Let’s change how we make state budgets
The state budget is in a terrible mess. According to the Fiscal Futures Project, Illinois has a growing gap between sustainable revenues and projected spending levels and the largest unfunded pension liability in the nation. However, tax increases, spending cuts and aggressive pension changes alone are not enough to fix Illinois’ problems permanently.
In May 2014, the General Assembly was in turmoil as they debated next year’s budget (FY 2015). They debated whether to extend the previously increased income tax rates and how much they could spend while balancing the budget.
The Fiscal Futures Project (FFP) estimated that Illinois was starting from a deficit of roughly $1 billion in last year’s budget (FY 2014) and that the deficit would steadily deteriorate and reach $14 billion in Fiscal Year 2025. This chronic condition — a structural deficit — predates the recession and constrains our state government’s ability to function properly.
On May 30, 2014, the General Assembly approved the FY 2015 budget. On June 30, Governor Pat Quinn signed the budget into law effective July 1. So, what did the Governor and General Assembly do?
The new budget did not extend the income tax rates that will begin phasing out January 1, 2015 and did not cut spending. As a result, there will not be enough revenue to pay for the operating expenses. Instead, the budget authorizes borrowing from next year’s budget (FY 2016) and shifting revenue from last year’s budget (FY 2014) to cover this year’s operating expenses (FY 2015).
The Governor and the General Assembly adopted a deficit budget and put off the tough decisions to balance the budget. On July 3, the Illinois Supreme Court signaled it will likely declare recently enacted pension reforms as unconstitutional. Kicking the can down the road just got more costly in the long-term in the face of having to redo pension reform. The pressure for a more comprehensive solution to the state budget and pensions will be intense.
As a former state legislator, I have seen the complex budgeting process firsthand and the odds are oftentimes stacked against making sound financial decisions.
We need to fundamentally restructure the way we do budgeting in this state. For too long, complex budgetary processes have obscured a true and full description of how and where the state gets revenue and spends its resources. This has allowed — intentionally or not — the state to overpromise public goods and services to its residents while failing to fund them adequately.
I believe we can help solve the budget mess by improving the budgetary process. The following ideas for statutory change are recommendations developed by the Fiscal Futures Project.
1) Clarity of process. We should clearly spell out the timetable for each step of the budget process and the parties responsible.
2) Use long-term budgeting. We need a budget process that makes it possible to develop longer-term budget plans for the people of Illinois by adopting state budgets for at least two years instead of year-to-year. We need to establish priorities in the context of multi-year forecasts of sustainable revenues for a broad-based and consistently defined budget.
3) Open up the budget process. We should open up the budget process for independent review and analysis. We need accurate, easily understood and consistent budget reports without political bias. The budget reports should be ready and accessible for independent review and analysis before the budget becomes law.
4) Consolidate reporting of general and special funds. We should stop limiting our focus on so-called general revenue funds (GRF) budgeting, rather we should consolidate reporting of general and special funds. There would be less confusion than now exists from fund transfers or from shifting expenditure items into and out of the general funds budget from one year to the next.
By making the state budget process more open, reliable and straightforward, good legislators will be able to do what is best for people of Illinois. Moreover, as the legislature and Governor balance the budget, it will bring back confidence in our state government and make it better for democracy. Into the bargain, the state of Illinois will be more likely to return to sound fiscal policy in the long term.