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State's budget deficit is masked by questionable accounting, report says

State Government

By Robert Davis | Apr 25, 2018

Budget 05

Illinois is in deep financial trouble, and state legislators are using some questionable accounting practices to conceal the problem's depth, according to a report published by the Illinois Policy Institute

Through an accounting practice called "cash-based" accounting, lawmakers can hide spending by waiting to pay the state' bills, according to the report. This ultimately pushes the costs to future generations. 

Not only is this practice unethical, some legal analysts suggest it is unconstitutional as well. The Illinois Constitution requires that lawmakers pass a balanced budget, though Springfield hasn't done so in almost 20 years. 

The report, written by Adam Schuster, director of budget and tax research, says the extent to which "cash-based" accounting hides the true cost of Illinois government spending can be seen by comparing it to a system using what’s called “accrual-based” accounting.

When the two are compared, "the true budget deficit for fiscal year 2017 alone was at least $6.6 billion worse than official reporting," Schuster wrote. Springfield reported a budget deficit of just under $8 billion, whereas the true deficit is closer to $14.5 billion. 

Illinois has been hemorrhaging money since 2001 with average annual budget deficits in the billions. National and state policy groups like the Volcker Alliance, the Better Government Association, the Fiscal Futures Project and Truth in Accounting all advocate for Illinois to switch to an accrual-based system for budgeting, which would count spending in the year it was incurred, not the year the bill is paid, Schuster wrote.

It's the same as a household magically balancing its budget by not paying the light bill. 

While legislators have not accepted generally accepted accounting practices for themselves, they have passed legislation that mandates private companies use such practices. 

The flawed process for estimating revenue and the bad budgeting of Illinois’ cash-based system adds unnecessary uncertainty to the budget process and denies taxpayers the transparency they deserve. 

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