Ralph Martire | State heading for fiscal cliff when pandemic relief ends

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This spring, as the Illinois General Assembly and governor were cobbling together a general-fund budget for fiscal year 2022, there was a significant amount of new revenue on the table.

For instance, as a result of various federal coronavirus relief packages, the state is receiving some $13.2 billion in federal funding it can spend over the next three fiscal years (including the current one) to defray virus-related expenses.

Meanwhile, in addition to that unanticipated federal largess, state lawmakers decided to go along with Gov. J.B. Pritzker’s request and enact legislation that will generate an estimated $666 million in new general-fund revenue annually, through elimination of various tax expenditures that had primarily benefited corporations.

All this new revenue allowed the general-fund budget for the upcoming fiscal year that was finally approved over the Memorial Day weekend to achieve an “on-budget” balance for the year. That simply means projected spending for fiscal 2022 will be no more than projected revenue. That sounds great, but it happens to be required by the Illinois Constitution. Oh, and it doesn’t account for the approximately $6.4 billion in unpaid bills that will carry forward to the upcoming fiscal year, which means despite attaining an on-budget balance, the general fund still has a significant accumulated deficit.

That said, despite both record federal assistance and a boost in state-based revenue, year-to-year spending on services will increase from $28.1 billion in fiscal 2021 to $28.381 billion in fiscal 2022, a bump of just 1 percent in nominal, non-inflation-adjusted dollars. After adjusting for inflation, however, general-fund spending next fiscal year will actually be $372 million less in real terms than in the current fiscal year.

That’s problematic, given that around 95 cents out of every dollar of all general-fund spending on current services goes to the core areas of education, health care, human services and public safety. It’s also nothing new, as it continues Illinois’ long-term trend of cutting general-fund spending on services in real terms that dates back to fiscal 2000.

Oh, and it isn’t like the cuts are needed to rein in profligate overspending. Illinois, which has the fifth-largest economy and sixth-largest population of the 50 states, nonetheless ranks just 33rd nationally in per capita spending on services.

That means the biggest takeaway from the fiscal 2022 general-fund budget is no different than the 20 or so that preceded it: Illinois does not have the fiscal capacity to continue funding the same level of core services it provides today into the future. Period.

The reason Illinois keeps struggling to maintain general-fund spending on core services over time is simple: The state’s existing mix of taxes and their respective structures are so flawed that they simply do not work in a modern economy and instead have created a “structural deficit.” This is when annual revenue growth is not sufficient to cover the cost of providing the same level of public services from one fiscal year into the next, adjusting solely for changes in inflation and population — even during a normal, non-pandemic economy.

So when the pandemic ends and enhanced federal financial assistance ends with it, Illinois will face a significant fiscal cliff that will significantly impair its capacity to continue investing in any of the four core service areas without enacting the structural tax-policy reforms — yes, that does mean tax increases — needed to create long-term revenue generation that grows with the economy.

Ralph Martire is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal-policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University in Chicago. He can be reached at rmartire@ctbaonline.org.

via The News-Gazette

June 20, 2021 at 04:33PM

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