End and Means: Budget is Constitutionally Balanced but Full of Flaws

Jul 1, 2014

"The biggest winners here in this session were the taxpayers, who were spared the extension of the income tax."

—Senate Minority Leader Christine Radogno

 

Charles N. Wheeler III
Credit WUIS/Illinois Issues

With all due respect to the good senator from Lemont, Illinoisans may have won a Pyrrhic victory when lawmakers adjourned their spring session without voting to keep income tax rates at their current levels past their scheduled January 1 sunset.

Unwilling to vote to keep tax rates where they are or to cut spending to cover a projected $2.1 billion revenue loss when they roll back, the legislature’s majority Democrats instead cobbled together a Fiscal Year 2015 budget that relies heavily on time-tested gimmicks to get past the November election, but at the cost of even greater fiscal problems down the road.

The Democrats’ plan builds one-time revenues, most notably $650 million to be borrowed from other funds, into the spending base sustained by the state’s checkbook account. Any borrowing has to be repaid, with interest, within 18 months, so not only will next year’s budget makers have to figure out how to keep paying for ongoing expenses covered by the borrowed funds, they’ll also likely have to worry about starting to pay the money back. Thus, today’s $650 million prop becomes tomorrow’s $1.3 billion problem.

Similarly, when FY ’14 revenues came in some $1.2 billion stronger than projected at the start of the budget year, Democrats could have used the windfall to reduce the state’s backlog of old bills — roughly $3 billion in early June. Some $100 million was earmarked to cover higher-than-anticipated FY 14 group health insurance claims and another $50 million went toward the $112 million in back wages owed union employees. But the largest chunk, $600 million, was allocated to pay for Medicaid claims in the new fiscal year — once again building one-time revenues into the spending base.

And while Democratic leaders described the plan as a “maintenance” budget because it held flat operating budgets for almost all state agencies at last year’s levels, in reality agency directors will have to struggle with the same dollars to meet rising costs like contractual pay raises for union workers and court-ordered caseload reductions for human services caseworkers.

In fact, the most notable increase in the FY ’15 spending plan was an additional $80 million for general state aid, the state’s main grant program to local public schools — a boost needed so that districts would continue to get 89 percent of what they’re entitled to under the funding formula, the same proration as in fiscal 2014.

Meanwhile, the bill backlog is likely to grow by $2 billion or more in FY ’15, reversing the significant gains the state has made in winnowing down its debt in recent years.

Gov. Pat Quinn was not pleased.

“The General Assembly sent me an incomplete budget plan that does not pay down the bills, but instead postpones tough decisions,” he says. “I will do my job. I will work to minimize the impact of cuts in vital services while continuing to cut waste and maintain our hard-won fiscal gains.”

About the only good thing that can be said about the new budget, aside from the political benefit presumably gained by kicking the can down the road yet again, is that it’s balanced, as required by the Constitution, Republican rhetoric and editorial writers’ fulminations to the contrary.

Consider what the state Constitution actually says in Article VIII, Section 2, not what the critics assume:

“The General Assembly by law shall make appropriations for all expenditures of public funds by the State. Appropriations for a fiscal year shall not exceed funds estimated by the General Assembly to be available during that year.” (Emphasis added.)

For all its shortcomings — and they are legion — the Democrats’ FY ’15 budget plan does not appropriate more dollars than the $35.4 billion general funds estimate detailed in the joint resolution both the House and the Senate adopted on May 30. Thus, the spending blueprint meets the strict language of the Constitution, which admittedly does not address, for example, old bills left over from years when actual revenues fell short of estimates, or times when lawmakers deliberately chose not to set aside as much money as they knew would be needed for particular programs.

The outlook is even grimmer for the following budget year, FY 2016, which will challenge whoever is elected governor and the new General Assembly next spring. In addition to the $1-billion-plus hole created by using one-time revenues in the FY ’15 base, income tax revenues will be down another $2.1 billion, according to legislative forecasters, as the lower tax rates are in place for the entire year.

The pressure could be eased if the reductions to public employee pension benefits approved last December survive an ongoing constitutional challenge. The deep benefit cuts are projected to save the state some $1.2 billion in contributions in FY 16. If the courts toss the law out, a strong possibility, the state instead likely would have to kick in another $200 million or so to the retirement kitty.

Given the dire outlook, one might say it’s a sure thing Democrats will come back in January and make the current rates permanent, retroactively to New Year’s Day. House Speaker Michael Madigan and Senate President John Cullerton, both Chicago Democrats, hinted that would be the case.

“I plan to work into the summer on the budget and when we get into the fall and into January, I’ll assess the situation at the time,” said Madigan.

“We will have to bring revenues in line with our growing liabilities,” noted Cullerton. “While a vote on our tax rates has been deferred, rising costs and pressures will force the issue at a later date.”

But what if Republican Bruce Rauner is elected over Quinn? Presumably, by then the GOP hopeful will have revealed the budget plan he’s been working on for more than a year — perhaps coordinates of a heretofore undiscovered diamond mine underneath the abandoned Tamms prison in deep southern Illinois?

Under the inaugural calendar laid out in the Constitution, Rauner would take office on January 12, a Monday, two days before the 99th General Assembly is seated on Wednesday, January 14. Under that scenario, would Democrats use the final days of the old legislature to tackle the state’s financial problems and thus make things a whole lot easier for Rauner? Would some Republican lawmakers — consistent “no” votes on every budget plan the Democrats trotted out this spring — feel obliged to help out their new chief executive? If legislation to reinstate the expired tax rates — or enact some other revenue measures — were approved, would the new governor sign it to simplify greatly his task of proposing a spending plan for FY ’16?

Plenty of what-ifs make for tantalizing speculation, but one thing seems clear:

“We have won the battle, but we haven’t won the war,” said Radogno.

Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois at Springfield.

Illinois Issues, July/August 2014