December 12, 2014
On a preliminary trip to Springfield after winning the November election, Governor-elect Bruce Rauner held a press conference to draw attention to some of the gimmicks included in the current State budget, including interfund borrowing.
Mr. Rauner called the plan to use $650 million borrowed from Special State Funds for FY2015 General Funds operations “fundamentally wrong.” The Governor-elect critiqued the practice, known as interfund borrowing, due to the requirement to pay back the funds over the next 18 months and the gap it creates in the FY2016 budget.
As discussed here, the plan to use the balances the State holds outside the General Funds to boost operating resources was first proposed by Governor Pat Quinn as part of the recommended FY2015 budget. In its analysis of the Governor’s recommended budget, the Civic Federation opposed the interfund borrowing because it was used to increase spending and would create future budget gaps, despite the low cost of repayment. The interfund borrowing was proposed by the Governor Quinn along with extending the higher income tax rates that are scheduled to partially roll back on January 1, 2015. The borrowing was necessary to pay for a new homeowners’ grant also proposed by the Governor Quinn and to allow for the State to pay down a small portion of its backlog of bills.
Although the budget passed by the General Assembly did not include Governor Quinn’s recommendation to extend the income tax rates, it did rely on the proceeds from interfund borrowing to make up for the loss of revenue from the lower tax rates.
Without the additional $650 million of General Funds resources from interfund borrowing, the State does not have adequate funding to support the $35.8 billion spending plan authorized for FY2015. According to the November budget update published by the Commission on Government Forecasting and Accountability, the State has not begun interfund borrowing yet in the first half of the fiscal year.
Under the authorization for interfund borrowing, the Governor is in charge of managing the process of borrowing from the State’s Special Funds. As previously approved in FY2011, the Governor is given the authority to direct the Comptroller and Treasurer to transfer excess funds out of the Special State Funds and into the General Funds, with some limitations for debt service funds and federal restrictions. If funds are borrowed, the law creates continuing authority for the Governor to direct the Comptroller and Treasurer to repay the funds from General Funds resources at their discretion or within 18 months. The Governor must also provide quarterly reports on the amount borrowed and repaid by the State and any interest or fees charged due to interfund borrowing.
If after taking office in January Mr. Rauner elects not to borrow these funds, other resources would need to be identified or expenditures would need to be reduced in the second half of the fiscal year. It has been reported that the Governor-elect has asked agencies to provide budget requests for FY2016 that would include up to a 20% reduction in spending from FY2015 levels. However, there have not been any public statements about how the budget could be modified to eliminate the need for the $650 million of interfund borrowing in FY2015.