In a tweet this June, Gov. J.B. Pritzker claimed, “For the third straight year, I’ll sign into law another balanced budget for Illinois that demonstrates fiscal responsibility works with a progressive vision of governance.” But Illinois is more than $236 billion in debt according to Truth in Accounting’s latest Financial State of the States report. It is one of 10 states to receive a failing grade for its fiscal health.
How can both statements be true? It all depends on how you count. The governor uses political math in his budget calculations. Truth in Accounting, on the other hand, derives its numbers from the state’s audited financial report.
The governor’s political math is rooted in the balanced-budget clause of the state constitution, which in essence requires that the state’s “funds available” shall equal its “expenditures.” This wording provides so much wiggle room that Illinois elected officials have driven a $236 billion truck through it.
“Funds available” does not include just earned revenue, such as taxes and fees. Loan proceeds are also considered “funds available.” During the height of the COVID-19 pandemic, Illinois was the only state to borrow money using the Federal Reserve’s Municipal Liquidity Facility emergency lending program. The $2 billion that Illinois borrowed was considered “funds available.”
In normal business accounting, revenues are compared to expenses, not expenditures. By using the term “expenditures,” only the checks the governor and Legislature have chosen to write are included in the balanced-budget calculation, not all costs incurred.
Illinois’ $4 billion backlog of bills, which has accumulated for years under both Democrats and Republicans, proves that not all costs incurred during the budget year are included in the budget. If all costs incurred were included and the budget were balanced, there would be no backlog of bills.
The Legislature and governor can also choose the amount of money allocated to public-pension and retiree health care plans. The retirement plans hire number-crunchers called actuaries to calculate how much the state should contribute to pension and retiree health care plans. For 2020, the actuaries determined that $13.4 billion was needed for the state’s five pension plans. The governor and Legislature chose to allocate only $9.3 billion. What would happen if you didn’t make the minimum payment on your credit card?
Even though teachers, firefighters, police officers and state employees have earned and been promised these retirement benefits, only the amount of money that the elected officials chose to contribute is included in the budget calculations.
As a result of shorting the pension plans for decades, they now have a $153 billion liability. But the governor can claim the budget was balanced because he only needs to include the pension expenditures, not the true costs incurred.
Pritzker has dismissed Truth in Accounting’s numbers for years, calling us and others “carnival barkers,” so let’s use the numbers produced by state Comptroller Susana Mendoza for fiscal year 2020.
While the governor claims he has balanced the budget for three straight years and has been fiscally responsible, Mendoza’s financial reports indicate a different story. For example, the audited report shows that Illinois lost more than $6 billion in fiscal year 2020 and its unrestricted net position was more than $219 billion, which Mendoza indicates “needs to be replenished by revenues in future periods.”
In other words, if retirement benefits or other benefits and services are not cut, future taxpayers will need to come up with $219 billion to pay for the bills governors and legislators have incurred while “balancing” the state’s budget.
While many people call for a constitutional amendment to reform pensions, the reason Illinois has accumulated these pensions and other debt is because of the shoddy wording of the constitution’s balanced-budget requirement. Instead of requiring funds available to equal expenditures, the constitution should require revenues to equal expenses.
Short of a constitutional amendment, the budget law should at least properly define “expenditures” to mean “all costs incurred” and “funds available” to be only “earned revenues.”