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T a x & B u d g e t
B r i e f
J u l y 2 1 , 2 0 1 0
Shopping WithoutPrice Tags
Improving Illinois’s budget via scal note reform
The Problem
Paris Hilton may be able to shop withoutlooking at price tags, but the State of Illinoisdoesn’t have that luxury. Even so, statelegislators receive precious little informationon how much the laws they’re approving willsave or cost taxpayers. The state’s “scal note”process should be improved as part of broaderbudget reforms. Fiscal notes are intended to estimate thecosts, savings, revenue gain, or revenueloss resulting from the implementation of proposed legislation. They serve as tools tohelp legislators, the media, and the publicbetter understand how a bill might impact thestate budget, individual agencies, local unitsof government, and taxpayers. However, scalnotes in Illinois often fall far short of thesegoals—if they exist at all. A June 24, 2010 survey by the Illinois Policy Institute found that out of 545 bills pending review by the governor (having passed boththe House and Senate), only 3 percent—or 16bills—had scal notes attached. As not every bill results in spending or tax changes, thesurvey reviewed bill descriptions and found thatout of 122 bills likely to be scally impactful,only 13 percent had scal notes, 5 percent hadpension notes, 2 percent had balanced budgetnotes, and 3 percent had state debt impactnotes. Out of the few scal notes available,many provided woefully limited informationand most were comprised of a few sentences.See Appendix A for the 16 bill numbers and theassociated scal notes.Current implementation of the state’s scalnote statute, Illinois Fiscal Note Act (25 ILCS50), serves few well. Problems include:
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Many bills go through the legislativeprocess without ever having their scalimpact measured. The sponsor has torequest the note, or another member(with majority support from the chamber)must request the note. The defaultposition is no scal note.
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Fiscal notes are often prepared beforea bill’s second reading, which may notaccount for subsequent amendments thatsignicantly alter a bill’s impact.
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The resulting notes are often opaqueand provide minimal information. Littleinsight into the estimation methods isoffered, even though summaries or work sheet computations are supposed beprovided.
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Long-range effects of the measure arerarely included, even though they’re calledfor by statute.
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Affected agencies prepare the notes, andthey may have an interest in directing theresults.
Kristina Rasmussen
is the executive vice president of the Illinois Policy Institute.
Mitch Hoban
is a law school student at Loyola University.
Ashley Muchow
provided research assistance for this report.
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The public does not have an easy methodfor discovering and contacting noteauthors.Combined, these factors create a situation where legislators and the public are unable toconduct a proper analysis of the budgetary effects of proposed legislation.Consider these examples, which demonstratehow bills large and small are considered andpassed without comprehensive, impartial costestimates:
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Income Tax Increase (HB 174).
This billis the preferred legislative vehicle of those who support a massive increase inthe Illinois income tax rate. According to proponents, this bill would “raisebetween $5.0 billion and $5.2 billion innew, recurring tax revenue.”
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The IllinoisSenate passed this bill in May 2009after amending the original bill many times. The attached scal note from theDepartment of Revenue refers only tothe bill’s pre-amendment language, whichhas nothing to do with a $5 billion taxincrease. Even though HB 174 remainsan active bill and is vigorously pushed by supporters, an updated scal note has notbeen provided.
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Pension Benet Reform (SB 1946).
Now law,this signicant legislation was quickly passed in spring 2010 and modied thepension benets for future governmentemployees. Supporters have argued thatit could save “as much as $100 billion infuture costs.”
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However, the only scalnote attached to the bill (provided by theState Universities Retirement Systems)lacks comprehensive information, stating only “SB 1946 (H-AM 4) does not impactthe scal year 2011 certied employercontribution amount due to the StateUniversities Retirement System. Theimpact on costs in future years has yetto be determined.” A three-sentencePension Note from the Commissionon Government Forecasting & Accountability offered a top line savingsestimate.
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Local Farm and Food Products Act (HB3990).
This legislation from 2009, now law, permits state-owned food buyers tospend up to 10 percent more than thelowest bid to buy locally grown produce,even when it could buy more food forless from elsewhere. No scal note wasattached to the bill.
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Covering ALL KIDS Health Insurance Act (HB 806).
In 2005, the Illinois General Assembly approved a large entitlementexpansion of the All Kids programthat sought to provide health insurancefor all children in Illinois regardless of family income or immigration status. Thelegislation started out as a bill regarding inmate furloughs, and the IllinoisState Police led a scal note aimed atthis original provision. No scal noteregarding the All Kids expansion wasled. A May 2010 report from the Illinois Auditor General found that the expansionprogram’s net cost was $70 million inscal year 2009.
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Tuition Vouchers (SB 2494).
Considered inMay 2010, this bill offered vouchers to thechildren in Chicago’s worst performing public schools. The scal note for HouseFloor Amendment No. 1 stated that thecost or savings of the program couldnot be estimated because it wasn’t clearhow many children would enroll inthe program, even though proponentsbelieved that a sliding scale of enrollmentamong a set population of students couldhave been used to provide a range. Moreimportantly, the agency responsible forauthoring the scal note—the State Boardof Education—had previously stated theirfundamental opposition to vouchers as apublic policy, thereby calling into questiontheir neutrality as a scal note author.
•
Sales Tax Holiday (SB 3658).
This sales taxholiday bill was approved by the Houseand Senate in May 2010 and lowered thestate sales tax rate on clothing and schoolsupplies from 6.25 percent to 1.25 percentfrom August 6-15, 2010. Even though thebill would clearly have an impact on state
Legislators and the public are unable toconduct a proper analysis of the budgetary effects of proposed legislation.
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revenue collections, no scal note wasled.
Our Solution
Illinois must enact a stronger scal note statuteand develop standardized guidelines that aimto increase note availability, accuracy, andtransparency. The statute and guidelines should address thefollowing major points:
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Independence
: The notes should be chiey authored by a neutral and independentsource, such as the Commissionon Government Forecasting and Accountability, rather than the affectedagency. Agencies should be encouragedto provide information on a bill, but theprimary author should be outside of theagency.
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Accountability
: The notes should includea “references and sources” sectionthat identies staff and other entitiessupplying information. The contactinformation for the person responsiblefor answering questions regarding thescal note should be provided.
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Methodology
: Fiscal notes should containan explanation of the method used toproduce the cost estimates and the reasonfor using the particular method. They should also include a description of potential alternative methods that wouldresult in different cost estimates (forexample, scoring using static and dynamicmethods). The note should also includea description of assumptions used todetermine the cost estimates.
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Accessibility
: Illinois should create andoperate a searchable scal note tracking system that is publicly available, similar toMinnesota’s scal note website.
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Notes Required
: The current Illinois statuteprovides that no scal note is required whenever the bill sponsor is of theopinion that no scal note is necessary,unless any member of either houserequests that a note be obtained and amajority of those present and voting inthe house of which he or she is a memberdeems it necessary. The result is that scalnotes are rarely requested. This provisionshould be changed so that a note isalways required whenever the proposedlegislation involves spending or taxation,unless the sponsor is of the opinionthat no scal note is necessary and themajority of those present and voting deem that no note is necessary. Evenseemingly minor bills can have an impacton the state budget and should be scored.
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Staff Levels
: The statute should requirethat scal notes provide an estimate of change in Full Time Equivalent (FTE)positions by agency.
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Long-Term Fiscal Implications.
The notesshould include a minimum ve-yearscal forecast; rather than simply “thelong-range effect of the measure” as iscurrently required. The note should alsoinclude a section that indicates whetherthe estimated scal impact will continuebeyond the initial forecast period.
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Impact on Citizens and Businesses.
Thenotes should consider the impact of government action on Illinois residentsand businesses. For example, how woulda licensing fee increase affect businessesand their ability to employ workers?How would an insurance mandate affectpremium affordability?
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Uniformity
: Implementation of Illinois’sFiscal Note statute should includea uniform procedure subdivision, which would require the Commissionon Government Forecasting and Accountability or another body togovern the scal note process and ensurecompliance with the statute. Some states,such as Minnesota,
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issue manuals andguidelines on how to prepare and processscal notes in order to ensure that thenotes are standardized, accurate, andcomprehensive. Appendix B provides a sample scal notes fromMinnesota and Texas that demonstrate how
If Illinois is going tobalance its budget, state leaders will need better information on the cost of new programs or higher taxes.
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