Higher Taxes, Worsening Budget Situation in Illinois

Higher Taxes, Worsening Budget Situation in Illinois
October 4, 2011

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

Despite record tax increases in 2011, Illinois state government remains in budget trouble.

Pension obligations for government workers and a huge backglog of unpaid bills are largely responsible for the state government’s continued problems, according to a report by the Institute for Illinois’ Fiscal Sustainability at the Civic Federation of Chicago.

The fiscal watchdog group estimates the state could end this budget year more than $8 billion in the red – despite $7 billion in tax increases. The tax increases are being eaten up by higher pension costs and the costs of paying back money that has been borrowed to fund the state’s bad spending habits, according to the report.

Illinois has long underfunded its pension plans, using monies that should have gone to pensions to pay for spending in other areas of the budget. Ten years ago Illinois’ debt totaled $9.4 billion. This year it tops $30 billion, with more than $16 billion of the increase due to pension obligation bonds.

Rising Pension Costs

Fully 17.4 percent of the General Funds budget of $33.6 billion in Fiscal Year 2012 will go to pension-related payments. The state will pay $4.2 billion in pension contributions and $1.6 billion for pension bonds debt service. The total $5.8 billion in pensions-related spending would be $464 billion more than a year earlier. Pension costs are expected to top $6.3 billion in the 2013 budget year.

“In spite of a tax increase, Illinois is actually losing ground under this budget,” said Civic Federation President Laurence Msall.

On the last day of this year’s lame-duck session, shortly before new lawmakers would have been sworn in to stop the moves, lawmakers approved a 67 percent increase in the state’s personal income tax and a 46 percent increase in the corporate income tax. Gov. Pat Quinn (D) promptly signed the tax increases into law.

The state will end Fiscal Year 2012 with a total General Fund operating deficit of approximately $5 billion, according to the Civic Federation. That deficit comes on top of $1.7 billion the state shorted Medicaid and another $600 million in tax refunds it owes to businesses. Those costs are being pushed into Fiscal Year 2013.

$8 Billion Backlog

“While the budget process was somewhat improved this year, the Civic Federation cannot say the State of Illinois is better off,” said Msall. “By the end of FY2012, the state will have a payment backlog that could require over $8 billion in state money to pay off. The state’s finances have not been fixed” despite the enormous tax increases that were approved at the start of the year.

“This budget plainly demonstrates the need for further pension reform by the State of Illinois,” said Msall. “Neither dramatic increases in revenue nor painful cuts to appropriations were enough to offset the increased costs imposed on the state by its underfunded pensions.”

He said the Civic Federation supports a proposal backed by Republican House Leader Tom Cross of Oswego to create a three-tiered system that would allow employees to stay in the existing system at a higher cost, pay less for a smaller benefit or join a defined contribution plan. Gov. Quinn and many Democrat lawmakers, who control the General Assembly, have expressed opposition to the plan and have blocked its advance.

Pension Scandal

Meanwhile, the Chicago Tribune in September broke a story about top government union officials walking off with millions of dollars in pension payments by taking advantage of an obscure provision of Illinois law. One example involved Dennis Gannon, who was credited for 33 years in the Chicago Department of Streets and Sanitation, when half that time was spent working management for a union. Gannon’s city salary never topped $56,000 a year, yet his government pension is worth more than $5 million.

Two dozen Chicago city workers – all of them union bosses – have won similar pensions, according to the Tribune investigation.

 

 

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)