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Through a Dark Glass: Illinois Budget Picture is Dire and Distorted

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posted on 03.09.2021, 14:51 by David MerrimanDavid Merriman, Richard F. Dye, Nancy Hudspeth
Illinois ended 2011 with a better financial situation than it faced a year earlier. However, the state began the year with a hole so deep that not even a massive tax increase and drastic spending cuts could come close to filling it. In this chapter, we use a carefully constructed model of the Illinois budget and detailed database about past revenue and expenditures to develop projections of future fiscal balance. This analysis delivers what is, perhaps, the headline message from our work: We find that maintaining increased income tax rates after they are scheduled to expire and extreme austerity with respect to spending could bring Illinois into fiscal balance by Fiscal Year 2019. We neither endorse nor reject this scenario but believe that it provides a useful baseline against which alternative fiscal plans can be measured.

Unfortunately, Illinois’ accounting and budgeting practices have not promoted good fiscal behavior and sometimes obscure the nature and extent of its fiscal challenges. Illinois still has about $4 billion in unpaid General Funds bills, and no financial plan to deal with the backlog. 1 A major tax increase in January 2011 brought increased income tax receipts, but federal aid is down because the national stimulus plan has ended. General Funds spending was capped at 2 percent, but Illinois has more than 600 other funds that have no cap on growth. The state comptroller’s website reports the deficits in the General Revenue Fund, but no one officially reports deficits in the non-General Funds.

The good news is that policy solutions to address a budget gap on the order of $10 billion are potentially available. We estimate that if the large increases in income tax rates adopted in January 2011 are not phased out and if the growth in total state spending can be kept down to the consumer price inflation rate, the budget gap could be eliminated within 10 years. The sobering news is there are no quick or easy solutions for Illinois. Bringing Illinois’ budget into balance will impose great political, economic, and human costs for many years to come.


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