Will Illinois pass a budget this year?

Will Illinois pass a budget this year?

History shows lawmakers prefer to avoid tough but necessary choices.

Illinois is at a crossroads. The state’s credit rating is just one notch above junk status. And if spending levels remain constant, the upcoming budget will have an estimated structural deficit of over $2 billion, according to the Governor’s Office of Management and Budget, or GOMB.

With the current state budget set to expire this summer, the question comes to mind: Will Illinois lawmakers pass a budget this year?

No one can predict with certainty what politicians will do. The rules that govern the Illinois House of Representatives give House Speaker Mike Madigan, the longest-serving state legislative leader in U.S. history, almost complete control over the legislative process in the House.

However, there are a limited set of likely options facing the General Assembly as members work on passing a budget before the end of the spring legislative session on May 31. Lawmakers might pick from any of the following:

  1. Pass an unbalanced and unconstitutional budget, which Gov. Bruce Rauner will almost certainly veto
  2. Fail to send a budget to the governor for his signature
  3. Pass a six-month “stopgap” budget that kicks the can down the road on tough decisions until after the 2018 general election
  4. For the first time in nearly two decades, negotiate in good faith to pass a fiscally responsible full-year budget that taxpayers can afford

Unfortunately, history shows that Illinois politicians tend to avoid making tough choices that could be controversial heading into an election year.

A history of kicking the can during election years

In spring 2014, lawmakers were facing a situation similar to what they face today. Former Gov. Pat Quinn was up for re-election, facing off against Rauner in the fall. The bill backlog then was about $7 billion. Today it stands at $8.5 billion, according to the Illinois Comptroller.

From the time Quinn took office in 2009 until the start of the 2015 fiscal year, Illinois experienced 13 credit downgrades from ratings agencies and had the lowest credit rating in the nation. Illinois bonds have been downgraded even further since then and are now just one notch above noninvestment-grade, or “junk,” status. According to Moody’s Investors Service, the pension debt has grown to $250 billion from about $200 billion in 2013-2014.

Given the similarities between the situation facing lawmakers in spring 2018 and spring 2014, it’s worth looking at what steps lawmakers took to address Illinois’ financial troubles then.

Unfortunately, those steps weren’t pretty.

In 2014, lawmakers passed a full-year budget that relied on tax revenues from their 2011 temporary income tax hike. This was despite the fact that they knew the tax hike would expire in January 2015, halfway through the fiscal year. This irresponsible planning, along with intentionally underfunding some agencies, led the Chicago Tribune to claim Quinn and state lawmakers had “booby-trapped” Illinois.

Essentially, lawmakers made promises they knew they couldn’t keep. This would be equivalent to a homeowner taking on a mortgage for a new home knowing that his employer is about to cut his salary to the point where he can’t afford it.

When Rauner was sworn into office in January 2015, he immediately had to grapple with a $1.6 billion budget hole left by the General Assembly’s irresponsible full-year-spending, half-year-funding plan.

So why didn’t lawmakers cut spending to match incoming revenue or make the income tax hike permanent? Many have speculated that lawmakers wanted to push off the tough choices until after the 2014 election, which Quinn expected to win. Quinn had agencies keep spending money they didn’t have despite knowing the problems it would create. Lawmakers played along. Both spending cuts and tax increases are politically risky moves heading into an election.

This history of kicking the can in election years has some anticipating that the Democrat-controlled General Assembly might pass a six-month “stopgap” budget to put off the hard choices once again. In fact, that’s exactly what lawmakers did during the 2016 campaign season.

A stopgap budget isn’t truly a budget at all and would contribute to the “persistent crisis-like budget environment” that Standard & Poor’s cited in its recent negative credit rating on Illinois bonds.

An unnecessary crisis made problems worse

Illinois’ budget problems are at least as bad today as they were in 2014. From spring of 2015 until the summer of 2017, lawmakers and the governor failed to agree on a full-year budget. While the governor vetoed the fiscal year 2016 budget for unconstitutionally being over $4 billion out of balance, the General Assembly never even sent a budget to his desk for fiscal year 2017 by the end of session deadline.

Just after the budget impasse, Illinois’ bill backlog grew to a record-setting $16.4 billion.

The impasse was finally resolved when the General Assembly passed the largest permanent income tax hike in Illinois history, over $5 billion in new taxes, over the governor’s veto. Despite this massive tax increase, the fiscal year 2018 spending plan was immediately $1.7 billion out of balance. The unpaid bill backlog was cut in half, but not eliminated, only by taking on an additional $6 billion in bond debt – not through structural spending reform.

Illinois residents can’t afford another tax hike

Illinois taxpayers already shoulder one of the highest state and local tax burdens in the country. Combined with a sluggish economy, taxes could be driving the outmigration crisis in Illinois. In fact, survey data show taxes are the No. 1 reason cited for Illinoisans wanting to leave the state.

Moreover, the massive tax hike in 2017 did not solve any of Illinois’ structural budget problems. According to reporting by the State Journal-Register, the Illinois Department of Corrections needs $420 million more for fiscal year 2018 just to make it through the end of the budget year. That $420 million is part of a total of $1.1 billion in “supplemental appropriations,” or additional current year spending authority, the governor’s office has requested.

Thankfully, taxpayers scored a victory this legislative session when a resolution sponsored by all but one Republican House member effectively killed the chances of a graduated, or progressive, income tax amendment. Progressive taxes are often sold as a way to make the rich pay their “fair share,” but are truly Trojan horses for middle class tax hikes.

The way forward

While history shows a disturbing pattern of lawmakers shirking responsibility for the budget in an election year, that does not have to be the case for the fiscal year 2019 budget. Elected officials can choose not to follow the reckless and shortsighted practices of the past and to honor their responsibility to their constituents.

Democratic candidate for governor J.B. Pritzker has said he wants a full year budget, according to the Chicago Tribune. Rauner also has asked for a full year budget, calling it a top priority. That means regardless of who wins the 2018 gubernatorial election in Illinois, lawmakers should pass a responsible full year budget now. Anything less will be a betrayal of their constituents’ trust and send Illinois further into a financial death spiral, meaning debt will grow while bond ratings fall and the tax base shrinks, making the debt progressively harder to pay off.

Thankfully, the four legislative leaders and the governor have at least agreed to pass a revenue estimate this year. The General Assembly has not passed a revenue estimate since 2013. In other words, lawmakers have been passing spending plans without agreeing beforehand how much they have to spend.

Still, passing a revenue estimate is no guarantee that budget planning will be accurate or stable. Two agencies are charged with projecting revenue for the coming budget year. A legislative estimate comes from the Commission on Government Forecasting and Accountability, or COGFA. An executive estimate comes from GOMB.

The General Assembly relies on the COGFA and GOMB estimates when they adopt their own revenue estimate as part of the state budget. But under generally accepted standards, COGFA estimates have been accurate in only four of the last 10 years and GOMB estimates have been accurate in only two of the last 10.

The solutions to Illinois’ budget woes are clear.

First, lawmakers should pass a constitutional spending cap to protect taxpayers and add stability to the budget process. A spending cap would give lawmakers a reliable “magic number” in place of unreliable revenue estimates. Proposed spending cap amendments are currently enjoying bipartisan support in the House and Senate. Next, Illinois needs to address the cost-drivers of our out-of-control spending. That means tackling meaningful pension reform, rightsizing state employee benefits and making other structural changes.

Taxpayers should demand their lawmakers do the right thing. Members of the General Assembly should buck the trend of placing personal campaign motives above the future of Illinois and adopt a fiscally responsible full year budget now.

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