Tuesday, June 23, 2015

When Will Illinois Learn How to Budget?

 Illinois has until June 30 to pass a new budget.  At present the General Assembly has proposed a budget with a $4 billion revenue shortfall, because they want to continue funding educational and social programs, as a reaction to public concerns over proposed deep cuts, the Governor wants to cut even more and they want the Governor to publicly advocate the revenue solutions.  It is what has become the usual game of tug and pull rather than debate and compromise.  Illinois has played financial games with its budget since the second administration of Governor Jim Edgar in the 90's.

The Volcker Alliance has published Truth and Integrity in State Budgeting, which details how a State budget should be constructed and the information in State budgeting and financial operations accessible by the public.  Its checklist is:
1) Complete budgetary information, including how balance was achieved and whether one-
time revenue sources were tapped, should be easier to find and interpret,
2) Short-term revenue forecasts should be transparent and supportable by historic growth
trends. Past projections should be assessed for accuracy to help improve forecasting methods,
3)  Recurring costs should be paid with recurring revenue,
4)  The proceeds of borrowings should not be used to cover operating expenses,
5) States should move away from strictly cash budgeting and toward the type of accounting, used in their audited comprehensive annual financial reports, that shows the true present value of future spending obligations, and
6) States must build rainy day funds to safeguard essential services during economic down-turns. The size of the funds should be adjusted for revenue volatility, and they should be replenished consistently after they are tapped.

Illinois has the worst funded State pension systems in the United States, because it does not understand these basic budgeting rules.  Illinois has a revenue problem. It has put off required pension funding to future periods.  It has been sweeping (raiding) special funds for money with no intention of paying them back.  The Executive and both parties of the General Assembly have not been able debate, communicate, and compromise in the best interests of the people of Illinois for the last five Governors.  No one wants to take the revenue problem and own it by solving it and accept the political consequences.

With respect to information, you would have to read and analyze the General Assembly's budgeting bill (Good Luck) or you could get the Governor's position here.  You can go to COGFA and get forecasts and projections.  You can go to the Illinois Auditor General to find agency and department budget results (I particularly like reading the audit report for the Teacher's Retirement System as I find it far more informational than the TRS website).  Try finding the current balance of the Budget Stabilization Fund (rainy day fund); at least you can get FY2015 and FY2016 projections as of March 2015 here.  As of FY2013, the Budget Stabilization Fund had $276 million, which was less than 1% of General Fund revenues.

 Illinois needs to get its act together.  Unfortunately, this requires politicians to work together and compromise rather than continuously posture in the public circus.

Update: 
The credit downgrades have begun.

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