Paul Vallas: Illinois’ real ‘State of the State’

Paul Vallas: Illinois’ real ‘State of the State’

Illinois is on an upward path, Illinois Gov. J.B. Pritzker said during his State of the State speech. True, by some measures. Not so much by too many measures that matter.

As expected, Illinois Gov. J.B. Pritzker hyped his successes during his joint State of the State and budget address Feb. 21. He claimed his leadership helped the state weather the COVID-19 crisis and shifted the state’s course to the positive.

Sure, Illinois is in a better place than it was during the divisive and chaotic former Gov. Bruce Rauner years: if you measure it in terms of the absence of political gridlock and the state’s newfound political clout with the federal government.

Pritzker can offer budgets and make decisions with little pushback from the Democratic super-majorities in the General Assembly, a group he supports financially. His political fundraising is paying huge financial dividends in terms of federal assistance. He also received massive infusions of federal funding because of COVID, which temporarily stabilized state finances and enabled him to avoid tax increases.

So yes, Illinois is in better shape today than during the Rauner years. But that is no cause to celebrate.

With the COVID money running out, Pritzker told taxpayers he’s seeking $800 million in new tax revenues. The state faces many serious challenges, and it is questionable if Pritzker’s $52.7 billion budget – nearly $13 billion more than when he took office – even begins to address any of them.

Here’s what Illinois is facing.

Job growth: Illinois continues to lag far behind the nation in job growth.

Job growth as a whole – and across virtually every industry – is lagging in Illinois compared to the U.S. average. Total nonfarm payrolls increased by 0.9% in Illinois during 2023, adding 57,800 jobs to the economy. The nation nearly doubled that rate by growing payrolls at 1.7% and adding 2.7 million jobs during the year. Of the 11 large job sectors tracked by the U.S. Bureau of Labor Statistics, Illinois only outperformed the national economy in two: financial activities and government.

Population growth: Illinois is not growing and the people who remain are increasingly dependent on government.

Illinois lost population for the 10th straight year in 2023, dropping by 32,826 residents. Its total population loss trails only California and New York.

Illinois was one of just three states in the country to shrink in population between 2010-2020, thanks to 787,000 individuals moving to other states on net, according to IRS data.

The latest data shows Illinois lost at least 225,000 public K-12 students during that period, second only behind California.

IRS state-to-state migration data shows Illinois was a net loser to other states in every income and age group. The people who remain are increasingly dependent on government programs.

Tax climate: Illinois remains one of the least tax-friendly states.

New financial reports rank Illinois as the least tax-friendly state for middle-class families.

Kiplinger’s annual state tax analysis found Illinois’ second-highest property taxes, eighth-highest combined sales tax and above-average income taxes are costing middle-class families more than in any state except New Jersey and Connecticut.

This nation-leading tax burden is driven primarily by Illinois’ second-highest property taxes, which are double the national average. Illinoisans currently spend between 20-60% more in property taxes than residents in the Midwest and neighboring states. Nearly half of Illinoisans have thought about moving away, citing high taxes as their No. 1 reason. State lawmakers can limit future outmigration and entice more families and retirees to stay in Illinois by making property tax relief a priority.

Chief Executive magazine has also ranked Illinois as third-worst in the nation, behind only California and New York, in its “Best & Worst States For Business Survey” for 2022.

School performance: Illinois’ K-12 public school system is among the highest taxed and poorest performing in the nation.

On average, two-thirds of all local property taxes go to fund K-12 education. The funding is clearly not reflected in the results. The situation in Chicago is particularly bad. Overall, about 26% of Chicago Public Schools’ third- through eighth-grade students met or exceeded reading standards and 17.5% of students did so in math. The performance among Black students is far worse.

Yet Illinois is the only state in the nation to end its only school choice program, eliminating in 2023 the modest Invest in Kids scholarship program for low-income students.

Chicago is taking additional steps to limit and roll back public-school choice. The state’s elimination of the independent charter school commission has allowed the Chicago Teachers Union to undermine public-school choice by forcing Chicago Public Schools to say they’ll “move away” from selective enrollment and magnet schools and to cap the number of public charter schools and their enrollment.

Health of Chicago: Illinois’ economic hub is in crisis with dire, long-term consequences.

Businesses in the city of Chicago are still reeling from the crushing effects of COVID restrictions, rising crime and high taxes. That’s led to one of the worst recoveries for downtowns across the U.S., according to the University of Toronto School of Cities. Office occupancy sits at 55% of pre-pandemic levels.

Chicago already has the second-highest commercial property taxes in the nation at 3.78%, more than double the U.S. average for the largest cities in each state. Chicago’s commercial property taxes increased by 93% from 2012 to 2022. Now Chicago Mayor Brandon Johnson is pushing a real estate transaction tax increase on the March 19 ballot. Masquerading as a “mansion tax” to fund homelessness, it would instead be a massive hike on the city’s commercial businesses to fund a plan with few specifics. It comes as the Chicago City Council has pushed more unfunded business mandates, such as eliminating the sub-minimum wage and doubling personal time off.

Crime: Violent crime continues to grow, not shrink.

Illinois residents have the highest level of concern nationwide regarding violent crime, gun violence, and overall daily safety. Illinois also placed within the top five most-concerned states for property crime and package theft. Illinoisans are also the least-likely Americans to feel safe in their state.

Pritzker said addressing crime is an “ongoing issue” but also said “violent crime in the City of Chicago… has been coming down for three years, in particular last year.” The numbers tell a different story. The City of Chicago’s Violence Reduction Dashboard shows the number of victims of violent crimes has grown every year since 2019.

Last year, overall major crime rose 16% as Chicago led the nation in murders, mass murders and school-age youth killed. In 2022, the city ranked second in per capita homicides for major American cities and had five times the per capita murders as New York and two and one-half times the murders of Los Angeles.

Debt: Illinois has the largest employee pension obligations of any state in the nation – and it’s growing.

Illinois state and local government retirement shortfalls grew to a record $530 billion in 2020, according to the latest data from Moody’s Investors Service. That translates to an average burden of $110,000 in pension and retiree health debt for every household in Illinois.

Illinoisans’ debt is made up of $313 billion in unfunded pension debt for Illinois’ five state-run pension funds, $54 billion in state retiree health insurance shortfalls, $9 billion in state pension obligation bonds, $122 billion in Chicago-area shortfalls and $32 billion in other local government retirement debts.

Even according to state figures, Illinois’ major state-run pension funds are reaching concerning levels. Illinois’ statewide public pensions are in the worst shape in the nation, according to the Equable Institute. Three of Illinois’ five state-run retirement systems were among the 10 worst-funded systems in the nation.

Migrants: Illinois is facing a pricey migrant crisis with no end in sight.

Both Pritzker and Johnson have unequivocally labeled the border situation as “untenable.” They’re right.

Since 2022, the governments of Illinois and Chicago have allocated or committed over $800 million to support the 35,000 migrants seeking asylum. Pritzker’s announcement on Nov. 16, 2023, revealed a staggering $478 million already spent on the migrant crisis, with an additional $160 million earmarked to address the escalating issue.

Adding to the financial burden, Johnson’s administration disclosed its plan to redirect an extra $95 million in COVID-relief funds towards migrant shelter costs. This, coupled with previous expenditures, catapults the total spending well beyond $800 million, not including nearly $1 billion in state and local migrant health care expenses. Meanwhile, Pritzker and Cook County Board President Toni Preckwinkle pledged an additional $250 million in funding, with an expectation for Johnson to contribute another $70 million.

There is no end in sight to this spending. The vast majority has been initiated by executive authority, circumventing legislative and taxpayer approval. State and city leaders have no strategy on how to limit the number of new migrants to more manageable levels or to remove obstacles to get them working.

In summary

Illinois is facing multiple crises – to say nothing of the current migrant crisis, which threatens to overwhelm state and local government finances.

The State of the State is not so rosy. Getting back to the pre-COVID and pre-Rauner conditions is not nearly enough progress. Illinois needs to address the immense challenges the state and its most important city are facing.

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