* As I’ve been warning, fighting a brutish political war and not getting the state’s economic and fiscal houses together is gonna put us into a much, much deeper hole if we slip into a recession. We’re not there yet, but the signs are troubling. From the General Assembly’s Commission on Governmental Forecasting and Accountability’s latest monthly briefing…
Year To Date
With half of the fiscal year completed, base receipts are off $865 million, or 6.1%. Readers of the last several briefings likely have noticed growing oncern with each successive month’s disappointing revenue performance. Embedded within the overall falloff of 6.1%–of which a large part is due to a drop of $290 million or 22.4% in federal sources—is the combined drop of 4.5% from the “Big Three” [gross personal, gross corporate, and sales]. While that percentage falloff may slightly overstate the decline due to timing aspects still related to the income tax rate phase down, perhaps most unsettling is that the last time the Big Three experienced a combined decline during the first half of a fiscal year [absent tax rate changes] was during the recessionary years impacting FY 2009 and FY 2010, when performance was - 0.9% and -10.4%, respectively. That is not to say we are in recession, as most economic measures would indicate otherwise, but rather gives context to what only can be described as troubling revenue performance thus far in FY 2017.
Gross corporate income taxes are off $386 million, or $340 million net of refunds. Gross personal income tax is down $189 million or $260 million if refunds and diversions to the education and human service funds are included. As mentioned, sales taxes are weak and have managed to grow only $45 million. Overall transfers are down $62 million to date. Only the one-time nature of this month’s SERS repayment has allowed other sources to post a $111 million increase.
With continued dramatic falloffs month after month in federal sources, receipts are behind last year’s dismal pace by $290 million. In all likelihood, federal sources will fall several hundred million below the Commission’s forecast, and probably over a billion below the GOMB forecast released in Oct/Nov. [See last month’s briefing for a more detailed discussion of the CGFA/GOMB revenue estimate comparisons].
To summarize, to date the State has experienced across the board revenue weakness. The most closely economically-tied major sources are experiencing levels of weakness not seen since the last recession. This poor receipt performance has limited the ability to direct more resources to reimbursable spending and as a result, federal source receipts have also suffered.
That being said, economic conditions as measured by most conventional indices would reflect weakness, but not at recessionary levels. In addition, non-wage income from strong stock market performance in 2016 could translate into more positive performance in final payments. Additionally, as the Commission has indicated in earlier briefings, the DoR’s ledger conversion has altered historical receipt patterns, likely contributing to some of the year to date declines experienced thus far. As we near the end of the first year’s impact of that accounting conversion, the potential exists for a return to less volatile monthly swings, which up until now, has trended toward the negative.
- Stark - Thursday, Jan 5, 17 @ 9:46 am:
Sounds like a rock solid argument for term limits and worker’s comp as the solution. /s
- Robert the Bruce - Thursday, Jan 5, 17 @ 9:58 am:
Given this news, the already existing deficit, and the needed pension payments, I wonder what the necessary tax rate would be in order to truly balance the budget.
- Sir Reel - Thursday, Jan 5, 17 @ 9:58 am:
This is scary.
Instead of getting down to business and protecting the people and businesses of this state, we have gridlock over politics and power.
I hope it’s worth it to them.
- Thoughts Matter - Thursday, Jan 5, 17 @ 10:00 am:
How much of the income taxes receipts reduction is linked to vendors who aren’t being paid by the state? How much is related to medical providers not being paid for state employee medical care? How much of the sales tax receipt reduction is due to those vendors, medical providers, and their employees reducing purchases? Etc etc.
- Langhorne - Thursday, Jan 5, 17 @ 10:03 am:
Lucky us that we have a smart big-money guy as governor to lead us out of this./s
Winning
Starve the beast
Perseverence
The state is doing so well, we should freeze revenue for local governments. The state knows better than the locals what their revenue should be.
- Fudo Myoo - Thursday, Jan 5, 17 @ 10:04 am:
So in this environment let’s make sure to approve more than the 215,000,000 in 2015 in EDGE deals for corporate welfare with corporate self reporting for the jobs actually gained, in 2016. We won’t know for six months how much Rauner gave away in 2016. Folks part of the reason revenue is down is because we are limiting what comes in through EDGE, TIFS, the rivers edge deal that just past, and enterprise zones. We cannot afford corporate welfare that steals it before it even can get to the coffers.
No more unaccountable goodies
Both parties are at fault
- Illinois Bob - Thursday, Jan 5, 17 @ 10:13 am:
Clearly, some reduction in government services and, in some cases, compensation are necessary with declining population and the loss of businesses. Unfortunately, policies from Springfield are driving out taxpayers while encouraging tax eaters. Too bad we don’t have responsible adults in Springfield to address these problems…
- Hit or Miss - Thursday, Jan 5, 17 @ 10:25 am:
It looks to me that the next Rauner budget will include sharp decreases in social services. Higher taxes will probably not appear in the budget message so spending cuts will be the only way to make the budget balance without borrowing at high interest rates to pay for current spending.
- David - Thursday, Jan 5, 17 @ 10:27 am:
It’s nationwide Ohio said they will have to make budget adjustments. We are better off because we dont have one of those to adjust
- RetiredStateEmployee - Thursday, Jan 5, 17 @ 10:29 am:
No one should be surprised that by not paying vendors, businesses shutting down because of non-payment for services, businesses cutting back because of late state payments, university layoffs and cutbacks, etc., the state’s economic activity is reduced. When you consider it’s intentional… Actions speak louder than words!
- Sue - Thursday, Jan 5, 17 @ 10:29 am:
No need for reforms here- move along nothing here to see
- T Sowel - Thursday, Jan 5, 17 @ 10:32 am:
No surprise if you have been following the news - we are losing population faster than any other state - thus the income taxes receipts are logically reduced. Madigan/Rauner continue their battle royal all the while the regular folks are leaving in droves.
- Soccermom - Thursday, Jan 5, 17 @ 10:53 am:
Well, what do you expect when you withhold $20 billion from the state economy by failing to pay your bills and force social service agencies across the state to lay off staff or shut down entirely?
- Illinois Bob - Thursday, Jan 5, 17 @ 10:57 am:
The new reality is that Illinois is now an economic and political war zone, and many businesses and taxpayers, as well as the best and brightest of our children, are becoming “refugees” to other states. With the loss of productive population, Illinois government has become a worker pension plan that occasionally provides government services, much as is the case for the US auto and steel industries. My daughter is graduating from the fifth highest rated global logistics program in the country this May, and she REALLY wanted to come back to Chicago, but the opportunities just aren’t there. Her friends graduating from UIUC and Purdue in Engineering also wanted to come back, but they’re taking their $60K to $80K per year skills to Texas, Manhattan, and Florida. The political and economic culture here is toxic, and I just don’t see the voters being willing to make the changes they need to get it healthy again. Any rays of hope you see out there for Illinois would be greatly appreciated…
- zatoichi - Thursday, Jan 5, 17 @ 11:21 am:
I thought 3.75% was the ticket.
- Honeybear - Thursday, Jan 5, 17 @ 11:28 am:
Sue- maybe you weren’t here for this but By Rauners own numbers submitted to Rich, the increase in revenue would only be 1.4%. All this pain for 1.4%
Oh and it would destroy labor
Which is the real reason for the TA
I say just not renew EGDE and suspend Enterprise Zones
That right there would save hundreds of millions.
- City Zen - Thursday, Jan 5, 17 @ 11:30 am:
If the state needs a tax hike to pay its bills, that tax hike reduces the amount of money people can spend themselves on private sector goods and services, which would reduce state receipts just the same.
It’s a zero sum game. The money has to come from somewhere.
- Natalie - Thursday, Jan 5, 17 @ 11:40 am:
While it is true the net outflow of population from Illinois increased in 2016 (we don’t yet know how this breaks out - more people leaving or less people moving in) - employment levels are higher this year compared with last year and unemployment rate is lower this year compared with last year. So, it is hard to make sense of the personal income tax numbers from an economic perspective.
https://data.bls.gov/timeseries/LASST170000000000005?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true
- Rich Miller - Thursday, Jan 5, 17 @ 11:51 am:
===So, it is hard to make sense of the personal income tax numbers from an economic perspective. ===
It does make sense if people who left were earning more than the people who stayed or are moving in.
- Blue dog dem - Thursday, Jan 5, 17 @ 11:52 am:
We should be proactive and initiate a corresponding level of spending cuts.
- JS Mill - Thursday, Jan 5, 17 @ 11:53 am:
=Well, what do you expect when you withhold $20 billion from the state economy by failing to pay your bills and force social service agencies across the state to lay off staff or shut down entirely? =
Soccermom for the win! Excellent point.
- Magic Dragon - Thursday, Jan 5, 17 @ 12:16 pm:
Governors own…. the quicker the Rauner folks figure this out the quicker we will start seeing some resolution.
- Casual observer - Thursday, Jan 5, 17 @ 12:22 pm:
“People who left were earning more than the people who stayed”.
That sounds like what happened to a certain large city in Michigan.
- facts are stubborn things - Thursday, Jan 5, 17 @ 12:29 pm:
I thought tax cuts solved all problems. 5% was reduced to 3.75% — the economy should be booming. Gov. Rauner, propose a budget and quite telling Dems they have to accept any TA items so they can be blamed for a tax hike.
- Federalist - Thursday, Jan 5, 17 @ 12:37 pm:
“It does make sense if people who left were earning more than the people who stayed or are moving in.”
Very true.
Another good reason to not tax the retirement income of those who actually pay state income taxes as well as personal property taxes in this state.
If those tax paying retirees leave, the state will lose even that tax base whole putting more houses on the market.
No reason for retirees to stay in Illinois, or others for that matter, unless you have a job or business that requires you to be here.
- Federalist - Thursday, Jan 5, 17 @ 12:43 pm:
“It does make sense if people who left were earning more than the people who stayed or are moving in.”
Very true.
Another good reason not to tax the retirement income of those who actually pay state income tax and property tax in Illinois. These are the very people who need to be encouraged to stay and not take their income elsewhere and dump there properties on the market.
No reason for these people to stay in Illinois, or others for that matter, unless they have a job or business that necessitates them being here.
- Chicagonk - Thursday, Jan 5, 17 @ 1:03 pm:
This is scary. We definitely need to capture additional revenue as a state. I don’t understand how AFSCME thinks the state can afford to continue to pay health insurance premiums that are rising 30% annually when our receipts are flat to down year over year.
- Rich Miller - Thursday, Jan 5, 17 @ 1:19 pm:
===unless you have a job or business that requires you to be here==
Or family and friends. My parents just bought a tiny little house so they could be near my brother’s family and his four little children.
- Federalist - Thursday, Jan 5, 17 @ 1:22 pm:
@ Chicagonk
“I don’t understand how AFSCME thinks the state can afford to continue to pay health insurance premiums that are rising 30% annually when our receipts are flat to down year over year.”
The same way they think that the huge costs of Medicaid including it s expansion, as well as providing many optional costs not required originally under Medicaid was not a problem.
Why just pick on public employees?
- Excessively Rabid - Thursday, Jan 5, 17 @ 1:24 pm:
Don’t overlook the role of farming in the Illinois economy. Agriculture has seen a precipitous decline in earnings the past two years due to global commodity prices. This affects suppliers, equipment manufacturers, ag-related companies, and all kinds of retailers and businesses that sell to people that work in the ag sector. No end in sight - could be worse in 2017- and this also will eventually affect property tax revenues in rural areas. BTW, I don’t know anyone who moved their farm out of state.
- Honeybear - Thursday, Jan 5, 17 @ 1:43 pm:
Excessively Rabid- so glad you said that. We always leave out our rural folks. The FCRC’s on the rural counties, even in st Clair and Madison have seen a HUGE influx of first time applicants for food stamps and Medicaid. I have seen this first hand. Half the time spent is defusing shame at even coming in to the FCRC. Another big crisis there is rural communities losing hospitals and healthcare facilities. When I was in hospice we used to have frequent deaths way out in the country right after they came onto hospice. They were declining so quickly due to lack of care and inability to even get to a doctor.
- Fedealist - Thursday, Jan 5, 17 @ 1:50 pm:
@ Rich Miller
“Or family and friends. My parents just bought a tiny little house so they could be near my brother’s family and his four little children.”
I have no idea as to how much you parents pay in state income tax or property taxes or how the taxation of retirement income would affect them.
Without that background your personal example and others like it are difficult to analyze or comment upon. They may be more apocryphal than substantive.
In any case that would not stop higher income people from moving to another state and flying back more to see their family or just establishing a legal residence in another state that has no income tax while maintaining a second home in Illinois.
It is my impression from past comments that you have made that you support the taxing of retirement income with a certain lower level exemption. If I am wrong and you would like to clarify our position in a more specific manner please do so.
In any case that type of position (I have heard the figure of the first $25K being exempt) is just precisely the opposite of good common sense. It encourages those with less income to stay and those with higher incomes and taxes paid to leave.
Naturally, a lot of politicians do not have the insight to figure that out.
One way would be to tax retirement income but to apply a credit of any additional amount paid in state income tax against that retirement income as well as perhaps 50% of their property tax. That way it would be more neutral for such higher tax paying individuals. Again, this probably has too much common sense for our leader to figure out.
- Anonymous - Thursday, Jan 5, 17 @ 2:26 pm:
@ Fereralist
And if you look at the states that tax retirement income, the vast majority of them have graduated income taxes. Either way, his parents have to pay property taxes.
- MAMA - Thursday, Jan 5, 17 @ 3:57 pm:
I’m afraid the revenue problem will only get worse after Trump takes office.
- Anotherretiree - Thursday, Jan 5, 17 @ 5:43 pm:
The next recession is overdue. This could be the early warning sign…combined with Illinois endless problems. I’ve felt all along we were in trouble. The great depression was two bad recessions with a failed recovery in between.2008 was a lessor depression with a weak recovery. The Fed is out of bullets for the next recession. Illinois, having not recovered, will face catastrophe if we have a bad recession(depression).
- RNUG - Thursday, Jan 5, 17 @ 6:40 pm:
== Either way, his parents have to pay property taxes. ==
And sales taxes and license plate fees and utility taxes and …
- molly maguire - Thursday, Jan 5, 17 @ 6:45 pm:
little to no chance of a recession, I would look elsewhere for the problem
- Cannon649 - Thursday, Jan 5, 17 @ 11:32 pm:
===unless you have a job or business that requires you to be here==
Unless you can not sell your house.
Note, two homes is not for everyone - even if you have the income
- Federalist - Thursday, Jan 5, 17 @ 11:39 pm:
RNUG,
Those pale compare to he other taxes such as high property taxes on homes that are not so little as well as state income taxes As noted, I do not know his parents taxes.
If you do not understand what I have rather substantially outlined for a blog then I am surprised.
I real is rather obvious.
- Federalist - Thursday, Jan 5, 17 @ 11:42 pm:
Common649
“Unless you can not sell your house.” A red herring of the first order. Try again.
Note, two homes is not for everyone” Another meaningless statement. Many people can and do. Even those with average incomes. Often in Florida.