The constitutional requirement for a balanced budget is not as strict as you might think.
Commentary — “Today I veto House Bill 4146 from the 99th General Assembly in order to protect Illinois taxpayers from an unbalanced and therefore unconstitutional budget,” Gov. Bruce Rauner wrote in a veto message on June 25, 2015. “A balanced budget is not just good practice, it is a constitutional requirement... Although the General Assembly has chosen to disregard its constitutional obligation, as Governor I cannot approve a budget that violates this fundamental principle.”
Rejecting a score of other budget bills, the governor echoed the same rationale laid out in his veto message of House Bill 4146, the Fiscal Year 2016 budget for the Illinois Student Assistance Commission, including some $390 million for the Monetary Award Program, the MAP grants that help low-income students pay college costs. Taken together, Rauner said, the vetoed measures authorized spending $4 billion more from the state’s main checkbook account in the current budget year than the state is expected to collect.
The Democratic majorities that approved the budget in late May didn’t dispute the governor’s characterization; instead, they freely admitted the general funds outgo didn’t match the expected income.
“We will publicly acknowledge that we don’t have the money to pay for this budget, that there will be a shortfall in this budget, but we’re prepared to work with the Governor, to negotiate with the Governor to raise the money so that there’s a balanced budget,” said House Speaker Michael Madigan before lawmakers sent the package of spending bills to Rauner.
But Madigan and Senate President John Cullerton noted — correctly — that the proposed FY 2016 budget the governor unveiled in February was not balanced, either, as required by new budgeting rules enacted a few years ago. Under the new rules, a governor must propose a budget in which both spending and revenue reflect existing law, not changes the governor would like lawmakers to enact. Thus Rauner could not request $2.2 billion less for pensions because he intended to cut benefits. Nor could he boost revenues by more than $600 million by shorting cities and counties their share of state income tax collections. Absent such gimmicks, Rauner’s spending plan also was out of whack, and by the governor’s logic, equally unconstitutional.
So in reality, neither the governor nor the Democrats offered a balanced budget. But were the rival spending blueprints also unconstitutional, as the governor labeled the Democratic legislation he vetoed?
The obvious response is: “Of course, the Constitution requires a balanced budget. Everyone knows that, right?” In reality, though, the issue is not as clear-cut as one might assume.
Consider the actual language of Section 2 of the Finance Article:
a) The Governor shall prepare and submit to the General Assembly, at a time prescribed by law, a State budget for the ensuing fiscal year ... Proposed expenditures shall not exceed funds estimated to be available for the fiscal year as shown in the budget.
b) 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.
Notice the qualifier in both paragraphs, funds “estimated,” first by the governor and then by the General Assembly? That little word essentially negates the balanced budget mandate, as over the years governors and legislators have massaged revenue estimates to accommodate their spending wishes. And sometimes even good-faith revenue projections have been derailed by unpredictable events. Think the September, 2011 terrorist attacks or the Great Recession, both of which tanked state tax collections.
From the spending side, the Constitution does not require the legislature to appropriate enough money in a given year to cover the full cost of all state programs during that year. For years, the annual Medicaid appropriation was less than the actual cost of providing health care to low-income folks, meaning providers had to wait months to be paid from the following year’s budget. Last budget year, Democrats intentionally underfunded certain programs, most notably subsidized child care, so that the FY 2015 bottom line would fit within the official revenue estimate, taking into account an anticipated $4 billion shortfall from the scheduled rollback of the temporary income tax increase.
Even so and ironically enough, since the new budgeting rules went into effect, the legislature’s Democratic majorities have cobbled together spending plans in which spending from the state’s main checkbook account, the general funds, has not exceeded the official revenue estimate for the given year.
If that’s the case, why does the state routinely end the budget year with more bills to pay than money in the bank? Precisely because of the leftover bills from the prior year, which must be paid from this year’s revenues. Starting a fiscal year with $3 billion in old bills, for example, means the state has to use the first $3 billion in new revenue to pay last year’s outstanding costs. So even though current year spending aligns with current year revenues, the red ink is ongoing, averaging about $4 billion over the last five years.
In fact, the state has not had a general funds balanced budget since FY 2001, when the fiscal year ended with $1.2 billion in general funds to cover $900 million in outstanding bills paid during the lapse period, a two-month window following the budget year. By the same yardstick — the June 30 available balance minus lapse period spending — Illinois has been in the black only 15 times since 1970, when the state adopted its current practice of annual budgets. Going 15 for 45 might be Hall of Fame numbers for a big-leaguer ballplayer, but as a state financial statistic, 33 percent would seem to belie the notion of a balanced budget mandate in the Constitution.
But — and it’s a big caveat — the Constitution does not refer specifically to appropriations from the general funds. Rather, the charter simply says “funds,” of which the state has more than 700 besides the general funds. Some are federal grants; others are special state accounts. Some hold billions of dollars, such as the debt service accounts used to pay bondholders, while others are in the hundreds of dollars. Appropriations from special funds accounted for some $40 billion in FY 2015, about 55 percent of the $70 billion budget.
So how well has the state done in balancing its all-funds budget over the years? Quite well, as a matter of fact. While the general funds budget has been in the red since 2002, during that time the all-funds budget finished in the black in all but two years, 2009 and 2010, in the wake of the Great Recession, according to budgetary reports from the state comptroller. In FY 2014, for example, the most recent year for which complete data is available, the all-funds balance was about $4 billion, while the general funds were $3.9 billion in the hole.
The bottom line is clear. Despite the popular belief shared by the governor and much of the public that the Constitution requires the general funds budget to be balanced, in reality the actual wording seems more a goal than an absolute.
For a final word on the subject, let’s turn to the delegates who drafted the 1970 constitution, several of whom had legislative experience.
As referenced in a similar Illinois Issues column five years ago, during floor debate on the Finance Article Delegate Louis Bottino, a former two-term representative, noted that one of the ways to present a balanced budget “is to take such things as pensions and not appropriate the amount that is necessary for the state to finance its share.” Bottino was not particularly prescient; shorting the pension systems was common practice back then, too.
He asked Delegate Dawn Clark Netsch, who was presenting the work of the committee that fashioned the new article consider, if the group had considered such a tactic.
“You are right that there is no way to enforce a standard of absolute intellectual integrity on all of the people who are involved in the state financial management if they choose not to respond that way,” responded Netsch, who as state comptroller in the early 1990s had to deal with bills piling up with no money to pay them.
“We have freely admitted among ourselves that you can balance a budget by simply raising your estimates of what the various taxes will bring in,” she told Bottino. “I am not sure the Constitution can really deal with that. In fact, I am sure it cannot really deal with that kind of problem.”
Still a valid assessment, 45 years later.
While balancing the general funds budget is not a constitutional mandate, it’s a laudable goal that makes eminent good sense both now — four months into FY 2016 with no budget, balanced or otherwise — and going forward. Rauner ought to scale back his union-busting demands and the Democratic leaders ought to embrace reasonable changes in workers’ compensation and civil lawsuit procedures. Then both sides need to craft a real budget for the current fiscal year, one in which realistic general funds revenue estimates match actual anticipated general funds spending, balanced through a combination of tax hikes and program cuts.
One hopes November’s scheduled summit meeting among Rauner and legislative leaders of both parties provides the venue for a much-needed budget agreement. As this columnist observed a couple of months ago, it's not rocket science, but rather statesmanship, with both sides setting aside partisan warfare in the best interests of everyday Illinoisans.
Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois Springfield. He has been writing his Ends and Means column for Illinois Issues since 1984.