Rauner’s Staff Views the Budget

Bruce Rauner

Bruce Rauner

This is a relatively short memo about the Illinois state budget.  It contains substantive findings, but is worded to be quoted.

To: Governor-elect Bruce Rauner
From: Tim Nuding, Budget Director for the Transition
Date: December 30, 2014
Re: Sins of the Past and Dishonest State Budgets

As you know, the State of Illinois’ Fiscal Year 2016 budget as well as the current Fiscal Year’s budget contain massive holes that can ultimately only be solved by implementing major, structural changes to the way state government operates.

Before detailing solutions, it is important to continue outlining to the public how Illinois arrived at the worst financial crisis in the nation – a crisis caused not by the income tax rolling back, but by the sins of the past.

Illinois’ massive budget hole is the direct result of previous Governors and General Assemblies giving away benefits they knew the state couldn’t afford, deploying fundamentally dishonest budget practices and kicking the can down the road.

Our challenges are not simply a revenue problem. We have a structural problem decades in the making. Illinois government must undergo major structural reforms and implement honest budget practices that together address the long-term challenges of the state.

The following practices and obstacles deserve special mention:

Borrowing to “Replace” Revenue

This year’s budget, as well as many in the past, borrows money and calls it revenue.

That behavior is clearly irresponsible and, frankly, usurps the balanced budget language in the Illinois Constitution, which says, “[t]he General Assembly by law shall make appropriations for all expenditures of public funds by the State. Appropriations for a fiscal year shall not exceed funds estimated by the General Assembly to be available during that year.”

In other words, the “balanced budget” provision in the Constitution technically applies only to appropriated funds and “estimated” revenues, and past Governors and General Assemblies have driven a freight train right through that loophole. They have been all too willing to skirt any notion of a structurally balanced budget with clever accounting gimmicks that get around any balanced budget requirements.

Potential Repayment of Interfund Borrowing – $650 million

  • As referenced in previous memos, the current FY15 budget was built on dishonest budgeting because it included $650 million from interfund borrowing. If this interfund borrowing needs to be repaid, it would show up as an expense in the FY16 state budget, reducing resources that could be available for other purposes.
  • Eliminating interfund borrowing in the current FY15 budget would require closing an additional $650 million hole in a broken budget that according to state agencies is already $760 million in the red.

Pension Obligation Bond Debt Service Payments – $1.4 billion

  • Past Governors and General Assemblies have chosen to borrow funds through the sale of bonds in order to make the annual pension payments.
  • This happened because the General Revenue Funds that should have been used to make the pension payments were allocated to other areas of the budget. Instead, the decision was made to sell bonds and deposit the proceeds into the pension systems in order to make the required state contribution. [See these McHenry County Blog articles:  pushing pension money into State Aid to Education and  union involvement in 2005 pension bill.]
  • Taxpayers are on the hook for pension bond debt service payments for 18 more years.

Ignoring Additional Balanced Budget Requirements

Adding to the state’s budget problems, past General Assemblies appear to have ignored the Balanced Budget Note Act, which was enacted on January 1, 1992.

The Act says each supplemental appropriation bill “shall include a discussion of the proposed reduction in other appropriations or increases in State revenue that would allow the measure to be adopted without adversely affecting the State budget for that fiscal year.”

A review of past supplemental appropriation bills finds that previous General Assemblies skirted this law, which was put in place to prevent precisely the type of shell games that have occurred in the past and led to mountains of unpaid bills.

The current fiscal year’s budget, which according to state agencies is $760 million in the red even if you count the interfund borrowing as revenue, seeks to use the same dishonest policies of the past.

Giving Away Unaffordable Benefits and Kicking the Can Down the Road

For years the state made a bad habit of increasing pension benefits while refusing to pay for them. Now, with the worst credit rating and the worst unfunded pension liabilities of any state in the nation, taxpayers are being asked to foot the bill for sweetheart deals given away in past years.

Payments on Unfunded Pension Liabilities – $4.6 billion

  • The scheduled state General Revenue Fund contribution to the pension systems in FY16 totals $6.6 billion.
  • Of that amount, about $2.0 billion accounts for “normal costs,” which represents the cost of benefits newly earned each year by active members of the pension
    systems. Said another way, if the pension systems were 100% funded, the payment that would have to be made to the systems to maintain 100% funding would be $2.0 billion.
  • Unfortunately, the state pension contribution also includes an amount to pay on the outstanding unfunded liabilities of the systems. These unfunded liabilities have been incurred over a period of time in part because of poor decisions to expand pension benefits and underfund the pension systems.
    • A total of $4.6 billion of the pension payment is to pay for the sins of the past, or to pay the unfunded liabilities incurred in past years.


When tough decisions are put off for another day, when the can is kicked down the road to be dealt with by a future generation, this is what happens. Illinois taxpayers, schoolchildren and those citizens who need critical state services are being strangled by these additional costs that were incurred because of their government’s failure to make responsible financial decisions


Rauner’s Staff Views the Budget — 10 Comments

  1. If Governor Rauner really wants to fix the budget, he needs to push an amendment to the Illinois Constitution, and he needs to do it right now, during his honeymoon period.

    Such an amendment would

    (a) terminate all public pension programs;

    (b) continue pension benefits to all current retirees;

    (c) assign employees a lump sum equal to the present value of accrued pension benefits; and

    (d) replace the pensions with a 401(k) plan.

    While he’s at it, he can include in the amendment

    (1) term limits;

    (2) a property tax cap equal to 2.5% of market value; and

    (3) a new reapportionment method, by a nonpartisan commission with instructions to take account of municipal boundaries, make districts as compact as possible consistent with equal population, and require that the longest boundary make be no longer than 150% of the shortest boundary (gerrymandered districts are snake like, and inherently have long, twisting boundaries so minimizing boundary length makes it much harder to gerrymander).

    He could call it the “Reform Illinois” amendment.

    With a lot in the amendment for taxpayers, and a real solution to the source of the problems, it would have great public support, the kind of groundswell that legislators now in office would have a problem actively opposing.

    And imagine a state that had solved its budget problem, capped taxes, and where “politician” ceased to be a career and a lifestyle!

    Why, people and employers might just start moving here again!

  2. Constitutional amendments for almost all of the subjects mentions must originate in the Illinois General Assembly.

    That is a major impediment to change.

  3. Steve’s proposal would have made for a much more honest campaign platform than the one we were treated to.

    It’s too bad there weren’t more people insisting on an honest debate.

  4. Then Rauner can wait two years, claim he’s tried and tried, but the legislature refuses to take the necessary actions, and make the constitutional amendment the centerpiece of the legislative election.

    In short, force legislators to move on the amendment or face the consequences as they come up for election.

    I’m dreaming, I know.

    But it’s a good dream.

  5. Apply relentless pressure on your State Reps.

    Start having demonstrations on Main St.

  6. Considering the legislative victories by Democrats in the House and the Senate, I think a state Constitutional Convention would likely end in disaster.

    I supported the call for Con-Con in 1970 and, then, when I read how the state could issue unlimited bonds without a referendum, voted against its ratification.

  7. Shout it from the rooftops, Cal.

    You cannot trust these people now.

    Who in their right mind would push for them to be able to change anything?

    Con-Con=NO NO.

  8. Regarding the final subject in the memo, “Payments on Unfunded Pension Liabilities – $4.6 billion.”

    First, that payment is only for the five “state” pension funds (TRS, SURS, SERS, GARS, JRS).

    Suburban taxpayers also have to worry about local police, local fire, and IMRF, as there are 18 pension funds in the Illinois Pension Code.

    Second, since Illinois law allows negative amortization in public sector pension funds, and since the state pension funds are in fact negatively amortized, the state payment is not sufficient for the five state pension funds to tread water.

    In other words, the pension funds will become more underfunded.

    “Full” Pension Payments Aren’t Full in Illinois – WP Guest.
    October 15, 2014
    By: Tia Goss Sawhney, DrPH, FSA, MAAA*

    Plus, we have state retiree healthcare which is also underfunded, and according to a 2014 Illinois Supreme Court decision, state retiree healthcare benefits also cannot be diminished or impaired.

    “Held: The State’s subsidization of health insurance for its retired employees is a benefit of membership in a State pension system within the meaning of the pension protection clause of the Illinois Constitution of 1970; ….”

    Kanerva v. Weems, 2014
    IL 115811

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