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* Sun-Times…
Illinois’ massive stack of unpaid bills will nearly triple to $22 billion within five years unless lawmakers act to curb pension and Medicaid costs, according to an analysis released by the Chicago-based Civic Federation. […]
While still in the red, the state’s five-year fiscal outlook has significantly improved since last year when the same watchdog group projected a $35 billion backlog. The better forecast this year is largely due to $1.6 billion in Medicaid cuts signed into law by Gov. Pat Quinn last June. […]
The potential explosion in unpaid bills would represent a roughly 178 percent increase from the state’s current level of $7.8 billion and would mean funding for already suffering programs in areas like education and health care would likely be strained further. […]
Without meaningful reform, pension costs will continue to overwhelm the state’s budget. Total pension payments – including contributions and debt service on pension bonds – would increase nearly 30 percent from $6.7 billion this year to $8.6 billion in fiscal year 2018, the Civic Federation warns.
If that scenario were to play out over the next half-decade, the state’s total pension payments would eat up nearly one-third of state-generated revenue, whereas today the payments consume about 22 percent.
Not mentioned in that above excerpt is the impact of the income tax hike expiring. From the Civic Federation’s press release…
Illinois is headed for a substantial loss of revenue beginning in 2015, after the partial rollback of the temporary income tax increase enacted in 2011. On January 1, 2015 the personal income tax rate is scheduled to decline from 5.0% to 3.75% and the corporate rate will decline from 7.0% to 5.25%. The first full budget year under the lower rates will be FY2016. With the resulting decline in revenues and growing annual pension costs, the State’s operating deficit is projected to increase dramatically to $4.2 billion in FY2018, compared with a modest surplus in FY2013.
The full report is here.
posted by Rich Miller
Monday, Feb 25, 13 @ 11:53 am
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If we are going to sell some bonds to cover these bills better hurry up and do it. Higher rates and/or another downgrade are going to make it untenable sooner rather than later.
Comment by Leave a Light on George Monday, Feb 25, 13 @ 12:10 pm
Not to worry, the 67% tax hike will pay those bills…oops I mean making the tax hike permanent will pay those bills.
Comment by WazUp Monday, Feb 25, 13 @ 12:22 pm
Create more revenue. Tax services to increase sales tax base. Personal income tax rate is still low at 5%. Currently income tax increase only pays for State pension obligations and debts associated with the same. Raise it again. Everyone in Illinois benefited from a low 3% income tax rate for years and now the time has come for everyone to pay the correct amount necessary to pay the States bills.
Comment by Nickypiii Monday, Feb 25, 13 @ 12:31 pm
Not surprising out of the Chicago-based Civic Federation. Time to close some corporate tax loopholes.
Comment by rusty618 Monday, Feb 25, 13 @ 12:31 pm
This report can’t be considered reasonable because the very premise that the tax rate is going down in 2015 is not reasonable. Most likely it will stay the same.
Comment by tom/prince Monday, Feb 25, 13 @ 12:34 pm
–While still in the red, the state’s five-year fiscal outlook has significantly improved since last year when the same watchdog group projected a $35 billion backlog. The better forecast this year is largely due to $1.6 billion in Medicaid cuts signed into law by Gov. Pat Quinn last June. […]–
Well, that’s progress.
Comment by wordslinger Monday, Feb 25, 13 @ 12:35 pm
Has anybody looked at their projections from five years ago? Are they anywhere close to accurate? (That is not snark - I want to know.)
Comment by soccermom Monday, Feb 25, 13 @ 12:51 pm
I sound like a broken record, but this once again points up the fact that we need to pass the Constitutional amendment to permit the legislature to levy a progressive income tax in place of the currently mandated flat tax. The arithmetic is simple. If you lower the rate by 2% on somebody making $35,000 per year and raise it by 2% on somebody making $700,000 you lose $700 in revenue from the low income person but you gain $14,000 in revenue on the higher income person. Even though the average rate on the two people is the same, the state gets a lot more revenue from the progresive tax. A fair tax is also a better revenue source.
Comment by jake Monday, Feb 25, 13 @ 12:56 pm
===Even though the average rate on the two people is the same, the state gets a lot more revenue from the progresive tax.==
Per person taxed, yes. But there are a whole lot of people making $35K and under, while there aren’t all that many making $700K and over.
Comment by Rich Miller Monday, Feb 25, 13 @ 1:00 pm
32 states have higher individual income tax rates than Illinois’ 5%. And most of those 32 states have progressive rates with the highest bracket often being considerably higher than Illinois’ 5%.
Comment by Joe M Monday, Feb 25, 13 @ 1:02 pm
I love that this article is right above the one about Madigan, UNO, and the $98 million dollar grant in 2009. Maybe if the legislators started paying obligations first, like the states portion of pension contributions and money they owe to healthcare providers, instead of paying out pork moeny and creating more social programs that can’t be funded with the current revenue stream, maybe we wouldn’t be in quite as bad a spot as we are now.
Comment by Concerned Voter Monday, Feb 25, 13 @ 2:03 pm
And Rich, is there any information on the proposal in the Joliet area to bring an “immigrant prison”/”immigrant detention center” (depends on which side of the issue you are on as to whether it’s called a prison or detention center I guess.
Seems to me like in this economy, with jobs at a premium, and the Joliet area losing the Corrections Youth Center, that would be an ideal fit for jobs.
Comment by Concerned Voter Monday, Feb 25, 13 @ 2:10 pm
OK - so this report says we will have $4.3 billion deficits after losing $5.7 billion revenue with the income tax sunset. Pension reform saves $2.3 billion to get us to roughly $2 billion deficits (page 49).
This also tells me that without pension reform we have a $1.4 billion surplus if the income tax does not sunset.
Comment by archimedes Monday, Feb 25, 13 @ 2:13 pm
tom/prince
== Most likely it (income tax rate) will remain the same. ==
How do you figure that, given the strong public opposition? It’s a safe bet that whomever the GOP nominates for governor next year will oppose extension. It’s not clear whether the Democratic nominee will favor extension.
Comment by reformer Monday, Feb 25, 13 @ 3:16 pm
The income tax increase has to be permanent. Anyone who thought it would be temporary was being naive.
Comment by Aldyth Monday, Feb 25, 13 @ 3:25 pm
It was clear to me the day two years ago that the income tax was increased by 67% that it had to become permanent. That large increase only solved the hand waveing of the previous few years and did nothing to solve the root problem.
Even if the income tax is not made permanent billions of dollars per year of funding need to be found to make any advance in solving the pension funding problem. The GOP will fight any major tax increase and the Democratic side will fight any major spending cuts. The math, however, is clear. Either one or the other of these two options (or some of both) can solve the problem. Which one will it be?
Comment by Property owner Monday, Feb 25, 13 @ 3:46 pm
Of course the tax increase is permanent. Now we have to turn to modest across the board budget cuts by a legislature that is unable to prioritize its spending. Equalizing the pain to all parties is the only way to make it happen, and it will have to happen. Meanwhile we will have that new $54 million arts center at ISU in Normal. Governor Q said we needed it.
Comment by wishbone Monday, Feb 25, 13 @ 4:16 pm
Another interesting side note. The focus on pension reform versus income tax - i.e. keeping the 5% income tax. The pension reform (HB 98 Nekritz), per this report, is worth about $2.3 billion. this is the equivalent of 7/10 of a cent income tax rate - i.e. the 5% rate could be reduced to 4.3% purely due to the pension reform.
Comment by archimedes Monday, Feb 25, 13 @ 4:23 pm
Rich you were very adamant when the income tax increase was passed it was not permanent are you still sticking to that position.
Comment by Fed up Monday, Feb 25, 13 @ 4:29 pm
We’re hearing a lot about the pensions and their costs, and ” pension reform” to save money. Along with those proposals, we’ve seen some somewhat modest savings forecast due to closures. However, the bulk of the savings the Administration is talking about comes from “pension reform” that has yet to be defined. Pragmatically, we need to be considering more across the board cuts to the State budget in the 8%-10% range given the amounts involved and the likelihood of lengthy court challenges to any “pension reform”. Those challenges will cost the State money and time to defend, and will likely do nothing to address the deficit in the short to medium term while they play out. Across the board cuts can be made now, with immediate effect to the deficit while sending a positive signal to the rating agencies. What ever happened to that discussion? The pension reform discussion is looking more like a smokescreen when the efficacy of it is honestly considered.
Comment by The Whole Truth Monday, Feb 25, 13 @ 4:51 pm
Please do not start beating the drum for across-the-board cuts. They reward badly managed agencies and programs and devastate the good ones.
Comment by soccermom Monday, Feb 25, 13 @ 5:42 pm
Keep in mind that in budget-speak, “cuts” are not really cuts, but a lesser amount of increase than originally desired. Painful though across the board “cuts” may be, the situation we are in will involve a certain amount of pain. They would force agencies to prioritize and tighten up operations, just as we do with the family budget when gas prices go up or a down payment for a major purchase is needed. Given some of the things the State is paying for, such as $64M for the re-hab of a single building, Lincoln Hall, at the U of I in CU, and the $54M for the Arts Center in Normal mentioned by Wishbone above, I don’t disagree some areas could and should be cut more than 8%-10%. But if the drums don’t start beating, those discussions and cuts simply won’t happen.
Comment by The Whole Truth Monday, Feb 25, 13 @ 5:58 pm
Let’s get one piece of right wing obfuscation out of the way here: The state used the pension as if it were a bank and ran up a huge debt. The pension bank had no authority to refuse the loan. The pension (read bank) doesn’t need reform when the state borrows too much, the state’s borrowing to make up for an inadequete, recessive tax structure does. This is a debt problem due to inadequete revenue generation over the last half century. Your reps voted for that borrowing, and now the time has come for the revenue reform this state needs in order to pay the bills it has rung up.
We really dont need a graduated income tax to pay the bills either just set the rate high enough to cover the debt over the same half century that it’s taken to run it up, and then provide partial “rebates” for the first x dollars of income up to a certain amount with decreasing amounts of that rebate on marginal levels of income. Most workers only have one single source of income, so witholding at the rebate level throughout the year will not overburden the middle class workers of Illinois. Hearing Msall being a concerned deficit-scold just tells me he’s cocerned about making sure he only needs to take out a 48 month loan on his yacht, instead of going for a 60 month loan. Let’s ask Msall and others as well off to pay a little bit more before we ask the middle class to bear the burden of this Wall Street caused recession
Comment by PublicServant Monday, Feb 25, 13 @ 7:10 pm
At the risk of contributing to right wing obfuscation, I’d submit the problem the last half century has not been solely inadequate revenue generation. The amount of debt due to ill advised projects, waste within state agencies, and ever expanding programs with poor oversight and questionable results can’t be discounted or ignored. While increased revenue would be nice, even a new progressive tax would not be enough. At some point, belt tightening has to occur. Putting it off further in the future only makes it worse. That is the real lesson from the last half century. We need to recognize that and act accordingly.
Comment by The Whole Truth Monday, Feb 25, 13 @ 7:42 pm
–At the risk of contributing to right wing obfuscation, I’d submit the problem the last half century has not been solely inadequate revenue generation.-
Lot of things have happened since 1963. Are you referring to something in particular?
Comment by wordslinger Monday, Feb 25, 13 @ 7:46 pm
Re: “Per person taxed, yes. But there are a whole lot of people making $35K and under, while there aren’t all that many making $700K and over.”
Rich,
Here are the numbers. Approximately 40% of Illinois taxpayers make $35,000 or less, with an average income of about $18,000.
Approximately 0.7% of Illinois taxpayers make $700,000 or more with an average income of approximately $1.7 million. So yes, there are almost 60 times as many people making $35,000 or less than making $700,000 or more. So the people above $700,000 are each making about 100 times more on the average than the people below $35,000. Bottom line—the total income of people in the state over the $700,000 mark is almost twice the total income of people under $35,000, so raising the rate at the high end and lowering it at the low end brings in a lot more revenue than the flat tax.
Comment by jake Monday, Feb 25, 13 @ 8:14 pm
In general, the three things noted at 7:42PM. Specifics are many…ALL Kids, the numerous grants and never repaid loans to primarily the Chicago area, University System waste such as Lincoln Hall mentioned at 5:58, which was so costly because the re-hab had to be “period-correct” for the hundred year old structure, ad nauseum. How many modern $100K homes could that $64M have built rather than making a 100 year old building look 100 years old? (Answer:640). The point is that publicservants assertion that all we have is a revenue problem is not the whole story. I have worked in a State agency and dealt with the University system both through my job and separately for 30+ years. The waste and unwise use of funds is real, more rampant than you’d like to think, and can and should be addressed.
Comment by The Whole Truth Monday, Feb 25, 13 @ 8:20 pm
{But there are a whole lot of people making $35K and under, while there aren’t all that many making $700K and over.}
{Bottom line—the total income of people in the state over the $700,000 mark is almost twice the total income of people under $35,000, so raising the rate at the high end and lowering it at the low end brings in a lot more revenue than the flat tax.}
In this electronic age; its very simple for many of those making over $700K to make their part time residence in no income tax FL their permanent residence, and still derive their income from here.
Comment by Quinn T. Sential Monday, Feb 25, 13 @ 9:13 pm
Whole Truth, “waste and unwise use of funds” in my 30 plus years of State experience tend to be like beauty, that being in the eye of the beholder. Reasonable people of sound minds could agree to disagree on the “waste or unwiseness” if you will, of the Lincoln Hall do-over price tag, or of alternatively proposing to build 640 $100k homes with the same amount.
Why don’t you share a few more examples with us so that we can further test your hypothesis?
Comment by Arthur Andersen Monday, Feb 25, 13 @ 10:00 pm
To Quinn t Sential
You are totally wrong. Money earned from Illinois sources is subject to Illinois state income tax no matter where the individual lives. Only exception to that is people who commute across the border from Kentucky, Iowa, Michigan, or Indiana. Those folks pay state income tax in their state of residence. It works the other way too. If you live in Illinois but commute to work in one of those states, you pay your state income tax in Illinois. So no, nobody can make their money in illinois and claim they are only subject to Florida taxes.
Comment by Jake Monday, Feb 25, 13 @ 11:19 pm