Grim as far as the eye can see
Thursday, Mar 14, 2013 - Posted by Rich Miller
* Larry Joseph, the director of the fiscal policy center at Voices for Illinois Children, lays out the grim future…
A few months ago, the Governor’s Office of Management and Budget released a three-year forecast showing that the rollback of income tax rates would force deep cuts in nearly every part of the budget. For example, fiscal 2016 state funding for education would be 20 percent lower than current levels and 30 percent below fiscal 2009 funding. Even with severe spending cuts, the state would have a $7.4 billion backlog of unpaid bills owed to school districts, community colleges, public universities, health care providers, businesses, community nonprofits and local governments.
The Civic Federation has presented a different scenario, which assumes growth in Medicaid spending but essentially flat funding for education, human services and other major policy areas. As a result of the drop in income tax rates, the backlog of unpaid bills would jump to $13.2 billion at the end of fiscal 2016, the Civic Federation projects. Some have suggested that fixing the pension funding problem would remove the need to maintain current income tax rates. But the Civic Federation’s projections show that even with a pension funding plan that saves more than $6 billion over three years, a backlog of $6.8 billion would still exist.
You can bet pretty much anything that any pension funding plan which saves that much money would be blocked in court for a couple of years, so there’d be no savings like that.
* We’ll get to the pension issue in a bit. But while somewhat over-wrought, the State Board of Education has some legit complaints about education funding…
Only one school district, Meridian CUSD 101 in Mounds, has taken the steps to officially pursue a waiver to move to a four-day school week. But state officials say that the idea and other seemingly drastic options are on the table in many districts that are struggling with recent cuts and trying to plan for possible future ones. Christopher Koch, state superintendent, said that suburban districts have been calling the Illinois State Board of Education and inquiring about shortening their school weeks. “I think the problem is they’re without options, and they’re looking at what can [they] do to keep the doors open. And how quickly can they do it. These are real discussions that districts and boards are having across the state. … It’s astonishing to be getting these requests, but that’s demonstrating what’s happening now,” said Koch. “It’s not only four-day school weeks, it’s high class size ratios, so you have a lot more students per teacher. You have all kinds of personnel being laid off across the state. [School] board after [school] board are approving that. It’s a number of things that are occurring that are no doubt going to erode the quality of instruction taking place.”
In its Fiscal Year 2014 proposed budget, the state board is requesting an increase of $874 million from the current fiscal year. According to the ISBE, pre-K through 12 education has been cut by $861 million since FY 2009. The board says general state aid to schools has been reduced by 7 percent, more than $320 million, since FY 2009. […]
Gery Chico, chair of the ISBE, said leaders in the state “have got to challenge the premise” that education must be cut under the next state budget. “That’s not the discussion. That shouldn’t be the discussion. That’s not what a great state’s about,” he said. “There’s not just one way to raise additional money, through pension [benefits] reduction. There’s other ways to raise money. And we need to have all those things on the table so that we don’t talk about four-day school weeks, we don’t talk about 40-plus-kid class sizes or more, we don’t talk about eliminating fundamental programs in schools.”
The governor has proposed another $275 million for the coming fiscal year.
- Sir Reel - Thursday, Mar 14, 13 @ 8:19 am:
While most folks don’t like the idea of the temporary income tax increase becoming permanent, it makes some sense. For years, Illinois has sustained it’s State government by shorting it’s pension obligations and, to some extent, by deferring its infrastructure repair and maintenance.
Now that the State has to deal with its unfunded pension liability, it becomes clear how much money is left for everything else.
A 5% personal income tax rate is closer to what it really takes and should have been in effect long ago. A graduated rate would be better but requires opening up the Constitution, which will be resisted.
Perhaps a permanent increase to 4 or 4.5% coupled with closing some deductions is the way out of this mess.
- titan - Thursday, Mar 14, 13 @ 8:31 am:
When the “temporary” hike in the tax rate went in I simply assumed that the “temporary” part was purely Orwellian political cover language.
- Small Town Liberal - Thursday, Mar 14, 13 @ 8:35 am:
- There’s other ways to raise money. -
Everyone is all ears, Gery. Please elaborate.
- Mason born - Thursday, Mar 14, 13 @ 8:52 am:
Perhaps it is time to decide just what we are willing to pay for. Something tells me there are places things can be cut but then someone has to tell his constituents that their pet project is on hold. All comes down to a lack of political will.
- VanillaMan - Thursday, Mar 14, 13 @ 8:57 am:
Spell check checkmated me into posting “immortal”, instead of “immoral”.
- Small town tax payer - Thursday, Mar 14, 13 @ 9:07 am:
“the Governor’s Office of Management and Budget released a three-year forecast showing that the rollback of income tax rates would force deep cuts in nearly every part of the budget.”
On the day the “temporary” income tax increase was passed it was clear to me that it could not be temporary. The math on that point was very clear, the “temporary” income tax increase stays or spending needs to be cut.
The actual decision that no one in Springfield appears not to want to make is: how much more of a tax increase, an addition to keeping the “temporary” tax, will there be in addition to how much, if any, in spending cuts should there be?
“Perhaps a permanent increase to 4 or 4.5% coupled with closing some deductions is the way out of this mess.”
Using the revenue numbers in the budget for FY14, table II-A specifically, plus a pension under funding of $97B, the calculation was easy. It appears to me that the permanent tax increase needs to be in the range of 6.5% to 6.75% to fund the pension plans. This assumes no net change, no cuts and no increases, in spending for many years. Put another way, it is the “temporary” increase plus 1.5% to 1.75% more on the income tax rate, plus closing a few deductions, plus no more net spending on much of anything for years.
I should note that this “solution” also assumes no change in pension expense and is based on the assumption that higher taxes will, over the years, pay for the entire $97B in unfunded pension costs. While the math works fine, I wonder if this is politically possible?
- Mason born - Thursday, Mar 14, 13 @ 9:20 am:
I have a question i wonder if someone can answer. Why are they talking hiking the income but not State Sales Tax?? Seems to me State Sales tax is actually easier to pass of with voters (most of us don’t even notice it) and gets tourists and visitors.
- wordslinger - Thursday, Mar 14, 13 @ 9:26 am:
Without the revenue from the incomes tax increase, there’s no way to get on track with the pension liability, much less whittle down old bills The arithmetic is unforgiving.
- Blockhead - Thursday, Mar 14, 13 @ 9:31 am:
We live in a schizophrenic world. Papers scream out in panic about “failing” education system. But we claim to hold education near and dear and vital. So what do we do? Underfund it, scimp on payments to everyone involved so, I guess, we can keep up the hand wringing about how awful the system is. What a joke. Clearly, the only education anyone values is their own and their own immediate children’s. Other than that, who cares, right? If we put our money where our mouth is we wouldn’t be 49th in the country in funding out schools. But then again, we wouldn’t have anyone to berate, belittle and wail on, would we?
- Demoralized - Thursday, Mar 14, 13 @ 9:40 am:
@Mason born:
I can think of several reasons, not the least of which is that the sales tax is an extremely regressive tax. It doesn’t distinguish based on income and hits those with lower incomes hardest. I’m also sure that most cities would fight tooth and nail against it because they would take away any ability they have to raise revenue on their own. A city can’t raise the sales tax after an increase by the state. There are numerous reasons but those are two off the top of my head.
- Small town tax payer - Thursday, Mar 14, 13 @ 9:53 am:
“Without the revenue from the incomes tax increase, there’s no way to get on track with the pension liability, much less whittle down old bills The arithmetic is unforgiving.”
The term “unforgiving” computes out to a state sales tax rate of about 11% in place of using the income tax to raise the required amount of money. One must then add on the sales taxes from any units of local government such as city, county, etc. which may apply. Again, this assumes that the sales tax alone will fund the $97B of unfunded pension debt. Also see table II-A of the FY14 proposed budget to do the calculations.
- Mason born - Thursday, Mar 14, 13 @ 9:58 am:
Demo
While i will have to agree to disagree with the regressive part since the more money you have the more you spend on items taxed. I had not considered the municipality restraints. So if State hikes the rate a municipality cannot make an additional hike or loses what it had in place to begin with? i am legitimatly curious.
- Property owner - Thursday, Mar 14, 13 @ 9:59 am:
“If we put our money where our mouth is we wouldn’t be 49th in the country in funding out schools.”
According to the latest U.S. Census Bureau data, Illinois is 21st in total spending per elementary and secondary student. If you count only dollars from the State of Illinois, and ignore what property owners pay toward education, then it ranks 46th of the 50 states.
- Cincinnatus - Thursday, Mar 14, 13 @ 10:00 am:
Demoralized,
When I lived in Connecticut, their sales tax excluded food and clothing items under $50 (I don’t know if there have been changes in the past 20 years). This approach would alleviate your concerns.
- wordslinger - Thursday, Mar 14, 13 @ 10:06 am:
–While i will have to agree to disagree with the regressive part since the more money you have the more you spend on items taxed.–
It’s the percentage of income that is taxed under a sales tax that makes it regressive.
A paycheck-to-paycheck earner pays a much higher percentage of income with a sales tax than one who can fulfill their living needs and then sock away the rest in the bank, investments, stocks, etc.
A swap of income tax for sales tax is a transfer of tax liability from higher incomes to lower incomes.
- 47th Ward - Thursday, Mar 14, 13 @ 10:45 am:
The 2014 campaigns for governor and General Assembly will be a referendum on the income tax. Candidates who campaign in favor of making the tax hike permanent vs. candidates who say they can manage the state’s finances without it.
Chances are they’re both lying. We need to keep the tax rate at 5% and still find more revenue from somewhere. As Wordslinger said, it’s simple math.
Any candidate who says the tax should sunset and everything will be fine is either lying or has such a poor grasp of the problem as to be disqualified from office due to sheer ignorance.
We’re going to spend quite a bit of time talking about candidates, but this is the issue and it will be front and center of almost every campaign in 2014. Factor that into your assessment of who has the most viable path to the Governor’s mansion and GA.
- David Ormsby - Thursday, Mar 14, 13 @ 10:56 am:
–Without the revenue from the incomes tax increase, there’s no way to get on track with the pension liability, much less whittle down old bills The arithmetic is unforgiving.–
Math? Piffle.
And none of the pension “reforms” work without the tax increase. They’re “solutions” built on illusion.
- Mason born - Thursday, Mar 14, 13 @ 11:02 am:
47th
You have a valid point the question will be if any of the voters actually look at the math or just listen to the feelgood B.S. The only way to end “temporary” increase and dig out of this is some truly massive cuts. Once you talk cuts you always find someone who loses something they like.
- Arthur Andersen - Thursday, Mar 14, 13 @ 11:37 am:
Well said Mr. Ormsby!
- Irish - Thursday, Mar 14, 13 @ 11:39 am:
Make the temp income tax permanent, (that’s a no-brainer).
Pass a gaming bill, we are losing money to neighboring states now, and quit talking about gambling expansion, you lost that argument when online lottery sales went into effect.
Put a tax on services, if you can afford to pay someone to do something you can afford the tax.
And look real hard at how much tax money is being paid to CMS by other agencies for services that should be provided free. As an example, why are agencies now paying above market rent to CMS for buildings the agencies own themselves? And that is just the tip of the iceberg. Example two. When CMS gets new computers they offer the old computers to other agencies. If the agency accepts the computer they are then charged a lease fee by CMS for that computer. So you have a piece of equipment bought with tax money, that normally would have been scrapped and sold at auction, that is now given to another agency not to save money, but to generate money for CMS. Then if the computer needs to be repaired the agancy has to pay CMS to have a CMS IT guy fix the computer that is really CMS’s computer. These things raise the costs of all the other agencies so they have to request more tax money to keep up. In spite of this revenue stream CMS was also the only agency, I believe, that got an increase in their budget last year.
- Math Counts - Thursday, Mar 14, 13 @ 12:26 pm:
== Why are they talking hiking the income but not State Sales Tax? ==
Because a majority of GRF already comes from the sales tax;
Because closing sales tax loopholes makes much more sense than raising the overall rate if the goal is to generate revenue;
Because even though our flat tax is regressive, the sales tax is even MORE regressive.
- zatoichi - Thursday, Mar 14, 13 @ 1:52 pm:
The tax hike was temporarily ‘temporary’. If cuts at the current 5% can’t be made and bills are still not paid while the pension keeps growing, what gets hit by moving the tax back to 3%? Going to make those classes sizes 50 - 1? Raise the tax to 5.5% and move on.
- RNUG - Thursday, Mar 14, 13 @ 2:45 pm:
Math Counts @ 12:26
Actually, under the current tax rates, the majority of money comes from the income tax.
FY12 figures (rounded):
Individual income - $17B
Corporate income - $3B
Sales Tax - $10B
everything else - $5B
http://www.revenue.state.il.us/Publications/AnnualReport/Annual-Report-2012-Table-1.pdf
If you removed the temporary 2%, then the individual income would be equal to the sales tax at $10B
- Mix_It_Up - Thursday, Mar 14, 13 @ 4:24 pm:
It is my belief that the pension fiasco has been nothing more than a means to justify the “temporary” tax increase. You can’t keep the tax increase if you don’t have a fiscal problem. It is amazing how the pension crisis came to a head after the tax increase. Legislators can reduce spending on their pork projects at any time without affecting our education funding. The Governor is attacking education funding and blaming the pensions to raise the ire of the general public. Wasn’t the tax increase suppose to be used to pay off the backlog of bills? It’s too bad that we don’t have honest statesmen as legislators. But, if you are honest, noone will play ball with you and you become an ineffective legislator.
- reformer - Thursday, Mar 14, 13 @ 6:05 pm:
The math is undeniable, though that won’t stop GOP gubernatorial hopefuls from claiming we don’t need to extend the income tax hike.
If a Republican is elected governor, then the only hope is that he pulls a Thompson and flips on taxes after he’s elected.
- Just The Way It Is One - Thursday, Mar 14, 13 @ 6:34 pm:
They passed a bill JUST to “lock UP” guns if they LIVE with someone who is mentally ill? That’s it?! Gee, somehow doesn’t seem to go far enough on that one! Member the guy from Newtown? If people are sick enough, methinks they’d find a way to figure out where Ma or Pa leave that key for that “locked up” gun they’re going to use to go on a murder rampage of innocent victims! Sorry, but pretty lame, folks. That’s really the best you can do on that specific issur???!
- wordslinger - Thursday, Mar 14, 13 @ 7:26 pm:
Just, what are you talking about?