Through tax hikes and other actions taken since Emanuel took office, Chicago has reduced its structural budget deficit from nearly $636 million to $114.2 million in 2018. That’s how Reuters and others reported it last week when the Chicago City Council approved a new budget. Rahm has made a point of that.
But isn’t the city required by law to balance its budget? The city’s own website says it’s bound by a balanced budget requirement, so how can there be deficits, especially “structural deficits.”
The answer is that the budget is little more than a plan for how the city intends to cover the checks it writes for the year. It’s that way for the state an other units of government in Illinois, as we’ve written before. Budgets can be “balanced” by selling off assets, raiding special funds and relying in other ways on one-time cash sources. Most importantly, they do not reflect growing unfunded pension liabilities.
For Chicago, the budget requirements are set by state statute (65 ILCS 5/8/2/2). It says, among other things, that “no expenditure shall be authorized or made for any purpose in excess of funds lawfully available therefor.” That’s vague enough to allow real deficits to persist, just as they do for the state, even though the state is subject to a similar constitutional requirement.
Interestingly, Rahm this year didn’t brag about a “balanced budget” as he has done in the past. It was replaced by emphasis on that reduction in the “structural deficit.”
Maybe that’s valid. The tax hikes and other measures referenced in that Reuters article no doubt have an effect. Maybe.
But what exactly is in in those “structural deficit” numbers is unreported. I get the general concept — structural deficits are persistent, fundamental imbalances between spending and income, not attributable to some temporary problem. However, I for one don’t know what’s being counted and what’s being ignored in that reduction in structural deficit. Since this is Rahm and Chicago, let’s just say I’m far beyond suspicious.
Illinois governments aren’t alone on this. The Volker Alliance, headed by former Fed Chairman Paul Volker, this month released a detailed report highly critical of budgeting practices across the nation. It was particularly hash on Illinois, grading it ‘D’ and ‘D-” in all categories for the most recent year, except in transparency where we got a ‘C.” Yeah, transparently phony.
–Mark Glennon is founder and Executive Editor of Wirepoints. Opinions expressed are his own.