October 11, 2011

Illinois's Fiscal Breaking Points

Key materials

After more than a decade of failing to balance the state’s budget, the Illinois legislature and Governor Pat Quinn presented the FY 2012 budget, “designed to help Illinois return to fiscal stability.” The strategy presented includes, Illinois Working, a plan to “provide streamlined, efficient state government, foster economic growth, and develop the jobs of today and tomorrow.”

Pointing to decades of fiscal mismanagement, compounded by a deep recession, the governor also signed into law Budgeting for Results, a spending reform which mandates that budget decisions be based on performance and impact, not politics. In addition, the legislature instituted a new law which it is claimed, “for the first time in Illinois’s history, places limits on state spending.” These measures led to an improved bond rating from Fitch Ratings and Standard & Poor’s ratings agencies.

While these strategies sound meaningful they are unlikely to work, as they fail to identify the underlying causes for the rapid growth in spending in the state’s budget. The legislature and governor continue to focus on revenue enhancements through increased taxation and borrowing, instead of institutional spending reforms, thus making it unlikely that the state will avoid serious fiscal repercussions in the near future, some of which will be triggered by the run-out in pension fund assets projected for 2018.