Friday, September 30, 2016

How Bad Is Illinois' Current General Fund Deficit? (from the Center for Tax and Budget Accountability)





An interesting story in Thursday's Chicago Sun-Times, "Rauner, legislative panel have $2.4-billion deficit disagreement", highlighted just how different it is to calculate Illinois' current General Fund deficit.








The Commission on Government Forecasting and Accountability (COGFA) - the Illinois General Assembly's independent budget analysts projected that total state spending for the current fiscal year (FY2017) which began on July 1, will ultimately be $39.5 billion, but that revenue would only come in at $31.8 billion, leaving nearly a $7.8 billion deficit.  

On Wednesday, Rauner's administration disagreed maintaining the budget deficit would be $5.4 billion. Budget Director Tim Nuding said the commission didn't factor in several key sources of revenue, including the full amount of federal reimbursements to the state for Medicaid anticipated for FY2017.

What's really troubling is that both of these projections of the General Fund deficit only compare anticipated, year-in FY2017 spending to FY2017 revenues. Neither are factoring the accumulated deficit left over at the end of FY2016, and thus both COGFA and the Governor's Budget Office understate the true General Fund deficit in Illinois. (The "General Fund" is the part of the state budget that pays for the services that affect most people's education, healthcare, public safety, and human services.)

HERE'S WHY:

At the end of FY2015, the state's General Fund deficit was $5.97 billion. CTBA's analysis shows that the accumulated deficit grew by some $3.13 billion over the course of FY2016, to a total of $9.1 billion.

In other words, Illinois began FY2017 with $9.1 billion in unpaid bills. That means that even if we balanced this year's revenue with this year's expenses, we'd still have a $9.1 billion deficit.

Of course, that means both deficit projections quoted in the Sun-Times article understate the true accumulated deficit by $9.1 billion. After this carry forward deficit is included, the projected FY2017 General Fund deficit balloons to either $14.5 billion, using the Governor's estimates, or $16.9 billion using COGFA's.

Another way to look at the General Fund deficit is [to think of it] as a percentage of General Fund service appropriations. CTBA's analysis projects the state to spend $24.69 billion on General Fund services in FY2017. Using the Governor's projected FY2017 deficit figures, 58.7 percent of all General Fund service appropriations aren't paid for by FY2017 revenues. Since COGFA projects the FY2017 deficit to be even greater, using its numbers, that figure is 68.4 percent.

What does this all mean? The state's financial condition continues to deteriorate due to a lack of revenue. Whether the General Fund deficit is $14.5 billion or $16.9 billion, it's definitely unsustainable. Between 59 percent and 68 percent of FY2017 spending is deficit spending. And Illinois will continue on this deficit spending path until it increases revenue. But in order to do that, the state needs to fix its flawed tax policy in order to generate additional revenue (see "It Is All About Revenue: A Common Sense Solution for Illinois' Fiscal Solvency" for CTBA's suggestions to fix the state's revenue problems). Until then, the trend of growth in the accumulated deficit is likely to occur past FY2017.

-from Bobby Otter, CTBA Budget Director
September 30, 2016


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