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Thursday, June 5, 2014 12:01 am

The state of the new state budget

 On the bright side, I suppose you could argue that last week’s budget passed by the General Assembly will lead to the largest tax cut in Illinois history come January, when the 2011 income tax increase partially expires on schedule.

But that’s about the only bright side. And, really, pretty much nobody expects that some sort of tax hike will be avoided after the election, no matter who wins come November.

The new Fiscal Year 2015 budget proposal had to be based on the partial expiration of the tax hike on Jan. 1, when it will drop from 5 percent to 3.75 percent. House Democrats claim they couldn’t find enough votes to permanently extend the tax hike.

But this new budget will blow close to a $6 billion hole in the following year’s budget, according to my own back of the envelope analysis that top Senate Democrats said looked accurate to them.

I based what follows on what I know about how the budget was crafted. But whatever the final number ends up being, it’s crystal clear that whoever wins the governor’s race will face a monstrous challenge after he’s sworn in next January.

Borrowing $660 million from special state funds, as this new budget does, is a one-off affair. The money is being put into the state’s spending base and will have to somehow be replaced the following year. A two-year repayment plan means another $330 million will also have to be found in the next budget, for a total hole of about a billion dollars.

Using about $500 million in one-time revenue increases from this fiscal year to pay forward some bills in next fiscal year means that same $500 million will have to be found again when the next budget is crafted.

Not funding employee salary and health insurance-benefit-cost increases kicks another $380 million down the road. So, now we’re at $1.9 billion.

And then, of course, there’s the approximately $3.6 billion in full-year revenue lost after the income tax hike partially expires. That puts the hole at around $5.7 billion.

Also, Rep. Greg Harris, who chairs a House appropriations committee, told reporters last week that the new budget could create as much as a “couple of billion” dollars in past-due bills in the coming fiscal year. If that’s accurate, then the FY16 hole becomes much, much worse, plus there’s all that new debt owed to providers which will eventually have to be paid back.

Not to mention that some state agencies have been given lump sum operating appropriations. Gov. Pat Quinn could conceivably try to avoid cuts before the election by putting off decisions until after the election. Doing so, of course, would blow a big hole in the second half of the coming fiscal year, which begins July 1.

And that brings us to Bruce Rauner, the Republican nominee for governor.

Gov. Quinn’s campaign has been pushing Rauner hard lately to divulge his “secret” plan to balance the budget. The reason for that is they may have him caught in a trick bag of his own making.

Rauner has hinted more than once that he’d like to taper off the income tax hike over a period of time. But he can’t do that now because last week’s legislative inaction means that most of the 2011 tax hike will automatically disappear on schedule this coming January 1.

Because of that legislative failure, if Rauner follows what was widely believed to be his original plan, the Republican would actually have to raise taxes in order to lower them again.

Needless to say, don’t bet on that ever surfacing as his plan now.

So, he’s gonna have to come up with a new idea. And that won’t be easy, because as I explained above this “kick the can budget” has planted a multibillion dollar nuclear time bomb that is so massive Rauner won’t possibly be able to simply cut his way out of it.

The other option is to do what he’s doing now: Refuse to answer any questions about his secret plan. But after promising for a year and a half to deliver one, he’s going to find himself dogged on the campaign trail from now on if he tries to stay mum.

Either way, though, it’s Quinn who has the most problems. He’ll have to deal with a big budgetary hole during the campaign while attempting to convince voters to reelect him so that he can try once again to raise their taxes. I wouldn’t want to be in his shoes.

Rich Miller also publishes Capitol Fax, a daily political newsletter, and CapitolFax.com.


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