Analysis of the FY2014 General Fund Budget

The fiscal problems that have historically plagued Illinois are on full display in the FY2014 General Fund budget passedby the Illinois General Assembly. The state’s accumulated deficit remains significant, and in all likelihood will be at least $8 billion by the end of FY2014. Despite increases for some aspects of the General Fund budget, net spending on services will be $173 million less in FY2014 than in FY2013. Meanwhile, as spending on service delivery continues to decline, the annual cost of debt service continues to grow—specifically the debt owed to the state’s five public pension systems. 

All of these problems can be traced back to the state’s flawed tax policy, which creates inadequate revenue growth to maintain service levels from one year to the next. This means that, even when spending on services are held constant in real, inflation-adjusted terms over time, deficits nonetheless materialize due to insufficient revenue growth. This makes it incredibly difficult for Illinois to provide public services at the levels needed to meet the demographic needs of the state. But as difficult as things are now, given current law on state tax policy, they are about to get much worse. 

That is because the temporary income tax increases passed as part of the Taxpayer Accountability and Budget Stabilization Act of 2011 (PA 96-1496)1 will begin to phase out in fiscal years 2015 and 2016. Unfortunately for Illinois, the additional revenue being generated from those temporary tax increases are all that stand between state government and insolvency. Consider that the accumulated deficit projected for the FY2014 General Fund will be at least $8 billion, even with the revenue from the temporary tax increase. That means 32.5 percent of the $24.5 billion in scheduled spending on services for FY2014 is in reality deficit spending. If Illinois did not have the revenue from the 2011 temporary tax increases over the last three fiscal years, and spending were held constant, the state’s accumulated deficit in FY2014 would be $33 billion—meaning the deficit would be $8.5 billion more than total service appropriations.

For too long, Illinois has tried to resolve its structural fiscal problems with temporary fixes, service cuts and irresponsible practices—like borrowing against the pensions. All, predictably, to no avail. The FY2014 General Fund budget makes it abundantly clear that the time for half measures has passed. To solve its structural problems Illinois must enact comprehensive tax reform that simultaneously: (i) generates adequate new revenue to sustain investments in core services over time; (ii) taxes citizens more fairly; and (iii) otherwise comports with the principles of sound taxation for a modern economy.