Today in his budget address, Gov. J. B. Pritzker claimed he has once again balanced the budget. Yet Truth in Accounting calculated that the state needs more than $226 billion to pay its bills, which does not include pandemic-related expenses.
Illinois’ finances have obviously taken a hit this past year, even as some state revenues are projected to be better than normal. But state budgets across the United States, including Illinois, continue to mislead the public.
Gov. Pritzker claims he is presenting a budget that is “responsible and balanced.” A balanced budget is so important that it is required by the Illinois Constitution. The intent of the balanced budget clause is to avoid accumulating unsustainable debt. But “balanced” according to Illinois budget calculations doesn’t mean balanced. The budget is calculated using the “modified accrual” basis, which is a thinly disguised name for cash basis accounting. This convoluted accounting basis was established by the Governmental Accounting Standards Board (GASB).
Cash basis accounting allows governments to ignore long-term liabilities, such as the pension and health care promises they made to their government workers, teachers, and firefighters. It also allows governments to shift money around or borrow money to make the budget appear balanced. This method is so deceptive that the IRS does not allow corporations making more than $26 million per year to use it.
In his address, Gov. Pritzker highlighted that the budget includes the “full required pension payments,” which amounts to $9.3 billion. These payments are based upon a pension funding scheme so outrageous that an SEC official called it a “balloon payment on steroids.”
After the state was charged with securities fraud for making such claims in bond offerings, the state had to start being honest in its bond offering documents. In the official statement related to the Illinois General Obligations Bonds of October 2020 is the following quote: “The State’s contributions to the retirement systems, while in conformity with State law, have been less than the contributions necessary to fully fund the retirement systems as calculated by the actuaries of the retirement systems.” These actuaries say the amount required to properly fund the pensions is $14.5 billion, which is $5.2 billion higher than the amount included in the Governor’s budget.
The budget is also “balanced” with $960 million of resources called “other transfers.” While this sounds pretty benign, it is deceiving. For example, in the past these transfers have included money from dedicated funds, like the 911 enhancement fund. On each person's monthly phone bill is a 911 enhancement fee. The money collected is put into a fund to enhance the state's 911 system. For example, if you call 911 using your cell phone, hopefully the system is "enhanced" and forwards the call to the closest police department, not the department in the city where your cell phone is registered. “Others transfers” means money from dedicated funds, like the 911 enhancement fund, is moved to the general fund to help “balance” the budget.
The definition of money laundering is “the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions.” The definition of fraud is “wrongful or criminal deception intended to result in financial or personal gain.” I leave it to the reader to determine if the “other transfers” fall under either or both of these definitions.
Fortunately there is something we can do to stop these accounting gimmicks. The GASB is currently accepting comment letters on the modified accrual basis of accounting used to calculate general fund budgets. You can write to GASB to tell them to get rid of this outdated and confusing accounting practice that has allowed Illinois’ elected officials to claim their budgets are “responsible and balanced” while digging the state further and further into unsustainable debt, including unfunded pension liabilities of more than $144 billion.