Fiscal And Revenue Reform

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Illinois needs comprehensive fiscal reform in order to help stabilize the economy, maintain and increase basic and vital services for its people, make needed investments in education and infrastructure, and generate long-term economic growth and remain competitive.

The Problem

Although Illinois’ constitution mandates a balanced budget year-to-year, in fact Illinois has a long-term structural deficit.  In FY 2009, even after receiving about $2.9 billion in federal stimulus funds, Illinois still needs $4 billion to close its current budget deficit. The projected FY 2010 deficit is almost $9 billion (after stimulus funds are received).  Illinois’ deficit predated the current recession and has been an ongoing problem for years.  Even in the best economic times, Illinois’ fiscal system fails to generate enough revenue to sustain the same level of public services from one year to the next.  In other words, the Great Recession has simply made an already bad situation worse. 

For years, Illinois has been addressing its structural deficit through a combination of the following tricks:  generating one-time, non-recurring revenues, including transferring revenues from special use state funds to the General Fund; underfunding the employer contribution the state owes the five public employee pension systems and engaging in borrowing to make its required contributions, a practice which then requires huge debt repayments ($2 billion in FY 06) and ever-increasing catch-up payments; and deferring payment obligations to Medicaid providers from one fiscal year to the next ($2.3 billon deferred from 2006 to 2007).  These methods have had a huge economic and social cost.  They make the deficit worse, and they leave little to nothing left to spend on other priorities, such as economic development and affordable housing. 

The underlying problem is not that spending is out of control.  In fact, Illinois is a low-spending state; Illinois ranks 45th in the nation in spending, despite having the 5th largest state population and economy.  In 2007, for example, General Fund spending in Illinois accounted for just 3.4 percent of Illinois GDP.  10 years earlier, it was 3.35 percent.  It is true almost across the board that real, inflation-adjusted spending on government services is declining.  Nor is the underlying problem fundamentally one of government waste, though undeniably government could be made more efficient. 

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