Connecting state and local government leaders

Illinois Knocked by Researchers for Sub-Par Budgeting Practices

The Illinois State Capitol in Springfield.

The Illinois State Capitol in Springfield. Henryk Sadura / Shutterstock.com

 

Connecting state and local government leaders

A new report offers up four budget-making principles and says the Land of Lincoln has not done well following any of them.

Illinois’ failure to adhere to sound budgetary practices over the years has helped enable a “buy-now, pay-later” approach to spending, contributing to the deep financial troubles the state now faces, according to a new report.

Authored by researchers from the Fiscal Futures Project at the University of Illinois Institute of Government and Public Affairs, the 8-page report, titled “Improving Budgetary Practices in Illinois,” was released on Monday. Included in it is a set of recommended principles for state budget-making, and examples of how Illinois has “bent or broken” every one of these guidelines.

The report also offers recommendations for reforms.

“Budget practice reforms will lead to better information and make constraints more visible,” the authors write. “That could encourage more responsibility and discourage choices and actions like those that got Illinois into its current fiscal mess.”

According to the report, there are four key principles that should guide a well-designed budgeting process. They include: advance planning, sustainability, flexibility and transparency.

What are some examples of how Illinois has strayed from these principles?

In terms of advance planning—or looking at the long-term—the researchers say the state does not routinely estimate how major legislation will affect future expenses and revenues, and also that it does not have a plan for capital projects that gets updated annually.

Among the state’s “sustainability” shortcomings: Not setting aside enough money to pay future retiree benefits, borrowing to fund current operations, and putting off infrastructure maintenance.

Pensions are an especially pressing challenge for Illinois.

The report notes that Illinois ranks last among U.S. states when it comes to pension funding levels and that, as of June 30, 2014, combined unfunded liabilities for five state-financed retirement systems totaled $111.2 billion.

In terms of “flexibility” the researchers point out that “Illinois has no true rainy day fund.”

And when it comes to transparency, they say that policymakers and others tend to focus their attention heavily on four general funds, even though those funds represent less than half of the overall state budget. There’s also the fact that the state has not made a habit of clearly identifying one-time transfers of money between budget categories. These “fund sweeps” are described as temporary measures “to help the state limp through an intentionally unbalanced budget year.”

There are ways Illinois can “break its bad habits,” the report says. 

Some of the recommendations: expanding budget projections to cover five or more years; requiring “meaningful” fiscal notes that explain the financial ramifications of legislation; and clearly identifying “non-sustainable or one-time revenue sources in budget reports.”

In October, Moody’s Investors Service downgraded the rating on Illinois’ $26.8 billion of general obligation bonds to Baa1 from A3, indicating that the bonds are medium grade, and subject to moderate credit risk. Illinois is the only state with a rating below “single-A” from Moody’s. Fitch Ratings also lowered the state’s general obligation bond rating in October from A-minus to BBB-plus.

A report Moody’s issued in late November cited three big factors that have contributed to the deterioration of the state’s credit standing. These included governance weaknesses, “soaring” unfunded pension liabilities and a combination of deferred bill payments and chronic structural budget gaps.

Bill Lucia is a Reporter for Government Executive’s Route Fifty.

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