The State of Illinois incurred deficits reaching nearly $15 billion in 2017, and those deficits are projected to double to $30 billion in 2018. Illinois has also accumulated hundreds of billions in unfunded liabilities in public sector pension and health-care plans. This has exposed local jurisdictions to the risk of default or bankruptcy. In response, Illinois has issued large bailouts, further weakening the finances of the state’s government. The courts have exacerbated this problem by ruling the Illinois Constitution mandates state bailouts for public sector pension and health plans.
Fiscal rules in Illinois have been ineffective in constraining deficits and debt. Illinois, like 48 other states, has a balanced budget provision in its state constitution. But, in recent years, the state legislature has failed to pass a budget at all — let alone one that would balance revenues and expenditures.
In April 2018, a constitutional amendment to cap the rate of growth in spending at the rate of growth in the state economy was introduced in Illinois’ legislature. A majority of Illinois state legislators have yet to show support for such a fiscal rule.
We question whether any fiscal rules could be effective in constraining deficits and debt in a failed state such as Illinois. The expectation is that the State of Illinois will continue to be dependent on federal bailouts, and local jurisdictions will continue to rely on state bailouts. The genesis of these expectations is found in the federal bailouts received during the 2008 financial crisis.