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More Irresponsible Decision Making from Illinois’ Lawmakers?

When it comes to reputations, sometimes you get what you deserve. Illinois certainly deserves the chidings from bond houses and the lack of trust from voters that we’ve accumulated over the years.

Now, amid the swirling uncertainty surrounding our finances, rumors of a lump sum budget have begun circulating under the dome. Gimmicks like lump sum budgets helped get us in to the mess we’re in, and repeating those gimmicks will do nothing to help dig us out of this hole.

In June 2010, we released a highly critical report on the just-passed fiscal year 2011 budget. For the second year in a row, the General Assembly had passed a lump-sum budget, where lawmakers passed appropriations bills that gave most state agencies lump-sum funding rather than line-item appropriations.

At the time, we wrote:

For the second consecutive year, the Illinois General Assembly has confronted the state fiscal crisis by ‘passing the buck’…The abdication of fiscal and social responsibility will have devastating effects on children, families, and communities.

If the General Assembly were to do the same thing again in order to avoid taking a difficult vote to maintain current income tax rates before the November election, these words would be no less true. It would represent the kind of irresponsible decision making that people around the country have come to expect from Illinois’ lawmakers.

Besides “passing the buck” (quite literally), why would a lump-sum budget be so bad? Here are a few of the reasons:

A Lump-Sum Budget Must Be Based on Current Law

Unless current income tax rates are maintained beyond January 1, 2015, available resources for fiscal year 2015 (which starts on July 1) will be about $2 billion lower than they would be with current rates. The lump-sum appropriations must be based on this lower revenue estimate.

Why would members of the General Assembly do this? Well, most likely, many members don’t want to vote to maintain current tax rates before the November election, but they also don’t want to vote for cuts. This political have-your-cake-and-eat-it-too approach simply passes it off to the Governor to make the cuts. Some members may plan to vote to maintain current rates after the November election, after (they hope) they have been reelected.

Community Providers Must Still Be Cut

Many state-funded services are provided by community-based organizations. These organizations must plan their budgets for an entire year. Their leadership and boards of directors have a fiduciary responsibility and cannot base their budgets upon a wink-and-a-nod from lawmakers who want to convey that they will vote to maintain revenue after the election.

Instead, the heads of organizations and their boards must base their budgets on the reduced amount of money they are likely to receive for the entire fiscal year. The result? Cuts to services, staff, and other expenses. Some providers, already on the edge from previous cuts and bills the state hasn’t paid, may shut their doors.

And, even if the General Assembly should come back into town after the election to maintain current income tax rates (which they definitely still should…), great damage would already have been done. You can’t just rehire workers who have already found other jobs. You can’t buy back a building that has been sold. You can’t simply put humpty-dumpty back together again, even if the General Assembly passes a supplemental and claims everything is now whole.

Uncertainty Harms the State Economy

Prior to the 2011 income tax increase, Illinois’ spending was average among states while taxation was below average. During that period, Illinois hid this mismatch with various budgetary gimmicks and outright irresponsible practices, such as simply not making annual payments to pension funds. The Great Recession finally brought the day of reckoning.

In combination with deep budget cuts, the General Assembly took a major step to close the long-standing mismatch between its average spending and below-average taxation by increasing the personal and corporate income tax rates in January 2011. (Even after the increases, state spending and taxation were in line with other states.) However, the General Assembly coupled this responsible decision with the irresponsible decision to make the increases temporary.

While Illinois has made substantial progress digging out of its fiscal hole, we aren’t there yet. In the meantime, the state’s remaining unpaid bills, worst-in-the-nation credit ratings, and uncertainty about the political commitment to pay for prior spending has taken a toll on the economy. Over and over again, credit rating agencies have warned of additional downgrades if current income tax rates are not maintained. Simply kicking the can down the road again will do nothing to inspire confidence or to improve our state’s bottom-dwelling reputation.

Given that new research convincingly demonstrates the link between policy uncertainty and economic harm, it’s clear that this new round of economic uncertainty is bad for our state.

Illinoisans need to ask ourselves what sets Illinois apart that might explain our poor economy. Is it supposedly high taxes? Taxes as a percentage of personal income are higher in Wisconsin, Minnesota, Kentucky, and Arkansas (just to name a few)… Is it our cold climate? A lot of other states also have cold winters and are doing better… Or is it our state’s poor finances, bottom-dwelling credit ratings, and reputation for decision makers who put short-term politics ahead of long-term responsibility?

Now is the time for the General Assembly to make the right decision, not following the November election after more damage has been done.

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