Threatening to enter a third fiscal year without a budget, Illinois lawmakers appear no closer to reaching an agreement. Legislators are currently in the middle of a ten-day special session called by Governor Bruce Rauner (R) to break the budget impasse. While unpaid bills build up, currently over $14.7 billion and growing, the special session has shown zero signs of progress.
In the first eight days of the session, both legislative bodies have met for only 122 minutes combined. On Wednesday, the House adjourned after a grand total of five minutes and five seconds. In the midst of this serious crisis, Illinois lawmakers do not seem to be prioritizing taxpayers interests, as the financial backlog increases and major fiscal problems, such as the state’s $130 billion unfunded pension liability, go neglected. To show how messed up the state legislature’s priorities are, instead of working towards pro-growth reforms and balancing the budget, the House used those scarce minutes to pass a resolution to promote tourism in the Bahamas. The price of this “work” does not come cheap for taxpayers in the Land of Lincoln, as it costs almost $50,000 per day.
Without a budget, state road construction may come to a halt. Public school administrators say they face major layoffs and the potential of closing schools in the fall. Making matters worse, at the beginning of June, both Moody’s Investors Service and S&P Global Ratings downgraded the state’s credit rating to one level above junk. If state legislators cannot come to an agreement to fund the government before July 1st, both companies have stated they will further downgrade the state’s bond rating. If this occurs, Illinois will become the first state with non-investment quality bonds and state financing will become even more difficult and expensive.
Gov. Rauner, having capitulated to calls for higher taxes, is urging lawmakers to pass a budget that includes a four-year $5.4 billion tax hike and a property tax freeze for the same period. The hike would be funded by increasing income and corporate tax rates, expanding the sales tax base, a new cable and satellite TV tax, and the elimination of various credits and deductions. While Gov. Rauner views this proposal as a compromise, Democrats strongly disagree with the duration of the tax hikes—wanting permanent increases instead. Before the special session, Democrats who control the state Senate passed a budget with the same tax increase now supported by Gov. Rauner, but without an expiration date four years from now and without the property tax freeze.
Gov. Rauner’s “compromise,” if enacted, would be a major loss for Illinois taxpayers, especially considering Rauner campaigned on lowering the income tax. This bill contains no structural reforms to help solve Illinois’ gargantuan pension debt, which stands at $130 billion. Including all state health benefits and local pensions, Illinois taxpayers are on the hook for $267 billion. Even with tax increases and spending caps, it is still expected the state will have a $5 billion budget deficit in 2018. Without making these needed changes, Illinois will continue on its debt spiral.
The Illinois economy is in no condition sustain further tax increases. From the start of 2007 to the end of 2016, Illinois was tied with Nevada for the worst personal income growth in the U.S. at a rate of 0.8 percent. With incomes growing at slow pace, the imposition of further tax hikes from Springfield piled on top of the 20 federal tax hikes enacted during the Obama administration, would do great harm to Illinois taxpayers and the state economy. Enactment of more state tax hikes will no doubt motivate even more taxpayers to flee for a state with a less dysfunctional and burdensome government.
As evidenced by a 2016 poll from the Paul Simon Institute, the citizens of Illinois are also tired of high taxes and ineffective government. The poll found that 47 percent of citizens want to move to another state. Of these people, 27 percent cited taxes as their main reason to leave the state. The government was also a popular choice with 15 percent of responses, falling just behind weather for third. Not only do taxpayers want to leave Illinois, many of them already are. For the third straight year, Illinois lost more citizens than any other state. After 37,508 people left in 2016, Illinois’ population has dropped to a ten year low.
Illinois needs pro-growth reforms that lower taxes, cut spending, and reform the pension system. By looking to states like Indiana, North Carolina, Texas, Tennessee, and its friendly northern neighbor, Wisconsin, Illinois can find solutions that will begin to rectify the state’s financial problems and will help create an environment that encourages business development and is more conducive to economic growth.
Photo Credit: Jeff Sharp