Quick Hit Ellyn Fortino Tuesday December 8th, 2015, 4:19pm

Fiscal Experts: Illinois Budgeting Practices 'Badly In Need Of Reform'

For decades, Illinois has "bent or broken every principle" for sound budgeting, according to researchers from the University of Illinois' Institute of Government and Public Affairs (IGPA).

They were among the fiscal experts who gathered Monday morning in Chicago for a discussion on ways to improve transparency and accountability in state budgeting in Illinois and elsewhere.

The discussion, held at the Union League Club of Chicago, coincided with the release of new research on state budgeting practices and recommended reforms from IGPA's Fiscal Futures Project and the Volcker Alliance, a nonpartisan organization launched in 2013 by former Federal Reserve Board Chairman Paul A. Volcker.

In their report, experts at IGPA's Fiscal Futures Project contend that the budgetary practices in Illinois, which has the worst pension crisis and credit rating of all 50 states, "are badly in need of reform."

They called out Illinois for "bad habits," such as relying on "single-year, cash-basis accounting," borrowing for current operations, delaying payments to service providers, using non-recurring revenue to pay for ongoing programs and inadequately funding pensions. Experts also blasted Illinois for having an insufficient rainy day fund, deferring infrastructure maintenance and failing to routinely produce cost projections for new legislation, among other concerns.

"Budgeting should be a forward-looking process and should be informed by a sense of what's going to happen," Richard Dye, co-director of IGPA's Fiscal Futures Project, said at Monday's discussion.

The event came amid the ongoing budget battle between Republican Gov. Bruce Rauner and Democratic lawmakers. The standoff has left Illinois without a budget since July 1, the start of the fiscal year. Without a budget in place, the state's bill backlog will exceed $8.5 billion by the end of December, Illinois Comptroller Leslie Munger has warned

In his remarks, Dye highlighted four fundamental principles of sound budgetary practice: advance planning, flexibility, sustainability and transparency. He also stressed the need for fairness in budgeting.

"If you make a decision to send the bill to future taxpayers, that's not fair to future taxpayers," he said.

Illinoisans, he added, "are getting the bill for labor services that were purchased decades ago in Illinois, and here we get the bill in the form of this unfunded pension liability. That ain't fair."

Dye and his report co-authors want Illinois to adopt the following five budget reforms:

  • Refine and expand multiyear budget planning
  • Require meaningful fiscal notes to accompany any legislation with a significant impact on future revenue flows or spending obligations
  • Modify cash-only budget reporting to include significant changes in liabilities and assets
  • Clearly identify non-sustainable or one-time revenue sources in budget reports
  • Adopt a broad-based budget frame with meaningful spending and revenue categories consistently defined over time

"The buy-now, pay-later content choices of the past were facilitated, even disguised, by then-existing procedural and reporting practices," the report says. "Reform of these practices would improve budget transparency and accountability, and help prevent Illinois from getting into such dire fiscal straits in the future."

Former New York Lt. Gov. Richard Ravitch, a Volcker Alliance board member, was also at the budget discussion.

"No matter what set of rules we come up with, no matter what happens in the outer world, the problem of local and state fiscal (stress) will not be resolved until there are politicians who are willing to take very tough and very painful positions," he said, adding that the "capacity of politicians to kick the can down the road by borrowing and by selling assets seems to be incorrigible."

Volcker Alliance experts released a paper Monday with 10 recommendations to increase transparency in state budgeting, including greater disclosure of delayed spending for pension contributions, deferred infrastructure maintenance costs and the use of one-time revenue sources to cover recurring expenditures.

"I would say that the most difficult experience we have looking at budgets is figuring out interfund transfers. They are mostly not clear," explained Katherine Barrett, a Volcker Alliance special project consultant and a founder of the Pew Charitable Trusts' Government Performance Project. "And it's mostly not shown what's routine and what's not routine, or what has to be paid back."

That is "one practice that really, really needs to be cleaned up," she said.

Providing long-term revenue and spending forecasts is another way to improve state budget transparency, experts said.

"There's really so little incentive for politicians to think long-term, and it's such an important thing," Barrett stressed.

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