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How Large is Next Year’s Budget Shortfall? The FPC’s Estimate

The revenue-collapse budget submitted by the Governor (i.e., his “not-recommended budget”) proposes cutting “discretionary” spending from the General Funds by about $2 billion. While some critics claim that the shortfall – how much would need to be cut – is much smaller, independent analysis by the Fiscal Policy Center, using somewhat different assumptions than the Governor’s Office of Management and Budget (GOMB), produces a similar estimate.

To estimate the shortfall, we begin with projected FY 2015 revenue and then subtract “mandatory” spending at projected FY 2015 levels and “discretionary” spending at FY 2014 levels. The difference is the projected budget shortfall. 

(1) We use revenue estimates from the Commission on Government Forecasting and Accountability (CGFA), a legislative support agency that has statutory responsibility for preparing revenue estimates for the General Assembly. CGFA’s updated projections for FY 2015 are $272 million lower than GOMB’s estimates.

FPC Shortfall Chart -jpeg

(2) Our revenue estimate also includes $402 million from two new special state funds — the Fund for the Advancement of Education and the Commitment to Human Services Fund. Beginning in calendar year 2015, each of these funds will receive 1/30 of revenue from individual income taxes. While the authorizing statute stipulates that resources in each fund “shall supplement and not supplant” current levels of funding, there is no way of enforcing this provision.

(3) More than half of General Funds spending is considered “mandatory” under current law and would not be affected by the looming cuts in the revenue-collapse budget. In the past several budget years, the General Assembly has designated mandatory spending as including:

  • medical assistance programs in the Department of Healthcare and Family Services
  • state employee group insurance
  • pension contributions
  • debt service
  • transfers required by statute into special state funds.

The FPC estimate of “mandatory” spending is the same as those offered by GOMB, except that we reduce the calculated pension contributions from the General Funds by $150 million, based on offsetting revenue generated from unclaimed property. 

(4) In regard to “discretionary” spending, our comparative analysis assumes that appropriations remain at the FY 2014 level, in order to prevent further cuts.

(5) The GOMB spending estimate subtracts $234 million for unspent appropriations, while our estimate omits this item. For decades, Illinois governors and legislatures have used estimates of unspent appropriations in formulating balanced budgets. This practice is contrary to sound fiscal policy and should be discontinued. Given the state’s current financial situation, unspent appropriations should be used to pay the backlog of unpaid bills. If the backlog is eliminated, any unanticipated surplus should go into a rainy day fund.

In short, the FPC’s analysis indicates that the shortfall in the revenue-collapse budget — and the resulting cuts in “discretionary” spending — would still total about $2 billion. Any substantially smaller figure would have to involve very questionable policy choices such as underfunding “mandatory” spending or ignoring the backlog of unpaid bills.

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