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Civic Federation Offers Plan to Stabilize Illinois Finances

Posted on February 09, 2018

(CHICAGO) – In a report released today, the Civic Federation’s Institute for Illinois’ Fiscal Sustainability proposes a comprehensive five-year plan to stabilize the State’s finances. The Federation’s proposal would eliminate the State’s operating deficit in FY2019 and clear the multi-billion-dollar backlog of bills by FY2023, allowing the State to begin building a rainy day fund to protect against future financial shocks. The full report is available here.

While Illinois has ended its devastating two-year budget impasse, the enactment of a revenue and spending plan for FY2018 represents only the first of many difficult steps the State will have to take. Significant challenges remain, including a lowest-in-the-nation credit rating, ongoing budget deficits, remaining bill backlog, staggering public employee pension costs and a massive backlog of deferred infrastructure maintenance.

“Following the end of the impasse, Illinois taxpayers were able to breathe a short sigh of relief that the State was no longer careening toward unprecedented financial disaster,” said Civic Federation President Laurence Msall. “However, our elected officials again relied on shaky financial practices for short-term relief, such as counting on dubious one-time revenues and repeatedly kicking the pension can down the road. Such actions only make achieving sound financial footing more difficult.”

Spending controls are at the center of the Federation’s plan, but eliminating Illinois’ overly generous exemption for retirement income is also necessary to close the FY2019 operating deficit, pay off remaining bills and address other pressing challenges. Following tax changes in FY2017, the Federation recognizes further increases would not be welcomed by many residents and elected officials. Therefore, revenue proposals focus on broadening the tax base in ways that could lead to lower future rates. The Federation recommends:

  1. Restricting net agency spending growth to 2.1% annually through at least FY2023;
  2. Reducing late bill interest penalty payments to a market-based rate;
  3. Eliminating the State of Illinois exclusion for all federally taxable retirement income;
  4. Extending the State sales tax to 14 additional services taxed by Wisconsin;
  5. Working toward a rainy day fund equal to 10% of General Funds revenues;
  6. Placing a constitutional amendment on the ballot to clarify the pension protection clause;
  7. In the absence of benefit reform, requiring annual supplemental pension payments;
  8. Merging the Chicago Teachers’ Pension Fund with the Teachers’ Retirement System;
  9. Creating a bipartisan commission to rationalize the State’s higher education system and consolidating the governance of State universities;
  10. Initiating a new capital plan with a comprehensive analysis and prioritization of the State’s infrastructure needs, funded by an increase in the motor fuel tax; and
  11. Consolidating and streamlining government units in Illinois.

“Building political will to implement more painful tax and fiscal policies will be difficult, but it is necessary in order to secure Illinois’ financial future,” said Msall. “Recent State-issued documents offered potential investors no assurances that Illinois will enact budgets in future years. This is troubling, as another impasse could wipe out any modest progress made in recent months and leave us with increasingly grim financial decisions.”

Click here to read the full report.