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 Illinois hasn’t had a truly balanced budget for more than 15
years. And state spending has far outpaced growth in residents’ incomes. These
are two reasons why Illinois is in desperate need of a spending cap that ensures
residents are getting a state government they can afford.
But there’s another key reason Illinoisans need a spending cap: lawmakers can’t
reliably figure out how much money they have to spend each year, with state
officials consistently producing revenue projections that don’t match one
another or the actual amount of revenue the state ends up generating.
This level of uncertainty – and the opportunity for other policy considerations
to enter the basic budgeting process – has lead to busted state budgets year
after year.
Revenue estimates and Illinois’ “balanced budget” requirement
The Illinois Constitution already requires a balanced budget. By law, the
General Assembly is not allowed to appropriate more money than is estimated to
be available for the budget year. Still, the state of Illinois has not had a
truly balanced budget since at least 2001. A report from Thomas Walstrum at the
Federal Reserve Bank of Chicago found that combined state and local spending in
Illinois has been higher than combined revenues since the late 1980s. In other
words, Illinois governments have been piling on debt for decades.
To understand why the constitutional balanced budget requirement is ineffective,
it’s important to understand how the budget process works in Illinois.
State law currently requires two separate entities to estimate revenue for the
coming year. The executive estimate comes from the Governor’s Office of
Management and Budget, or GOMB, and is used by the governor in his annual budget
proposal. A second estimate comes from the legislative Commission on Government
Forecasting and Accountability, or COGFA. Unfortunately, these two estimates
rarely match either each other or the amount of revenue that actually ends up
coming in.
In fiscal year 2016, COGFA and GOMB both overestimated the
amount of money the state would have to spend by more than $1.3 billion, or
nearly 4.5 percent of actual revenue. For the median family in Illinois with two
kids, making around $73,700 according to the U.S. Census Bureau, this would be
equivalent to thinking they have $3,300 more than they actually do for their
annual budget. Illinois families could not get by with that kind of budget
uncertainty, but that’s the way policymakers have been doing business in
Illinois for decades.
In fact, the General Assembly has not even bothered to adopt a revenue estimate
since 2015, even though Illinois law requires them to do so. The General
Assembly’s estimate is usually based on the GOMB estimate, the COGFA estimate or
an average of the two. The fact that lawmakers have been spending money without
figuring out how much they have beforehand helps explain why the fiscal year
2018 budget was initially $1.7 billion out of balance, even after a record $5
billion tax increase.
 Both COGFA and GOMB are likely doing their best. The problem is that revenue
estimation relies on a complex set of unpredictable economic variables.
According to the National Association of State Budget Officers, 33 states
underestimated revenue in 2017, 13 overestimated revenue, and only four were
reasonably on target.
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Motivated math
In a perfect world, estimating revenues for the coming year would be
a purely mathematical process free from politics. Both GOMB and
COGFA use the same econometric firms when developing their
forecasts. The reason the final estimates differ is due to the way
these offices choose to analyze the data. Differences may also be
grounded in other policy considerations, a possibility which looks
likely when examining the largest overestimations and
underestimations over the last 10 years.
For his 2013 budget proposal, while advocating for
extending or making permanent the 2011 income tax increase, former
Gov. Pat Quinn went so far as to propose two budgets to the General
Assembly: a “recommended” budget including an extension of the tax
increase and a “not recommended” budget that purported to show the
deep cuts that would be necessary if the tax increase were allowed
to expire.
In other words, an underestimation of revenue from his budget office
would suit Quinn’s policy goals by making an extension of the tax
increase seem necessary. Indeed, his fiscal year 2012 and 2013
revenue estimates were short by about $2 billion and $1 billion,
respectively.[1]
In 2016, newly elected Gov. Bruce Rauner was trying to balance the
state budget without advocating for tax increases. The more revenue
the state was expected to bring in, the easier this task would be.
Sure enough, GOMB estimates for fiscal year 2016 and 2017
overestimated revenue by about $1.3 billion each.
Only the analysts and decision-makers within the governor’s office
can say for sure what their motivations were for using different
assumptions in their revenue forecasting, but from the outside
looking in, the estimates seem to conveniently line up with each
governor’s policy goals.
Certainty, security for taxpayers
Illinoisans deserve balanced budgets. Every year, lawmakers spend
more than they take in, which means another round of borrowing or
tax increases. But lawmakers cannot be expected to reliably balance
the budget if they cannot predict how much money they have to spend.
Thankfully, a constitutional spending cap would make the math
significantly easier for them. Under the spending cap constitutional
amendments currently enjoying bipartisan support in the General
Assembly, lawmakers would simply grow spending each year at the
average rate of per capita growth in Illinois’ economy over the past
10 years, giving them a definite dollar amount to spend each year.
The budget certainty this spending cap would provide would help put
Illinois back on the path to financial stability while protecting
taxpayers.
[1] For most fiscal years, both GOMB estimates and COGFA estimates
are taken from the COGFA annual budget summary to ensure an
apples-to-apples comparison. The fiscal year 2012 and fiscal year
2013 GOMB estimates are instead taken directly from the GOMB
proposed operating budgets, because COGFA did not include
comparisons for these years. COGFA typically makes adjustments to
GOMB estimates for comparison. Differences in the treatment of
certain categories may account for some of the difference from
actual revenues.
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