Shaw: Three Steps to Fix Illinois' Broken Budget Process
BGA President & CEO Andy Shaw writes a bi-weekly column for Crain's Chicago Business.
Another legislative session is under way in Springfield, and with it another “Battle of the Budget.” Governor Bruce Rauner fired the first shot with his latest tax and spending blueprint, and critics in and out of government blasted back with their objections.
This is also an election year, so the politics of the fight may be as toxic as the stalemate that marked most of Rauner’s first term. Many of the disputes will be about priorities—Rauner’s and his challengers in both parties—but candidates will also be launching salvos over numbers: Whose revenue and spending estimates are accurate and whose are bogus?
News outlets and watchdogs will try to separate fact from fiction—at the Better Government Association we use the PolitiFact Illinois tool—but it’s hard to reach consensus, partly because data is viewed through the tinted lens of partisan politics, and also because the budget process, in the eyes of multiple fiscal experts, is objectively flawed: A case study in worst practices.
Danish Murtaza, a talented young member of our BGA policy team, recently took a deep dive into Illinois’ approach to budgeting, and his blog on potential reforms is must reading for denizens under the Dome in Springfield.
Step One, according to Murtaza’s analysis, is to implement “consensus revenue forecasting,” or working from one set of numbers. According to the Volcker Alliance, a national group that studied state budgeting, “the point of a consensus forecast is to make it easier for policy makers to concentrate on expenditures during budgeting instead of arguing about whether the revenue estimate was politically driven.”
Here’s how it works: Bipartisan teams from the administration and legislature get together and agree on revenue numbers, putting everyone on the same page before they start to craft a budget, and even though they’ll inevitably fight over priorities, forecasting with the same set of figures should enable them to begin making smarter fiscal decisions.
Step Two, which builds on the first reform, is to switch from cash-based to accrual accounting, or—in layman’s terms— calculating the cost of government on a day-to-day basis, even if certain invoices won’t be paid that year. Illinois currently uses a cash-based accounting system during budget preparation, which hides the real cost of programs and projects because so many bills are pushed off to future years.
The Fiscal Futures Project at the U. of I. says “cash-based accounting is like only looking at the credit card payment due this month instead of considering the total balance.” Truth in Accounting, a local public finance transparency organization, argues that accrual-based accounting would arm lawmakers with accurate information on the long-term effects of current decisions, motivating them to stop hiding costs and start embracing transparency.
Step Three is establishing a sufficient “rainy day” or “budget stabilization” fund to cover emergencies. The Fiscal Futures Project recommends at least 5 percent of annual revenue—that would be $1.6 billion in Illinois, which now has only $83,000 in its budget stabilization fund, the government equivalent of pocket change.
Variations on these budget reforms have been floated and summarily sunk in Springfield in recent years, which is unfortunate, but Rauner and lawmakers have a golden opportunity to make amends this year by enacting these measures for future budgeting, and claiming a fiscal victory, at the same time they’re waging a real-time, election-fueled budget battle.
So even if they can’t quickly eliminate $8 billion in unpaid bills or $129 billion in pension liabilities, they should be able to give us, our children and our grandchildren a path to responsible budgeting in the future.