Illinois Economic Policy Institute: Fix the Budget

It is time to Fix the Budget in Illinois.

The Problem

Illinois is experiencing a budget crisis.

The State of Illinois now faces a $9 billion annual deficit, according to the Institute of Government & Public Affairs at the University of Illinois. The Governor and the General Assembly are at an impasse, leaving the state government without an operating budget since the close of the legislative session in May 2015.

And every day the state goes without a budget, the costs mount for taxpayers.

The longer the stalemate continues, the more that debt piles up and overdue bills go unpaid. Last week, the state took on additional debt through the sale of general obligation bonds. A direct result of the gridlock, this move will cost future taxpayers another $53 million.

Illinois’ budget impasse is also causing severe financial hardships at state universities.

Over the past week, the presidents of nine state universities sent a letter to legislators in Illinois, warning them that universities will be unable to pay their employees– and may be forced to shut down entirely– without action.

When colleges and universities reach this point of no return- when bills cannot be paid and payroll cannot be met- they will close … The results will be catastrophic for the economy of the State of Illinois and it will shatter the dreams and lives of hundreds of thousands of Illinois students and families.

Potential Solutions

The financial condition of Illinois can be significantly improved by looking toward neighboring states, according to a report released today by the Illinois Economic Policy Institute(ILEPI).

Contrary to rhetoric from some commentators and politicians, state tax collections as a share of household income are often relatively lower in Illinois than in neighboring states.

In 2013, total state taxes were lower as a share of household income in Illinois than in both Wisconsin and Indiana. Due to the phase-out of the temporary individual and corporate income tax hikes, revenues as a share of household income are now also below those in Iowa. A single, childless worker earning a $50,000 annual income, for example, would presently pay $505 more in state income taxes in Iowa than in Illinois.

Illinois can adopt tax rates and schedules equivalent to those in neighboring states to close the budget deficit. The key components of Wisconsin’s tax code, if applied to Illinois, would raise $8.3 billion in additional state revenues. The comparable revenue increases are $4.6 billion with Indiana’s rates and $7.3 billion with taxes similar to Iowa.

The estimates are based on how states in the Midwest collect the three major sources of revenue: individual income taxes, corporate taxes, and sales taxes.

Although only some changes may be enacted in Illinois, all options should be considered.

Illinois politicians need to weed through ideological rhetoric, the unreasonable claims of exorbitant cost savings from policy changes on one side of the aisle, and the overly-rosy revenue projections on the other side of the aisle to arrive at a sensible solution to the state’s budget crisis. While ILEPI’s new report only focuses on possibilities from the revenue side of the equation, achieving a budget surplus will likely require decreases in expenditures as well.

It’s Common Sense

Add the Illinois Economic Policy Institute (ILEPI) to the list of economists and research organizations in support of a mix of tax increases and spending cuts to balance the budget.

In a survey of economists and policy academics at Illinois’ accredited universities, 69 out of 92 experts supported the statement that “[r]esolving Illinois’ state budget problems should including making any necessary cuts in spending AND raising new revenues through tax increases.”

The Institute of Government & Public Affairs has concluded that “[t]he state’s deficits cannot be eliminated by quick, temporary fixes, or by waiting for the economy to grow. Solving Illinois’ problems means that the state must use all the fiscal tools it has available. This means a combination of cuts in spending and increased revenue.”

And The Civic Federation has recommended specific proposals that may be useful to state legislators– including retroactive increases in the individual income tax rate to 4.25% and the corporate tax rate to 6.0%, broadening the sales tax to cover additional services, and establishing spending controls. The Center for Tax & Budget Accountability concurs with many of these proposals, but favors a slightly higher personal income tax rate of 4.75% to ensure that the state has enough revenue.

Achieving budget balance is a government practice thatconclusively boosts employment. Higher budget surpluses in state government improve investor confidence and ensure that funds are available during economic downturns. Increasing revenue while increasing investments in the other areas that support employment– education and public infrastructure– can create tens of thousands of jobs for Illinois.

The time for action is now.

Fix the budget.

Five comprehensive studies:

  1. Revenue Solutions to the State Budget Crisis in Illinois: A Comparative Evaluation [PDF]
  2. State of Illinois FY2016 Budget Roadmap: State of Illinois Budget Overview, Projections and Recommendations for the Govenor and the Illinois General Assembly [PDF]
  3. It Is All About Revenue: A Common Sense Solution for Illinois’ Fiscal Solvency [PDF]
  4. Illinois Can No Longer Afford to Be a Donor State: Illinois Ranks 46th in Federal Funding [PDF]
  5. Who Pays? A Distributional Analysis of the Tax Systems in All 50 States – Fifth Edition [PDF]

For more, visit: www.illinoisepi.org andwww.fixthebudget.org.


Frank Manzo IV is the Policy Director of the Illinois Economic Policy Institute (ILEPI). Visit ILEPI at www.illinoisepi.org or follow ILEPI on Twitter @illinoisEPI.

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