February 13, 2019
In light of Springfield’s past bad practices, group also cautions against gimmicks, pitfalls
(CHICAGO) – In a report released today, the Civic Federation’s Institute for Illinois’ Fiscal Sustainability has proposed a multi-year plan to address the State of Illinois’ financial challenges. The full report is available here.
The Federation presents a Roadmap each year for consideration by the Governor and General Assembly in advance of their budget negotiations. The Federation proposes two new sources of revenue as part of its FY2020 plan—only in the context of a multi-year plan that includes limits on spending. If new revenues are directed to new spending, progress toward fiscal sustainability is imperiled.
Recommendations for FY2020 and beyond include:
- Limiting net agency spending, including reasonable savings in employee salary increases and health insurance costs;
- Eliminating the tax exclusion on federally taxable retirement income;
- Expanding the sales tax to some services;
- Placing a constitutional amendment on the ballot to limit the pension protection clause;
- Identifying revenues to make annual supplemental pension payments;
- Consolidating and streamlining local government units, including pension funds;
- Examining pension investment expenses and asset allocation;
- Restructuring the public university system;
- Implementing reforms designed to reduce the prison population and generate cost savings; and
- Completing a comprehensive assessment of infrastructure needs before embarking on a capital plan.
“The enormity of Illinois’ financial challenges demands a solution of the same magnitude,” said Civic Federation President Laurence Msall. “While the Federation remains cautiously optimistic for the upcoming budget year, Springfield unfortunately has a long record of attraction to accounting gimmicks and shortsighted maneuvers. Accordingly, the Roadmap also outlines a number of steps the Governor and General Assembly should not take on the State’s quest for sounder financial footing.”
The Civic Federation does not take a position on the legalization of marijuana or sports gambling or on the enactment of a graduated income tax. However, as public discussion of these policy areas continues, lessons must be drawn from other states and from Illinois’ own past practices in order to navigate implementation pitfalls.
Predicting how much revenue will be generated in the first years of either legal cannabis sales or sports gambling will be difficult, and there are uncertainties about the length of time required to establish regulatory and taxation structures for each. Moreover, a portion of revenues should be used to pay for regulating these emerging industries and addressing social costs.
“In order to avoid building deficits into future budgets, the initial proceeds from sports gambling or cannabis should not be used to prop up Illinois’ budget until the State has a reliable accounting. Instead they should be designated for one-time expenses, such as paying down the multi-billion-dollar backlog of bills” said Msall.
Procedurally, the soonest a graduated income tax could be legalized is November 2020, meaning the State cannot count on any resulting revenues to address its near-term fiscal challenges. If the State pursues a graduated income tax structure, the Civic Federation advises that the top individual rate should be no more than three percentage points higher than the bottom rate. Such a restriction would help ensure that a graduated structure would bring in revenues needed to solve Illinois’ many fiscal challenges without overburdening any one group of taxpayers. However, eliminating the tax exemption on retirement income would immediately put Illinois’ income tax system more in line with surrounding states and would not require waiting for a constitutional amendment. Further, if the State eventually implements a graduated income tax structure, matching other states’ more limited exemptions on retirement income could allow for significantly lower rates for all tax brackets.
The Federation additionally cautions against the State’s past bad practices of: underfunding group health insurance; relying on asset sales to support operating expenses; counting on speculative pension savings; ending level principal debt repayment; and abdicating responsibility for financial assistance to local governments.