Report prescribes expired medicine for state’s fiscal sickness
Revenues will not solve the problem. Illinois lawmakers need to look at spending.
Illinois is in “ever-more dire financial straights,” according to a new study from the Institute of Government and Public Affairs at the University of Illinois, or IGPA.
Their report, released Jan. 19, analyzes fiscal budget projections for Illinois’ state government. It estimates a budget deficit of $9 billion for fiscal year 2016 if no changes are made to revenue or spending, counting in that figure what the authors call “pay-later budgeting” schemes that put current spending obligations “on the tab.”
The report lambastes Illinois government for failing to “live within its means,” a fair charge given the state’s stack of unpaid bills and unfunded liabilities, including over $100 billion in pension debt. It also calls out lawmakers for their failure to “make sufficient cuts to state spending” in concert with the partial sunset of the 2011 tax hikes. The partial sunset will reduce state revenue by $1.8 billion in fiscal year 2015 and by $4 billion in fiscal year 2016 relative to fiscal year 2014, according to the IGPA.
Interestingly, the report contains a number of specific revenue-side solutions for making up the projected deficit; but on the spending side, the authors only give an across-the-board cut calculation. They fail to suggest detailed cuts and instead call spending-reform solutions “the political challenge.” Indeed. That does not mean raising revenues is a good answer.
The report also leaves unclear whether it includes estimates of how the $1.8 billion and $4 billion of “lost” revenue – money that is instead staying in individuals’ and businesses’ pockets – will positively stimulate the economy and ultimately show up in higher state revenues.
The authors rightly recognize that “economic growth increases incomes and spending, which in turn increases income tax and sales tax revenue,” but caution that there is mixed evidence on the “effectiveness of incentives in increasing business activity.” Well, for starters, a now-lower corporate tax rate will be one incentive for companies to stay in Illinois rather than leave for neighboring Wisconsin and Indiana. Raising tax rates again would only chase more businesses out of Illinois, which is also suffering from a record exodus of residents – both groups taking potential tax revenues with them. An Illinois Policy Institute report estimated Illinois’ state and local governments lose $6 billion in annual tax revenue as a result of out-migration that occurred between 1995-2010.
Tax-hike proponents might argue for maintaining the 2011 tax increase, but the reports’ authors acknowledge that restoring it would only solve half the projected deficit problem – leaving their $9 billion dollar deficit still $4.5 billion short in fiscal year 2016. Revenues will not solve the problem. Illinois lawmakers need to look at spending.
What’s clear is that it’s time for lawmakers to give Illinoisans a break for the state’s inability to live within its means – an expensive habit they asked Illinois families to fund when they raised record revenues, but still couldn’t pay the bills – and instead focus on the state’s spending problem.