• Illinois: Uncertainty Surrounds this Year’s Budget Process
  • July 15, 2015 | Authors: David H. Godenswager; David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • The Prairie State’s new fiscal year started on July 1, 2015, without a budget. The Illinois Policy, an independent research and education organization wants to know what happens next. However, no one really knows, beyond the fact that without a budget, Illinois cannot spend any money on programs that require an annual appropriation, including most state programs and services. Education is one such program, as are Medicaid, addiction and child-care services, the senior meal program, parks, museums, and casinos.

    For certain critical matters that are subject to annual appropriations, there is a work-around. For example, with respect to public education, on June 24, 2015, Governor Rauner signed House Bill 3763, authorizing the necessary amounts to ensure that public schools are funded in fiscal year 2016. Consequently, schools will be open for the upcoming academic year even if lawmakers fail to adopt a balanced budget. The State Journal Register explained that HB 3763 also authorized funding for early childhood education programs, bilingual education, and required payments to the downstate teacher pension system.

    Things like pensions and debt payments are continuing appropriations, so are not at risk in the current budget battle. And local government operations will continue to receive their share of state income, sales, and motor-fuel taxes.

    Illinois Policy noted that the current impasse is the result of a budget plan in which spending exceeds the 2016 revenue estimate by approximately $4 billion. This is nothing new for Illinois. In a January 2015 fact sheet titled Apocalypse Now? The Consequences of Pay-Later Budgeting in Illinois: Updated Projections from IGPA’s Fiscal Futures Mode, the Institute of Government and Public Affairs (IGPA), a public policy research organization at the University of Illinois, observed that Illinois has been spending more than it can support with viable revenue sources for years. The “IOUs” that the state has been using to sustain itself - in the form of bonds, unpaid bills, unfunded liabilities for pensions and retiree healthcare - generate interest obligations that crowd out what Illinois can spend on other priorities in the future. Indeed, the projected deficit is $9 billion in fiscal year 2016, and without policy changes, $14 billion in fiscal year 2026.

    IGPA notes that this leaves Illinois with few good choices to eliminate deficit spending. For instance, an across-the-board increase on all taxes and fees would need to be more than 25 percent. Bringing back the 2011-2014 tax rates on personal and corporate incomes will only close about one-half of the projected gap. Borrowing, with its inherent interest costs, will only exacerbate the problem by creating more debt. Spending cuts would need to be very steep, more than 20 percent, and on crucial services to eliminate the deficit.

    Some painful combination of the above, along with changes in awareness, expectations, and policies, plus several years of time, is the only way to solve Illinois’ fiscal problems, opines the IPGA.