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 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:
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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.
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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.
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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.
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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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