Lots Of People Think They Can Solve Illinois' Budget Mess—But It's Not That Easy
This story was published with Crain's Chicago Business.
Ever since the Great Recession, a wave of fantasy governing has swept across the nation as news organizations and advocacy groups invite anyone and everyone to go online and try their hand at balancing their state’s budget.
Eliminate programs, cut the workforce, slash pensions, root out waste and corruption – have at it, because the people elected to make those decisions can’t figure it out. Thinking of you, Springfield.
“Change how money is spent,” implored one online budget calculator in Colorado.
“Try your hand at closing Ohio’s $8 billion gap,” said another.
And this from New Jersey: “The Star-Ledger is going to let you build a budget that is entirely clean of political influence, with a few clicks of your mouse,” the Newark daily once drolly proclaimed.
Illinois appears ripe for such a game, as state lawmakers and Gov. Bruce Rauner head into the homestretch of yet another legislative session with no consensus on how to end more than 22 months of budget gridlock--a national record for futility.
Just imagine amateur Illinois budgeteers weighing in on the value of the state tax break for semen used in the artificial insemination of livestock, or the sales tax exemption for sacramental wine. Those are two of the tiniest of some 270 such breaks that collectively cost the state $9.4 billion in fiscal 2015—enough to fill the deepest of budget holes.
Livestock tax breaks notwithstanding, sacred cows abound in the real life game of budget making. And that is a critical reason why politicians in this fiscal basket case of a state are having such trouble agreeing on a budget plan that calls for more taxes or less spending or some combination of both.
Perhaps the biggest impediment to an agreement is that the conventional stereotype of Illinois government as marbled with big ticket, easily cuttable fat defies reality.
On a per capita basis, no state government employs fewer people than Illinois. No state picks up a smaller percentage of local education bills. Per patient Medicaid spending is well below national norms. And the pile of debt now owed to state administed public pension systems is staggering.
“There’s not a lot of room to easily maneuver,” said James Nowlan, a former Republican state legislator and co-author of “Fixing Illinois: Politics and Policy in the Prairie State." “You can’t do as much as you think you can.”
Illinois is far from the only state staring at blood-red balance sheets. The Kansas legislature, for example, is caught between a horrible balance sheet and a defiantly supply-side Republican governor as it struggles to crawl out of a self-dug deficit crater from huge tax cuts gone bad.
“If there was ever a time for serious budget-cutters to shine, this is it,” Duane Goossen, a former Kansas budget director for Republican and Democratic governors wrote in a recent blog post. “Put your proposals out on the table and explain them. But if you are only able to talk in generalities, don’t waste everyone’s time.”
The Illinois corollary to that is a standoff between Republican Rauner and Democratic House Speaker Michael Madigan, neither of whom seems willing to get down to politically challenging budget balancing specifics. Caught in the crossfire are the state’s neediest citizens, cash-starved public universities and state vendors who to date are owed more than $14 billion in unpaid bills, according to the Illinois Comptroller.
Also like Kansas, Illinois shares a taste for temporary budget fixes and an aversion to longer-term, structural solutions. Indeed, the core of Illinois’ budget crisis is rooted in a $130 billion debt owed to state employee pension systems after leaders from both parties spent decades diverting money from retirement funds to more voter pleasing purposes.
The biggest components of the budget – state employee costs, schools, health care – don’t provide obvious cost savings that would make a substantial dent in the deficit. The state employee workforce of 62,000 in 2016 is down from 84,000 in 2002, a 26 percent reduction, according to the Comptroller’s office. Census data show Illinois has the fewest number of state employees per capita, among the states.
The Medicaid budget, the largest and fastest-growing piece of the Illinois spending document, stood at $17 billion in fiscal 2015, according to the Kaiser Family Foundation, behind Ohio, Florida, Pennsylvania, Texas, New York and California. But the amount Illinois spends per Medicaid enrollee stands at about $4,500, below the national average by about $1,400 a patient, Kaiser reports.
And future Medicaid spending, both in Illinois and elsewhere, could be directly affected by congressional efforts to repeal the Affordable Care Act.
In the funding of public schools, no state spends less in support of K-12 education than Illinois, providing 26 percent of funds for school operations in the 2013-2014 fiscal year, according to the National Center for Education Statistics. The average among the states is 20 percentage points higher 46 percent. Cutting state support would increase pressure on local governments to boost their reliance on the property tax.
Talk of eliminating tax breaks is a popular mainstay in election campaigns, but political reality sets in when governing begins. “They rarely go away,” said Dan Long, executive director of the Illinois Commission on Government Forecasting and Accountability, a bipartisan fiscal forecasting arm of the legislature.
Most existing breaks involve exemptions from income and sales taxes, and the costs to the state treasury tripled between 1993 and 2015, according to the Comptroller.
Unlike most other states, Illinois does not tax retirement income such as Social Security or pensions. It also imposes a steep sales tax discount on food, drugs and medical appliances. Together with standard deduction from the state income tax, such breaks cost Illinois $5 billion during fiscal 2015, the latest year for which a breakdown was available.
The retirement income break alone cost $2.2 billion, eight times more than it did in 1993. Only Mississippi and Pennsylvania, among those states with income taxes, provide similar exemptions for retiree income.
The Civic Federation, the Chicago based non-partisan fiscal watchdog, proposed a sweeping budget balancing plan earlier this year that called for a significant scaling back of the retirement income tax break so it would only apply to Social Security benefits.
“The state can no longer afford to provide this generous exemption, which is out of line with most other states,” the organization declared at the time.
That proposal is already a dead letter. Rauner nixed the idea in his February budget presentation, as well as another one to increase taxes on food and drugs. And the General Assembly, Republicans and Democrats alike, aren’t likely to take the lead in backing a tax hike that would almost certainly antagonize seniors—a key voting bloc.
“Once you give the public something it’s almost impossible to take it back,” Nowlan said, echoing the political difficulty of the Republican-led effort to repeal Obamacare. Some tax breaks now in effect in Illinois date back to the 1930s.
And if taking something back is a non-starter, Nowlan has alternatives to consider. He teaches a class at Bradley University in Peoria in which he asks students to play what he calls the “Illinois Budget Game.” The instructions, printed on a single-page, ask students to choose from a list of spending reductions, including cuts in education and Medicaid, and a list of revenue increases.
“Select among the following options,” the test says, without bothering to state the obvious: They’re all bad.