Despite tax hikes, Illinois fails to balance budget for 19th year in a row

Despite tax hikes, Illinois fails to balance budget for 19th year in a row

Band-Aid fixes and spending-heavy compromises were rampant. And now it’s all coming home to roost.

Republicans and Democrats sang the same song at the Statehouse after rapidly passing the largest budget in state history.

“It’s balanced.”

Unfortunately, watchdogs couldn’t offer much dissent in the moment. Lawmakers passed the 1,581-page document over the course of one weekend. In the absence of independent analysis, which takes more than a couple days to complete on a $40 billion spending plan, political rhetoric was rampant.

It was all eerily familiar.

In 2018, state lawmakers on both sides of the aisle claimed they had balanced the budget. But Illinois Policy Institute analysis had it out of whack by up to $1.5 billion, depending on revenue projections. The truth came out three months later, when the state admitted to potential bond buyers that the fiscal year 2019 budget was out of balance by $1.2 billion.

And this year is no different.

The new budget signed by Gov. J.B. Pritzker June 6 is out of balance by up to $1.3 billion according to Institute analysis, depending again on optimism in growth forecasts.

This means Illinois has not had a balanced state budget for 19 years straight.

And that’s despite more than $1 billion in brand new revenue for the state’s operating budget. That money will come from things like licensing for legalized recreational cannabis, expanding the sales tax to online marketplaces, a new tax on managed care health insurance and more.

It’s easy to forget why this matters. Some Illinoisans have become numb to the new normal.

But unbalanced budgets mean at least one of three things must happen in the future: spending cuts, tax hikes or new debt. You can bet more tax hikes and debt are around the corner to pay off deficit spending.

So why can’t Illinois balance a budget? There are many political reasons for this. But the math points to a simple reality.

Researchers at the Institute of Government and Public Affairs at the University of Illinois did the yeoman’s work of pulling together all the state’s revenues and spending each year from 1998 to 2018.

What their analysis shows is a healthy rise in revenue – a 47% increase over 20 years after adjusting for inflation. That’s plenty of growth to balance the budget each year. But the state’s spending appetite has grown far faster – rising 57% over the same time.

This is why the books won’t balance.

The state has a spending problem. And that’s led to a debt problem, too. Moody’s Investors Service pegs Illinois’ pension debt at more than 600% of state revenues. That’s the highest level of any state in history, according to the ratings agency.

After passing a $45 billion capital plan, a state budget without any significant spending reforms, doubling the state gas tax, hiking lawmaker pay and drawing some Republican votes for it all, Pritzker is already drawing comparisons to former Republican Illinois Gov. “Big” Jim Thompson.

But the path that Thompson, his protégé Jim Edgar and a Democrat-dominated General Assembly blazed throughout the 1980s and 1990s is how Illinois got into this mess.

Band-Aid fixes and spending-heavy compromises were rampant. And now it’s all coming home to roost.

One small example: Both of those former governors currently collect annual state pensions of more than $160,000 annually. That’s largely a product of the automatic, compounding 3% annual pension benefit increases Thompson signed into law in 1989.

Pritzker has refused to tackle that enormous cost-driver through a constitutional amendment. Instead, he and House Speaker Mike Madigan passed a constitutional amendment allowing for a progressive income tax, where rates rise with income. Illinois voters will decide on that question in 2020.

The governor and others have yet to realize that political compromise among special interests is not the same as broad compromise involving ordinary taxpayers. That broad compromise would involve reforms like a constitutional spending cap, which drew bipartisan support in 2018 and 2019. And pension reform.

Until then, beware any talk of balanced budgets.

It’s usually not what it seems.