Budget stalemate worse than feared

Bill Knight column for Mon., Tues. or Wed., April 11, 12 or 13

Comparing this year’s Illinois state government spending to last year’s, there are highlights – or, LOWlights: State workers’ health-care insurance has 0 percent funding; there’s 1 percent funding for public universities and the community college board, and 3 percent for the Capital Development Board.

It wouldn’t be paranoid to see such choices as punishment from a governor who seems to have little regard for state workers, colleges, and construction projects.

Besides the budget stalemate, bouncing back from an ever-deepening hole is daunting, according to a new analysis by the Fiscal Futures Project, which notes that the deadlock has resulted in continued spending while revenue is down significantly. This convergence of decreased revenue and uncoordinated spending is causing unfair allocations and aggravating an already massive deficit.

The analysis, from the University of Illinois’ nonpartisan Institute of Government and Public Affairs, used Illinois Comptroller data as of December 31 to detail the picture at the Fiscal Year’s halfway mark.

The report – “Consequences of Inaction: The Effects of the Budget Stalemate on Revenue and Spending at the Midpoint of Fiscal Year 2016” – shows that Illinois had revenue of about $30 billion (46 percent of FY15 revenue at this point). Researchers project final revenue for FY16 of about $63.7 billion (a decline of $1.9 billion from FY15). Nevertheless, “the state is allocating expenditures for some categories at rates similar to FY15,” said David Merriman, co-director of the project, “while others are receiving almost nothing.”

The report notes, “In February 2015, Rauner proposed a budget that purported to be balanced but relied on more than $2 billion in savings from a pension reform proposal based on an untested legal theory and the highly implausible assumption that it could survive both legislative scrutiny and legal challenges and be implemented on the first day of the new Fiscal Year. The Democrat-majority General Assembly countered by passing a budget for FY16 that was $4 billion in deficit without new sources of revenue. Governor Rauner vetoed most of the proposed budget, but did sign an appropriations bill for elementary and secondary education.”

Then “the governor announced his willingness to consider new revenue only if the General Assembly passed his business-friendly ‘Turnaround Agenda’,” adds the project, co-authored by Merriman, Richard Dye and Andrew Crosby. “There has been little progress in resolving these issues.”

Responding to complaints, Rauner later signed limited appropriations for state Lottery winners, Motor Fuel Tax disbursements for local governments, and a few small expenditures.

Other spending is on “autopilot” by legal factors – the three C’s: Continuing appropriations (state laws covering such things as pension payments or debt-service obligations); Consent decrees (agreements to provide services to settle lawsuits); and Court orders (obligations imposed by judges).

The analysis shows dwindling revenues (receipts from taxes, fees, federal grants and smaller sources) but enduring expenditures (payments actually being made), and the spending totals $28 billion (about 40 percent of the $70 billion spent last year).

“Comparing all-funds sustainable revenue for FY15 ($65.6 billion) to all-funds spending in FY15 ($69.8 billion), FY15 had a deficit of $4.2 billion,” according to the report. “Projected total sustainable revenue for FY16 is $63.7 billion, but the ‘benchmark’ amount needed to achieve prior year spending levels is $70.3 billion – a deficit of $6.6 billion.”

Besides effects on municipalities and townships, social-service agency clients and college students, the consequences create financial burdens ahead.

“Although Illinois has thus far spent almost nothing on state employee health care, state employees continue to be insured and are undoubtedly accruing expenses for their care,” the analysis says. “Providers simply have not yet been paid. Thus, Illinois is effectively borrowing money from providers and will eventually have to make payments for FY16 that will probably be similar to those in FY15.

“An enormous deficit to start was made much worse by the scheduled drop in income tax rates and the scheduled increase in pension payments.”

To fund state government to meet anticipated needs, cuts would have to be uneven, the analysis shows. First to be paid would be those already receiving some payments. Next would be those with spending authority from a FY16 budget AND the “three C’s.” Last would be those recipients with approval to pay just labor costs.

“It will take more than a handshake, a vote and a signature to restore spending in FY16 to FY15 levels,” the analysts say. “There is a $6.6 billion deficit to deal with. Already months into FY16, it is hard to imagine any new sources of sustainable revenue that could be adopted and cover a gap of this magnitude. That leaves either non-sustainable sources – that is, some form of borrowing that shifts the burden – with interest – of paying for FY16 spending to Illinois taxpayers in future years or [those] huge cuts.”

The 8–page report is online at http://igpa.uillinois.edu/system/files/Consequences-of-Inaction.pdf

Contact Bill at Bill.Knight@hotmail.com; his twice-weekly columns are archived at billknightcolumn.blogspot.com