State officials can’t agree on FY2017 deficit projections — but they’re both wrong

An interesting story in yesterday’s Chicago Sun-Times highlighted a $2.4 billion disagreement in how to calculate Illinois’ current General Fund deficit:

The Commission on Government Forecasting and Accountability — the Illinois General Assembly’s independent budget analysts — estimated total state spending for the 2017 fiscal year that began on July 1 at $39.5 billion, compared with revenues of $31.8 billion — leaving nearly a $7.8 billion deficit.
But on Wednesday, Rauner’s administration said the budget deficit is $5.4 billion.
Illinois Budget Director Tim Nuding said the commission didn’t factor in several key levels of revenue, including federal reimbursements to the state for Medicaid spending.

What’s really troubling is that both of these projections of the General Fund deficit only compare anticipated, year-in, FY2017 spending to FY2017 revenues. Neither are factoring the accumulated deficit left over at the end of FY2016 — and thus both the Commission on Government Forecasting and Accountability (COGFA) and the Governor’s Budget Office understate Illinois’ true General Fund deficit. (The “General Fund” is the part of the state budget that pays for the services that affect most people — education, healthcare, public safety, and human services.)

Here’s why.

At the end of FY2015, the state’s General Fund deficit was $5.97 billion. CTBA’s analysis shows that the accumulated deficit grew by some $3.13 billion over the course of FY2016, to a total of $9.1 billion.

In other words, Illinois began FY2017 with $9.1 billion in unpaid bills. That means that even if we balanced this year’s revenue with this year’s expenses, we’d still have a $9.1 billion deficit.

Of course, that means both deficit projections quoted in the Sun-Times article understate the true accumulated deficit by that $9.1 billion carry forward. After this carry forward deficit is included, the projected FY2017 General Fund deficit balloons to either $14.5 billion using the Governor’s estimates, or $16.9 billion using COGFA’s.

Another way to look at the General Fund deficit is as a percentage of General Fund service appropriations. CTBA analysis projects the state to spend $24.69 billion on General Fund services in FY2017. Using the Governor’s projected FY2017 deficit figures, 58.7 percent of all General Fund service appropriations aren’t paid for by FY2017 revenues. Since COGFA projects the FY2017 deficit to be even greater, using its numbers, that figure is 68.4 percent.

What does this all mean? The state’s financial condition continues to deteriorate due to a lack of revenue. Whether the General Fund deficit is $14.5 billion or $16.9 billion, it’s definitely unsustainable. Between 59 percent and 68 percent of spending FY2017 is deficit spending. And Illinois will continue on this deficit spending path until it increases revenue. But in order to do that, the state needs to fix its flawed tax policy in order to generate additional revenue (see “It Is All About Revenue: A Common Sense Solution for Illinois’ Fiscal Solvency” for CTBA’s suggestions to fix the state’s revenue problems). Until then, the trend of growth in the accumulated deficit is likely to occur past FY2017.

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