The state of Illinois is reaching a crisis point:
Illinois lawmakers will try this week to accomplish in a few days what they have been unable to do in the past two years — resolve the state’s worst financial crisis.
The legislative session that began today as the House convened will take aim at a budget deficit of at least $13 billion, including a backlog of more than $6 billion in unpaid bills and almost $4 billion in missed payments to underfunded state pensions.
The fiscal mess is largely of the lawmakers’ own making, and failure to address the shortages threatens public schools, local governments and other public services, said Dan Hynes, the state’s outgoing comptroller.
“We’ve reached a very critical and concerning point,†Hynes said in an interview in his Chicago office, with packing boxes stacked in the corner. “What’s missing right now is a general understanding by the public of where we are, of how bad it is, and what the fallout would be if we don’t deal with it properly.â€
Illinois’s legislators have preferred to use one-time fixes, borrowing from future revenue, and gimmicks over substantive reform. The problem with borrowing from future revenue is that eventually the future arrives and when you get there, you’ve got less revenue to work with than you otherwise might have. In Illinois the future is now.
Since 2003 state spending has grown by 31% (PPT) while revenues have increased by 25%. The state is dependent for its revenues on three streams: incomes, real estate prices, and retail sales. Each of those streams is at or below the level it was in 2007 while state expenditures continue to grow.
In 2010 48% of Illinois’s budget was devoted to just two items: healthcare (33%) and pensions (15%). The state’s share of public education financing is already among the lowest in the Union. Illinois’s unique constitutional protection of public employee pensions insures that, barring amending the constitution or some form of relief from the federal government, those obligations will be paid.
Illinois can’t cut, it can’t borrow, it has nothing left to sell, and it has found itself unable to increase revenues. The wheel has hit the road.
Your state income tax is still at 3% isn’t it? Maybe it’s time to bump that up a bit? It is one of the lowest rates in the country, beaten only by the no-income-tax states like WA, NV, AK, TX, TB, NH and FL.
I have supported an income tax increase in Illinois for the last ten years. The legislature hasn’t found the gumption to do it.
However, the basic point remains: when the streams on which government revenue depends aren’t growing while government’s take does, that means that more is being devoted to government. That reduces investment, retail sales, and housing prices.
Illinois’s biggest problem is increasing healthcare costs. PPACA is too little, too late.
There’s another problem, too, Michael. Illinois isn’t California. There is no Illinois equivalent to “There is no life east of Sepulveda”. Consequently, Illinois has one of the highest rates of out-migration in the Union and those with the highest incomes typically find their lives most portable.
I had never heard that about Illinois. The out-migration thing. Interesting. I migrated in from Minneapolis for the low state tax rate and Charlie Trotter.
I out-migrated when I got tired of chipping frozen dog crap out of the snow in my back yard. (Biggest yard problem here? Falling persimmons.) I can see people leaving Chicago for NYC or LA — though that won’t save anyone money — but more likely Houston or Seattle.
At the same time, having state services falling down around your ears doesn’t encourage people to stay, either. If it were me I don’t think I’d resent a bump from 3% to 4 or 5% enough to move out. Beyond that, though, I have to admit I’d be wondering why I was freezing when I could pay California’s 10% and wear flip flops every day.
Illinois’s legislators have preferred to use one-time fixes, borrowing from future revenue, and gimmicks over substantive reform. The problem with borrowing from future revenue is that eventually the future arrives and when you get there, you’ve got less revenue to work with than you otherwise might have. In Illinois the future is now.
Hands down, Governor Sarah Palin comes out looking smarter than every Illinois legislator (even those who’ve moved up to higher office):
Sarah Palin, half-term governor of a state that lives on oil leases and has a population of 200 guys with beards, 5 women and 100,000 caribou.
Yeah, she’s a genius. How does she do it? Oh my, I love her so!
IL may have a relatively low state income tax, but it is a very high property and sales tax environment. Overall it is hardly a tax friendly state.
I know we have commentors here in absolute denial, but I’ve just finished a couple weeks in Naples, followed by stops on the east side in Miami, Vero Beach and Jacksonville talking to investors. It is amazing how often the Florida friendly tax environment comes up (many of these people are originally from the north, and have moved as individuals, or moved their businesses.) In fact, bucking a trend noted on this blog recently, Florida is adjusting property taxes DOWN as values have fallen. As people I have been speaking with note: Florida “gets” it. One of my partners has now established Florida residence (formerly IL) and I may not be far behind. People. The golden geese are leaving.
Oh, and with proposals for the state income tax to increase to 4 or 5% while “government services” are still a joke, IL could reach the tipping point faster than people think.
IL may have a relatively low state income tax, but it is a very high property and sales tax environment. Overall it is hardly a tax friendly state.
Beyond a certain income level all that really matters is income tax.
One of my partners has now established Florida residence (formerly IL) and I may not be far behind. People. The golden geese are leaving.
I’ll admit to having thought about it. (It’s not accident that I can rattle off state income tax rates from memory.) But we keep coming up against one undeniable fact: it’s Florida. Yuck.
I lived in the panhandle as a kid, Orlando and Sarasota as an adult and I still would rather take the 10% California beating than spend my life in that sweaty, mosquito-infested, brain-dead state.
I’m a Florida resident and the tax advantage is pretty nice.
MR –
Just as CA has very undesirable areas – like the central valley – so does FL. Most of my experience is in Naples and Jacksonville. Nice areas, and hardly “brain dead.”