Illinois: With no budget in place, lawmakers return to the drawing board

The Prairie State, like Ohio and Florida, is one of those that we have recognized as anticipating a troubling fiscal year in 2017, and perhaps beyond. Illinois’ longstanding problems stem from the standoff between Gov. Bruce Rauner and Democratic lawmakers, who appear to be incapable of resolving their differences, and the six-month bridge spending plan passed in June expired at the end of 2016.

Nevertheless, though relations remain somewhat topsy-turvy, there is some hope that the deadlock may be coming to an end. Earlier this month, the Chicago Sun Times reported that Democrat and Republican leaders in the Senate have “negotiated an ambitious, multi-part plan,” which includes 13 “sweeteners” unrelated to the budget that could appease both sides.

According to the paper, Gov. Rauner’s office expects a $5.3 billion deficit by June 30, which is the end of the fiscal year. To resolve the deficit, the plan contains an income tax rate increase, a minimum wage hike, and a pension reform solution. In addition, the governor’s demand for a property tax freeze is now on the table, as are rules that would make it harder for workers to file worker’s compensation claims.

More specifically under the plan:

• Personal income tax increase: Forecasted to generate $4.1 billion annually, the personal income tax rate would rise from 3.75 percent to 4.95 percent. Democrats contend that this rate increase, along with spending cuts, could eliminate the deficit entirely.
• Minimum wage hike: On July 1, 2017, the minimum wage would increase from $8.25 per hour to $9 per hour, then increase again by 50 cents each year until 2021, when it will hit $11 per hour.
• Pension reform for legislators: Promising savings of $1 billion annually, the plan would eliminate pensions for future lawmakers by offering a choice between how future pay raises figure into retirement income, or whether pensioners receive cost-of-living adjustments in retirement instead.
• Pension reform for teachers in Chicago: The state would take responsibility from the city of Chicago for paying the employer’s portion of teachers’ pensions, which would cost $215 million in 2017.
• Debt reduction and cost management: The plan calls for a bond sale to generate $7 billion for paying overdue bills, which currently amount to $10.7 billion. This would also be put toward paying vendors and service providers within 30 days of receiving invoices.
• To cover seven agencies’ expenses for the first six months of 2017, like prisons and the Human Services Department, the plan incorporates $694 million.
• Workers’ Comp: The plan contains restrictions beyond those implemented in 2011 that would, among other things: 1) restrict claims when injuries are accidents; 2) set maximum compensation rates; and 3) limit physical therapy.

Another provision contained in the legislation is the imposition of a sugar-sweetened beverage tax of 1 cent per ounce on the distribution of bottled sugar-sweetened beverages, syrups, and powders.

In a recent article, Illinois Policy suggested that the passage of a new budget would not solve everyone’s problems, because, even now, “state government is still paying out at a breakneck pace through a mishmash of autopilot spending, court orders and consent decrees…[and is] set to spend a record amount of taxpayer money in fiscal year 2017: nearly $40 billion. That’s a new high for Illinois.”

The group opined that $40 billion constitutes “plenty of funding to go around,” and that it is the state’s spending priorities that are “out of whack.” Pensions costs, 25 percent of the budget, “suffocate” spending on critical matters, such as human services and public safety. And tuition at public colleges and universities “is too often out of reach for many students without them taking on debt and receiving help from the government,” which causes young people to seek opportunities outside of Illinois. Citing data from the IRS, Illinois Policy laments that between 2011 and 2015, the state lost more than 80,000 millennial taxpayers; New York is the only state that has lost more.

The article offered a breakdown of the percentage change in spending in certain categories between 2000 and 2015, during which time total state revenues actually increased by 57 percent:

• State-employee pension benefits: 586 percent increase
• State-employee insurance: 166 percent increase
• Medicaid: 141 percent increase
• K-12 education, excluding pensions: 35 percent increase
• Public safety: 12 percent increase
• Human services: 10 percent increase
• Culture and the environment: 59 percent decrease
• Higher education, excluding pensions, which account for 50 percent of every dollar: 8 percent decrease

In the end, Illinois Policy bemoans “a full-year budget without major reforms [that] simply serves to set warped priorities in stone.”