News - Bill's Blog

You, too, can balance your budget by borrowing money

June 18, 2020

Nearly all of the United States have some form of balanced budget requirement for their state government, either through the state constitution or by state law. In theory, balanced budget requirements constrain governments from spending beyond their means, borrowing to make up the difference, and shifting the costs of government to future citizens and taxpayers. 

In practice, however, the wording of legal requirements combine with accounting standards developed by the Governmental Accounting Standards Board (GASB) to render those requirements toothless, at best, in more than a few states (such as Illinois) that have dug massive holes in the unrestricted net position reported on their balance sheet.

I said “at best” for a reason. At worst, the advertised cure has helped spread the disease. Politicians can claim they balanced the budget and were responsible stewards, even as they run up the credit cards. The law and the accounting can grease the wheels for deceptive efforts to mollify the masses.

Today, a new document appeared at the State of Illinois’ Office of Management and Budget website, titled Fiscal Year 2021 Budget Highlights. The document included a table summarizing the “resources” (totaling nearly $43 billion) and “expenditures” (totaling $42.9 billion), leading to general funds “surplus” of $87 million.

But look closely at those resources. They include, as authorized under GASB standards, a line item called “Federal Stabilization/Municipal Liquidity Facility,” and another item called “P.A. 101-0008 Revenues/Section 7.6 GO Bond Borrowing.” These two items each have their own two items, for important reasons.

The “Federal Stabilization/Municipal Liquidity Facility” line anticipates $5 billion from either federal aid or, if that doesn’t arrive, borrowing proceeds from legally questionable loans from the Federal Reserve Bank of New York. The “P.A. 101-0008 Revenues/Section 7.6 GO Bond Borrowing” line anticipates $1.3 billion either from higher income tax revenue if a state constitutional amendment passes or, if that doesn’t arrive, proceeds from issuing more bonds.

In other words, Illinois can have a surplus, and balance its budget, by borrowing money! This oxymoron is brought to you by funds accounting practices authorized by the GASB.

Back in August 2019, David Crane and George Schultz penned a prophetic op-ed in the San Francisco Chronicle, titled “It’s Time for Truth in State and Local Government Finances.” They argued that "The next recession will expose those state and local governments that have used GASB's permissive rules to cover up deep financial problems, potentially forcing the federal government to step in to finance core public services." 

Now, here we are. 

 

 
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