Illinois residents’ paychecks are taking a permanent hit due to a 32 percent income tax hike included in a budget that became law last week, but a closer look at the spending plan reveals a state budget that is not balanced, may not make a significant dent in the state’s nearly $14.5 billion in unpaid bills and is filled with numerous mistakes and errors that will make it difficult, if not impossible, to enact some parts of the budget.
Budget unbalanced, fraught with errors
Despite a 32 percent increase in income taxes, which Sen. Rezin's did not support, the budget may not significantly reduce the state’s backlog of bills and does nothing to address the unpaid pension liability that restricts that state’s ability to pay for basic services. The state’s mounting pension obligations direct precious resources away from critically-needed investments in capital infrastructure, such as roads and bridges, and Illinois’ intellectual infrastructure, including K-12 schools and the state’s higher education system.
With state spending of approximately $37.6 billion outpacing available revenues estimated at $36.3 billion, it’s estimated the new spending plan leaves Illinois facing a $1.3 billion deficit. This budget hole grows to $2.6 billion when taking into account the $1.3 billion in unpaid bills carried over from the last fiscal year.
Further, despite the $5.5 billion in new tax revenue, at this time there is no guarantee that K-12 schools will open in the fall. The Democrats’ budget effectively holds K-12 schools hostage due to language Speaker Madigan inserted into the budget as part of the Democrats’ ongoing effort to bail-out the fiscally mismanaged Chicago Public Schools system by hundreds of millions of dollars. As a result, until an “evidence-based model” is on the books in Illinois, schools cannot receive their appropriations for the upcoming school year.
A more thorough review of the budget, which was rushed through the process before it was vetted by most lawmakers, legislative staff or the public, also revealed numerous mistakes and errors that will make it difficult—if not impossible—to enact some parts of the budget.
For example, a drafting error strands $215 million in the State Pensions Fund that is intended to provide the General Revenue Fund with relief for the State University Retirement Systems pension payment. In another budget measure, there is no language included to allow state historic sites to use $3 million of the State Parks Fund, and similarly the Environmental Protection Agency is missing the appropriations for local governments’ new Water Revolving Loan programs. Additionally, the budget outlines $51 million in Medicaid liabilities with no corresponding appropriation, and though $17.57 million was directed from the Road Fund for reduced RTA fares, the legislation failed to authorize spending from the Road Fund for this purpose.
There were also numerous issues impacting a number of state agencies’ ability to pay past due bills. In fact, the Department of Corrections will carry almost $500 million in past due bills and interest into the new fiscal year without the ability to pay these obligations. Illinois State Police (ISP) will also carry past due bills into FY18, but the agency will be unable to pay for about $33 million worth of past debt.
In other areas, the Department of Human Services will see underfunding of $14 million at state-operated developmental centers, facilities which serve as residential centers for individuals with developmental disabilities. The Department of Healthcare and Family Services is facing a whopping $900 million hole in its FY18 budget, because the FY17 supplemental appropriation in the budget does not include a GRF deposit into the Healthcare Provider Relief Fund. At least $443 million of this deposit was anticipated to be used to pay approximately $900 million in Medicaid bills in FY18. The budget also fails to identify appropriations for the state’s required contribution as an employer to the unemployment insurance program for FY16 and FY17, a mandatory obligation of $42 million that is currently unfunded in the Democrats’ budget.
Flawed budget not offset by reforms
Notably, the budget was not buttressed by significant structural reforms for which Republican lawmakers have been advocating—such as property tax relief to offset the Democrats’ massive income tax hike.
Republicans stressed that what Illinois really needed was a balanced budget that would have fundamentally placed Illinois on a path toward fiscal integrity into perpetuity—not yet another budget that kicks the can down the road to the next generation.
All four caucuses were engaged in bipartisan, good-faith negotiations, and seemingly close to a break-through balanced budget and reform compromise that responsibly addressed the nearly $15 billion unpaid bill backlog and advanced important structural reforms, such as critical property tax relief for local taxpayers.
However, rather than allow those positive discussions to continue, by Sunday, July 2, the House instead opted to step away from negotiations and advance a massive tax hike without significant cuts, without significant reforms, without fully addressing the backlog of bills, and without any property tax relief to offset the income tax increase.