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Balance the Budget Without New Revenue? Nearly Impossible

Imagine, if you will, these three things happening:

  • Lawmakers and Governor Rauner fail to raise revenue for fiscal year 2017, which begins July 1.
  • They keep their promise not to cut (or even increase) support for PreK-12 education.
  • All other discretionary spending in the budget is completely eliminated.

Now here’s the question: If these three things happened would Illinois close the $7.1 billion hole it finds itself in today?

The answer: No way.

So this little exercise isn’t meant as a policy prescription. Rather, it’s an illustration that without revenue, it is virtually impossible to balance the budget without increasing debt or severely cutting education.

As the chart above shows, after last year’s 25-percent income tax cuts, state revenues are expected to be a little over $31.9 billion in the next fiscal year, according to the Commission on Government Forecasting and Accountability. Meanwhile, the Governor’s Office of Management and Budget (GOMB) estimates a general funds budget that funds services at the level of the fiscal year that ended June 30, 2015 and meets other state obligations would cost just under $39 billion.

That big gap is about $7.1 billion. Without revenue, that’s how much Illinois would have to cut to balance the next budget. Even then the state would make no progress paying down its huge backlog of unpaid bills, which is expected to reach nearly $10 billion by the end of next month, according to Illinois Comptroller Leslie Munger.

Cutting $7.1 billion from the budget wouldn’t be easy, even if it were desirable (which it isn’t).  For one thing, it couldn’t be done in an across-the-board manner. That’s because roughly $27 billion (70%) of the budget can broadly be categorized as “mandatory” spending. This includes: debt service, pension contributions, transfers made according to existing state law (largely to local governments and transit systems), Medicaid costs, and spending relating to consent decrees and court orders. It’s difficult (or impossible) to cut these areas.

The remaining $11.6 billion of the general funds budget can broadly be considered “discretionary” — it doesn’t have to be spent under law.  (For more details on how we calculated what is “discretionary,” click here.) This is not to say that these parts of the budget are unimportant. Far from it. This is spending on PreK-12 education, higher education, and a significant portion of human services, including areas such as homeless prevention, substance abuse and mental health treatment, and domestic violence.

Revenue Shortfall and Flat PreK-12 Budget Mean Impossible to Balance Budget

If lawmakers and Governor Rauner maintain (or even increase) funding for PreK-12 education, the total amount of remaining discretionary areas of the budget is less than the total revenue gap. In other words, even if the state eliminated entire sections of the state budget, it would still not balance the next state budget. Without billions of dollars in new revenue, it will be nearly impossible for the state to stop digging itself an ever-deeper financial hole. There is no getting around this.

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