Illinois bill backlog stands at nearly $16.4B
The state has embarked on a plan to sell more than $6 billion of bonds in order to reduce annual interest payments and help pay off the bill backlog.
Despite seeing the biggest permanent income tax hike in state history pass in July, Illinois’ backlog of unpaid bills stands at $16.37 billion as of Oct. 31.
The backlog peaked earlier in October at more than $16.5 billion. And although lawmakers said the 32 percent tax hike passed in summer 2017 was necessary in part to pay down the state’s mountain of IOUs, the tax hikes alone were not enough.
In addition to the tax hike, Springfield has issued $6 billion worth of state bonds to help pay down the bill backlog.
S&P Global Ratings, a credit rating agency, estimates the move could save Illinois up to $368 million in interest payments per year. While interest payments on bonds are lower than the penalty rates the state is paying on unpaid bills, taxpayers should not be fooled into thinking this a long-term solution.
Already, the supposedly balanced budget is showing massive holes, leaving an estimated $1.5 billion structural deficit, according to S&P. And the credit rating agency isn’t alone in its assessment of Illinois’ finances. In a September analysis of the 2018 budget, the Illinois Policy Institute estimated the new budget was on track to spend $1.3 billion more than it was expected to take in.
Illinois has a debt and spending problem that cannot be fixed on the backs of taxpayers.
Take, for example, Illinois’ 2011 tax increases. Lawmakers claimed raising state income taxes by 67 percent on the heels of the Great Recession was the only way to pay off the state’s bill backlog and catch up on the state’s growing unfunded pension liabilities. They claimed it was a cure-all: a temporary tax hike that would solve the state’s litany of fiscal problems.
But the cure-all turned out to be little more than snake oil, as the tax hike did none of what lawmakers said it would do. Despite lawmakers’ promises, the bill backlog was only marginally affected. The tax hike ran from 2011 through 2014, and brought in more than $30 billion in additional revenue, yet the unpaid bill backlog only dropped to $6.6 billion in 2014 from $7.9 billion in 2011. At the same time, Illinois’ unfunded pension liabilities actually grew by $25 billion. Moreover, the so-called temporary tax hike wasn’t really temporary. Rather, the state individual income tax rate only partially sunsetted in 2015 to 3.75 percent, and did not return to its previous rate of 3 percent. The corporate rate fell to 5.25 percent from 7 percent (excluding the personal property replacement tax) and did not return to its pre-hike 4.8 percent rate. The result: a net permanent tax hike.
But this was not enough for Springfield. Rather than tighten their belts and enact new spending reforms, lawmakers decided to push for a new tax hike to make the permanent individual income tax rate 4.95 percent and the permanent corporate tax rate 7 percent in 2017. And they succeeded.
This latest permanent income tax hike didn’t happen in a vacuum. Illinoisans already pay some of the highest property taxes and sales taxes in the country. And if spending reforms at the state and local levels aren’t implemented, these burdens are likely to get worse.
Unless the Land of Lincoln’s lawmakers get serious about addressing the state’s biggest cost drivers, the push for more borrowing, and eventually more tax hikes, will only grow.