered his speech nearly two years into Illinois’ operating without an official state budget. The current budget gridlock and political impasse are the culmination of decades of fiscal mismanagement by Illinois politicians.

Avoiding tax hikes is an absolute necessity for Illinois. Illinoisans already live under one of the highest tax burdens in the country – including some of the nation’s highest property taxes. Residents are already leaving in record numbers, and some cities are already in or near recession.

Major spending and structural reforms are necessary: so skyrocketing pension costs don’t continue to be prioritized over social services; so bloated college and university administrations aren’t prioritized over low-income students; and so the bureaucracies of Illinois’ 7,000 units of local government aren’t prioritized over seniors struggling to pay the property taxes on their homes.

Here’s where the governor must improve on his initial proposal:

  1. Reject a $4.6 billion tax hike

Illinois is suffering from a perpetual spending problem. The governor is correct to say that Illinois cannot tax its way to economic prosperity. The state must balance its budget without inflicting massive tax hikes on Illinoisans.

But by leaving a shortfall of $4.6 billion, the governor’s budget leaves open the possibility for the General Assembly to put a $4.6 billion tax hike on his desk – which he should veto. The governor must eliminate that possibility by implementing more structural spending reforms.

  1. The budget needs more spending reforms

The governor’s budget includes some good state worker health care and procurement reforms. Those savings, among others, help reduce the state’s total spending to $37.3 billion from the $39.7 billion the Governor’s Office of Management and Budget estimated would have resulted in the absence of an official budget.

However, the governor continues to say he is also willing to accept some unspecified amount of tax hikes in exchange for some economic and governance reforms.

But billions in damaging tax hikes in exchange for items such as term limits, for example, is a bad deal for Illinoisans. Yes, Illinois should impose term limits on politicians, but not at the expense of tax hikes. The damage of tax hikes – more out-migration, fewer jobs and a bigger burden on Illinoisans – will far outweigh the benefits of term limits, which will come far in the future.

Illinois’ first priority must be structural spending reforms that are permanent and immediate, not political reforms that take years to implement and offer no change in the spending trajectory.

The governor’s spending reforms, for example, can be improved by eliminating $500 million in administrative bloat and overly generous executive pay in higher education.

Reforms can end the state’s $1.4 billion pension subsidy to school districts and universities – subsidies that let those institutions dole out higher pay, end-of-career salary hikes and pensionable perks that dramatically drive up the cost of pensions.

Reforms can also reduce the state subsidies to local governments – excluding cities with populations below 5,000 – which prop up the nation’s most numerous units of local government and the bureaucracies that run them, saving $1.3 billion.

And reforms can save $500 million, or 10 percent of payroll, by finding efficiencies and eliminating waste in state government.

  1. The budget ignores ways to reduce “automatic spending”

In his address, the governor said many reforms are difficult to undertake because “60 percent of the state’s general revenues … are locked up by statute.”

However, there are many ways to reduce spending on items such as pensions and Medicaid, over and above the more difficult structural reforms the state really needs.

Take pensions, for example. The state can significantly reduce the cost of pensions through legislation that eliminates unnecessary perks such as the accumulation of unpaid sick leave, end-of-career salary spiking, and pension pickups for government workers.

With Medicaid, the state can reduce costs while improving access to care for Illinois’ high-need families by applying more frequent eligibility checks and leveraging competitive bidding and the state’s high volume of purchases to negotiate lower prices for medical equipment and prescription drugs.

Illinois needs a balanced budget and structural reforms

Illinois needs a budget that prioritizes taxpayers over politicians, social services over pensions, and spending reforms over tax hikes.

The governor’s correct starting position on any budget should commit Illinois to living within the state’s $32.7 billion in expected revenues. It’s what the people can afford. The governor would then have to sell this balanced budget to the people of Illinois.

Meanwhile, for those who want to tax the people of Illinois even more, the governor should leave it to others to make that case rather than enabling them.

That’s why the Illinois Policy Institute released a comprehensive plan that, if implemented, eliminates any need for a tax hike.

The plan fills Illinois’ budget hole, provides tax relief to struggling homeowners through a comprehensive property tax reform package, implements pension reforms that begin an end to the state’s pension crisis, and enacts major reforms to state spending.

The bottom line is this: Springfield politicians don’t deserve another penny in new taxes from Illinois families.

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