Bad fiscal policy is a costly, counterproductive waste
When the public sector gets fiscal policy wrong, bad things happen. For instance, Illinois’ tax policy is so flawed that for generations annual revenue growth has been insufficient to continue funding the same level of services from year-to-year. Which is why, after adjusting for inflation, the recently enacted General Fund budget for FY 2027 appropriates about $455 million, or 1.1% less for public services than last year.
Mind you, that parsimonious outcome wasn’t predicated on a desire to curb profligate spending. Indeed, the evidence shows most public services Illinois provides, including K-12 education, higher ed, and human services, are collectively underfunded by billions. But is the underfunding of core services caused by the state’s flawed tax policy really such a “bad thing?” Well, yes it is.
Consider K-12 education. In 2017, Illinois replaced its former school funding formula, which was frequently derided as the least-equitable in the country, with the “Evidence-Based Funding for Student Success Act” or “EBF.” The EBF ties the dollar amount taxpayers invest in schools to covering the cost of those educational practices which research shows actually enhance student achievement. Which makes all the sense in the world for two reasons. First, it funds what’s been proven to work academically. Second, it caps education funding costs for taxpayers at the dollar amount the evidence indicates school districts actually need — and not a penny more.
When it passed, the EBF called for the state to fully fund it within 10 years, which would be this year. But that didn’t happen. In fact, the aggregate shortfall in K-12 funding has increased statewide each of the last three years, and is projected to reach $3.4 billion by the end of this year. So as things stand today, most Illinois school districts don’t have the resources needed to fund the educational practices the research shows work. Given the premium the modern economy places on educational attainment, underfunding K-12 makes no sense at all.
Now consider the plight of Illinois’ largest school district, Chicago Public Schools. CPS currently has some $985 million less than what the evidence indicates it needs to educate the children attending its schools. Who are those children? Well, 73.8% are low income, while almost 80% are minority. Those are the kids whose education is underfunded by nearly a billion bucks. So if you believe every child in Illinois deserves a quality education, you ought to be clamoring for Illinois to raise the tax revenue needed to accomplish that goal.
If the state’s fiscal follies weren’t bad enough, Cook County government is making things worse. How? Well, because Illinois lacks the fiscal capacity to fund education adequately from state revenue, the primary obligation for funding K-12 falls to local property taxes. So CPS, like most districts, predominately relies on property tax revenue to cover educational costs. But for the past three years Cook County has been late — in some cases by a year — in getting property tax distributions out. That delay puts tremendous strain on local government resources. So much so that a number of school districts, including CPS, have had to borrow money just to cover basic costs, like payroll.
That’s expensive — and counterproductive. It wastes taxpayer dollars on bank interest that should instead go into the classroom. Last year alone CPS paid around $33 million in interest on debt it was forced to incur because property tax distributions were late. Adding insult to injury, Cook County announced its creation of a $300 million bridge fund to provide interest free loans to certain qualifying local governments — but specifically made CPS ineligible for the program. That’s both fiscally, and morally, wrong.
• Ralph Martire, rmartire@ctbaonline.org, is Executive Director of the Center for Tax and Budget Accountability, a fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University.