To fight COVID-19 economic harm, Illinois must delay or cancel taxes and fees where possible
Struggling businesses, individuals and families need relief while the economy is shut down. Despite Illinois’ financial woes, leaders can help the recovery by lifting government-imposed financial burdens.
Economic fallout from COVID-19 is already creating a financial crisis for families and businesses across Illinois. Many will face challenges in paying rent, making payroll and paying other bills. Workers have already been laid off or faced severe reductions in hours.
While Illinois’ worst-in-the-nation budget health severely limits its ability to use state aid to offset those costs, lawmakers should act to immediately delay or cancel taxes and fees wherever possible.
Specifically, Illinois should:
1. Order a delay in the collection of business property taxes until at least Oct. 1, helping companies keep workers on the payroll while the economy is shut down.
2. Expand Chicago’s fine and penalty relief policy statewide and broaden its scope, lifting government demands off workers facing major new financial challenges.
In addition to these emergency relief actions to address immediate economic harm, state lawmakers should vote to remove the $3.7 billion progressive income tax hike from the November ballot, which would harm workers and roughly 100,000 small business owners across the state – potentially just as they begin to recover from this unprecedented downturn. Per the Illinois Constitution, the question can be removed by a simple majority vote in the House and Senate.
Illinois Gov. J.B. Pritzker and local officials around the state of Illinois have taken drastic public health action to fight the transmission of the novel coronavirus, including the governor’s recent “stay at home” order, which the governor has extended through April 30. As a result, businesses across nearly all sectors have seen their income streams severely cut or eliminated.
Lost business income means employers, especially small- and medium-sized companies, will struggle to pay their workers and may need to resort to layoffs or permanent closure. Illinois saw more than 178,000 new unemployment claims for the week ending March 28, an 1,833% increase from the same week one year earlier.
Many new unemployment claims are doubtless from workers who have been furloughed, or temporarily told not to report to work, and may not represent permanent job losses. Illinois quickly expanded unemployment insurance eligibility through emergency rules to ensure those out of work as a result of COVID-19 shutdowns will be able to receive benefits. The cost of expanded unemployment benefits will be covered by the federal government through the end of the year as part of the Families First Coronavirus Response Act, the second federal emergency response bill.
However, the longer the economic shutdown continues, the more likely it is to result in long-term layoffs that make it harder to bounce back in an eventual recovery. The primary goal of Illinois’ economic and fiscal policy during the crisis must be preventing job losses and business closures.
To mitigate economic harm as much as possible and put Illinois in the best position for a quick recovery, Pritzker and the Illinois General Assembly must take emergency action to minimize financial burdens imposed by the government.
1) Delay property tax collections for businesses to save jobs
In order to help businesses cope with lost revenue and prevent layoffs, the state of Illinois should mandate through emergency legislation that all local governments delay the collection of one installment of this year’s business property tax payments until at least Oct. 1. Property taxes are typically the largest portion of total tax burdens imposed by Illinois governments. A property tax holiday would leave thousands of dollars more in the hands of each business to preserve jobs and pay recurring expenses while the economy is shut down.
Property tax payments are generally due in two installments. Business property taxes apply to commercial, industrial, agricultural, railroad and mineral property. The first payment in Cook County was already due March 3, but the second installment, which is usually due in August, should be delayed. Most other counties do not collect the first installment until June and could delay taxpayers’ first payment until at least Oct. 1, to give companies breathing room during the shutdown.
State officials can make use of emergency borrowing authority granted in the state constitution to issue short-term bonds of about $6 billion – equal to 15% of this year’s appropriations as the constitution allows – to cover the temporary loss to local governments.
The state constitution reads:
“State debt may be incurred by law in an amount not exceeding 15% of the State’s appropriations for that fiscal year to meet deficits caused by emergencies or failures of revenue. Such law shall provide that the debt be repaid within one year of the date it is incurred.”
After the last recession, the state used this authority to issue $1.3 billion in bonds for the operating budget. Today, this provision would allow Illinois to provide tax relief where it is needed most without harming local government finances. Because the bond must be repaid within the year, the interest cost could be relatively minor and be covered by modest changes to the fiscal year 2021 budget. The principal of the debt would be repaid when counties collect the delayed installments.
According to the most recent data from the Illinois Department of Revenue, property tax collections across all business types equaled just under $11.5 billion in 2018. Deferring half of that amount would cost $5.74 billion, less than the state’s emergency bonding authority.
2) Implement local fine and fee relief for at-risk residents
Chicago Mayor Lori Lightfoot announced on March 18 that the city would stop collection activity and penalty growth until April 30 for existing tickets and utility bills, as well as halt booting, towing and impounding unless related to public safety. Additionally, city officials will “prioritize” public safety violations for new citations until the end of April.
The announcement offers a much-needed break from worrying about late payment penalties related to parking, red-light and other violations with limited ties to safety.
A Pro Publica investigative report in 2018 detailed how Chicago’s ticketing system disproportionately impacts low-wage workers and other disadvantaged residents. In 2017 alone, more than 10,000 Chapter 13 bankruptcies in Chicago included debts to the city, averaging $3,900 per person. Many individuals at risk of city debt driving them to bankruptcy are the same people facing COVID-19-induced economic insecurity, including bartenders, restaurant servers and hospitality sector workers.
“Now is the time to act. It’s the right thing to do,” Lightfoot said while announcing the policy. “We know that cash flow is a significant issue and we want to make sure that we’re doing our part to really hear people, recognize what their daily struggles are, and use the levers of city government to help them rather than leave them reeling and potentially driving them into bankruptcy,” she said.
Chicago’s fine and fee relief policy should be expanded statewide and should be broadened to include the suspension of Illinois’ controversial red-light camera program. Gov. Pritzker can make use of his emergency powers to clarify that all activity related to issuing non-safety citations, debt collection and the assessment of penalties is not an “essential governmental function.” Pritzker’s Executive Order 8 already prohibits anyone from leaving their residence for non-essential purposes, but currently leaves it up to local governments to determine for themselves what counts as an essential function of government.
“Essential Government Functions means all services provided by the State or any municipal, township, county, subdivision or agency of government and needed to ensure the continuing operation of the government agencies or to provide for or support the health, safety and welfare of the public, and including contractors performing Essential Government Functions. Each government body shall determine its Essential Governmental Functions and identify employees and/or contractors necessary to the performance of those functions.”
Issuing tickets, collecting debt and assessing penalties for violations not related to public safety does not “provide for or support the health, safety, and welfare of the public” during an economic and public health crisis. In fact, continuing these government activities at this time undermines the welfare of some of Illinois’ most vulnerable residents. Pritzker should make that clear statewide to provide all state residents with the same relief granted in Chicago.
Additionally, Illinois should establish a non-safety ticket forgiveness program for those making less than the median household income of $63,575 who have lost their jobs or were furloughed as a result of COVID-19. Whenever the immediate crisis has subsided, consumers and businesses must be put in the best possible position to help the economy recover. That means eliminating all government-imposed financial burdens that are not absolutely necessary.
Illinois could explore using some of its expected $4.9 billion in federal stimulus dollars to offset the cost of penalty forgiveness, although generally speaking public budgets should not rely on unpredictable revenues such as fines and fees to cover recurring expenses. The federal Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, will provide state and local governments with $150 billion nationwide in direct aid for previously unbudgeted costs related to the viral outbreak through the end of the year.
To adequately supplement federal aid, Illinois must go beyond modest steps taken so far
COVID-19 economic fallout requires bold and urgent action from policymakers. While the federal government has taken significant action already, Illinois’ current state and local response is insufficient.
Experts are constantly adjusting estimates for economic growth and unemployment to reflect the changing realities of the coronavirus crisis. They range widely. Worst-case estimates see the economy shrinking and joblessness rising more than during the Great Recession, although over a much shorter period. For example, James Bullard, president of the Federal Reserve Bank of St. Louis, told Bloomberg in an interview that unemployment could surge as high as 30%. And as The Wall Street Journal reports, Goldman Sachs Group Inc. now expects a 24% contraction in the economy from April to June.
Preventing the worst-case scenarios will require policies that “bridge the gap” of lost cash flow for businesses and individuals. By preventing long-term joblessness and helping individuals avoid default during the partial quarantine, lawmakers can put the economy in the best position to quickly bounce back whenever public health restrictions are eased or lifted.
Goldman Sachs projects the economy will rebound sharply this summer, with 12% gross domestic product growth from July to September and another 10% increase in the fourth quarter. But in order for a quick turnaround to materialize, governments must act now to prevent permanent economic harm.
Most economic assistance will come from the federal government. The Federal Reserve has already started major monetary stimulus and Congress has passed a series of three emergency aid bills. The bulk of federal aid to date will come from the roughly $2 trillion CARES Act, which includes the following forms of assistance:
- Direct cash payments worth $1,200 for every individual making less than $75,000 on their 2018 tax return and $500 per dependent child. Payments for adults will be reduced by $5 for every $100 earned over $75,000 and end completely for those making $100,000 or more. Income thresholds are doubled for married couples filing jointly. All of the payments will be tax-free advance rebates.
- Boosting unemployment insurance payouts by $600 per week across the board and extending benefits for an additional 13 weeks, which will supplement the 26 weeks Illinois already provides. Additionally, eligibility was expanded to include independent contractors such as Uber and Lyft drivers, the self-employed and people with limited work history.
- $454 billion worth of loans intended to help companies bridge the gap during the shutdown and make up for lost revenue. State and local governments may also apply for the loans.
- $349 billion in “Paycheck Protection Program” loans of up to $10 million per loan to small- and medium-sized businesses, those with fewer than 500 employees per location, which can be forgiven if used to cover payroll, rent, mortgage costs or utilities so long as companies retain their workforce.
- Billions more in direct grants for hospitals, medical supplies, schools, airlines and other affected entities.
So far, Pritzker has taken positive but modest steps to supplement federal aid, including:
- Joining the federal government and the majority of other states in delaying the income tax filing deadline to July 15
- Establishing a $90 million state program for small businesses outside Chicago, consisting of loans worth up to $50,000, $25,000 grants to companies in low-income communities, and additional grants for small restaurant, bar and hotel owners who have been closed by the state
- Securing authority for Illinois small businesses to apply for federally backed Disaster Assistance loans worth up to $2 million
- Waiving interest penalties and deferring sales tax payments to the state for small restaurants and bars with less than $75,000 in sales tax liability
Chicago’s mayor implemented a $100 million loan program for Chicago small businesses, deferred collection of a number of business taxes and fees until April 30, and announced fine and fee relief.
Any and all assistance is helpful during this unprecedented crisis, but Illinois must go farther. A deferment of nearly $6 billion in business property taxes would provide far more relief than existing measures for companies looking to preserve jobs and put Illinois in the best position to regain economic losses whenever the recovery begins.
The state should also avoid policy choices that counteract the stimulus and threaten to derail the recovery, such as the $3.7 billion progressive income tax hike. Illinois lawmakers made the mistake of hiking taxes amid recovery from the Great Recession in 2011. The 2011 tax hike raised $31 billion in additional revenues, but cost the state $24.8 billion in GDP and 9,300 jobs between 2012 and 2016. The negative economic effects continued even after the partial sunset of the 2011 tax hike and lawmakers permanently hiked taxes again in 2017.
Illinois economic potential is already restrained by the state’s high combined state and local tax burden. Punishing small business owners with a substantial tax hike this year is not only a poor policy choice, but fundamentally unfair.
While states cannot engage in large-scale stimulus spending that creates debt and deficits in the same way as the federal government, they can look for opportunities to let taxpayers keep as much of their own earnings as possible during a crisis. Delaying the due dates for local property taxes and expanding Chicago’s reduction of ticketing and fines to municipalities across the state would give Illinoisans desperately needed breathing room in these difficult times. Removing the progressive income tax from the ballot would ensure the recovery has a chance to thrive.