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Report: A decade to reach solvency, if leaders cooperate on tough plan

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New projections show nibbling around the edges of the state’s budget problems will get Illinois nowhere.

The state may have gone for nearly a year and a half without a full budget. But there’s a surprising level of consensus about what must be done if lawmakers and the Gov. Bruce Rauner can come to a compromise on the governor’s policy demands and ultimately get down to trying to close the budget gap.

Political leaders, academics, commentators, Democrats and Republicans — even the rivals at the center of the impasse, Rauner and House Speaker Michael Madigan —all recognize that at least two components are needed: new revenues and cuts. […]

Unfortunately, the dosage isn’t nearly high enough. As a new report points out, such a plan wouldn’t come close to closing the budget gap. In fact, in 10 years, it could actually leave the state with a deficit similar to the one it’s in today.

New projections from the Fiscal Futures Project at the University of Illinois’ Institute of Government And Public Affairs (IGPA) make the case that for Illinois to achieve a balanced budget, policymakers would have to agree to increasing the income tax, taxing some retirement income, eliminating tax breaks, applying the sales tax to certain services and making billions in cuts. A little economic growth would also be needed to make this cure viable.

Even under such a politically ambitious plan, it would take a decade for the state to reach solvency.

Go read the whole thing. Lots of important stuff in there.

* From the aforementioned Fiscal Futures Project report…

We combined the most recent data available (as of the end of October 2016) from the Comptroller with our model to calculate the same four measures of Illinois’ fiscal condition reported in January 2015. Under current (baseline) policies we find:

1. A deficit of around $13 billion for the current year (FY2017)
2. A projected gap of around $14 billion per year for the next five years
3. “Legacy costs” for unfunded liabilities for retiree pensions and health care of $174
billion
4. Unpaid bills for services already provided to the state of $10 billion

As our analysis will demonstrate, it is almost certainly not feasible to remedy imbalances of this magnitude by policy changes in a single year. Rather, climbing out of the hole that Illinois is in likely will require hard choices, fiscal discipline and sustained attention over a long period of time. Because of this, our analyses put particular emphasis on projecting the implications of sustained multi-year policy changes that move Illinois toward fiscal balance. […]

What are the alternatives to maintaining current revenue and expenditure policies? Alternatives to the baseline scenario come in essentially three flavors: (a) reduce spending, (b) increase tax rates or expand tax bases, or (c) generate more economic growth, which would in turn make it possible to generate more tax revenue at current tax rates while potentially holding or cutting spending. Our simulations examine each of these possibilities and show that none by itself is likely to be sufficient to close the budget gap and that, even if we model all of these potential policies and scenarios together, closing the budget gap is likely to be challenging and to take many years. […]

We see no plausible path to sustained fiscal stability without sacrifice—Illinois will need to simultaneously increase revenue and cut spending. But fiscal austerity alone will not guarantee success. Increasing revenue, especially through taxation, could discourage economic activity and be counter-productive in the long run. Any revenue enhancement policy should be carefully thought through and be consistent with continued vibrant economic activity. Similarly, budget cuts could be counter-productive if they neglect festering social problems that end up costing even more to deal with in the long run. Furthermore, budget cuts that reduce services essential to the smooth operation of the economy could reduce economic activity and ultimately lead to even larger budget gaps.

What is needed is a “grand plan” that includes multiple spending cuts, multiple new sources of revenue, and spreads these adjustments over multiple years in the form of even more borrowing. Finding the right mix of policies—sharing the pain of digging out of the hole that we are in—will require cooperation among a broad spectrum of groups in this policy arena. Groups will not only have to compromise among themselves but will have to engender confidence that they are committed to sustained action to fill in the budget hole. In the absence of a clear signal of a long-term commitment to this goal, neither workers nor business owners can be expected to make the necessary investments to build Illinois’ fiscal future.

posted by Rich Miller
Friday, Dec 2, 16 @ 9:30 am

Comments

This grand plan would need, as stated, long term commitment by legislators(and others of course). In order for that grand plan to actually happen long-term, we’d need many legislators to stay in office multiple terms. Yet, Rauner wants term limits as a cornerstone for said grand bargain.

Comment by Thoughts Matter Friday, Dec 2, 16 @ 9:35 am
but…but…but…term limits and permanent property tax freeze.

Comment by Johnnie F. Friday, Dec 2, 16 @ 9:36 am
Make labor peace and let’s get to work getting out of this.

OW has always said we MUST have.

A budget.

Labor peace

Comment by Honeybear Friday, Dec 2, 16 @ 9:37 am
It worked in California, and their turnaround began to occur years before expected. It took a tough governor who was honest and explain why taxes need to be raised, why cuts were being made, and was willing to stand in front and take the heat. And there was no extraneous nonbudgetary, nonfinancial junk attached, like term limits.

Comment by Archiesmom Friday, Dec 2, 16 @ 9:42 am
Legalize and tax weed and tax the rich at a higher rate. Problem solved.

Comment by Anon Friday, Dec 2, 16 @ 9:45 am
We. Are. *banned word*.

Comment by Big Muddy Friday, Dec 2, 16 @ 9:46 am
====It worked in California, and their turnaround began to occur years before expected. It took a tough governor who was honest and explain why taxes need to be raised, why cuts were being made, and was willing to stand in front and take the heat. And there was no extraneous nonbudgetary, nonfinancial junk attached, like term limits===

We won’t have a governor like that for at least another two years.

There is no good reason in a state with the wealth and income we have that these fiscal problems weren’t solved decades ago.

Comment by Chucktownian Friday, Dec 2, 16 @ 9:47 am
Note: California has term limits, has had for some time. Term limits can have unintended consequences; same reason stuff gets done in lame duck sessions.

Comment by Put the fun in unfunded Friday, Dec 2, 16 @ 9:49 am
As long as none of the pain involves me, this sounds like a good plan.

Comment by Anony Friday, Dec 2, 16 @ 9:49 am
We don’t need no stink in’ long term plan other than the Turnaround Agenda.
Madigan bad.

Comment by Winnin' Friday, Dec 2, 16 @ 9:51 am
= California has term limits, has had for some time. Term limits can have unintended consequences; same reason stuff gets done in lame duck sessions. =

Just to clarify, I was using term limits as example of something extraneous to our particular budgetary process/disaster. Perhaps a misleading example. I am not a fan of legislative term limits, for number of reasons, and I’ve seen their negative effect in California as well. Now, the idea of limiting the terms of leadership in the legislature is something I could consider.

Comment by Archiesmom Friday, Dec 2, 16 @ 9:53 am
What needs to be done is well known. Reaching that solution requires leadership we don’t have.

Comment by Norseman Friday, Dec 2, 16 @ 9:54 am
From the text: “Growth won’t solve the problem. It is the smallest in its impact of any of the scenarios that we looked at.”
Is this why the superstars can’t show their math?

Comment by jade me not Friday, Dec 2, 16 @ 9:54 am
This reads like more paid for and approved propaganda from our friends at the Illinois Gaming Association and Illinois Liquor Warehousemen’s Association. I remain unimpressed.

Comment by yeah Friday, Dec 2, 16 @ 9:56 am
“that includes multiple spending cuts, multiple new sources of revenue”

Well that pretty much eliminates any of the current “profiles in courage” from considering this.

Comment by Give Me A Break Friday, Dec 2, 16 @ 10:01 am
Illinois does not have the leadership in either party to do what needs to be done, with the possible exception of Cullerton. I can’t imagine Republicans or Madigan agreeing to the kind of tax hikes and spending cuts necessary to move Illinois away from disaster. If Rauner wants term limits and a permanent property tax freeze for just a stopgap budget, imagine his list of demands before he’d sign on to a comprehensive longterm budget fix.

Comment by anon Friday, Dec 2, 16 @ 10:02 am
This analysis is flawed. I mean it says that generating economic growth needs to be part of the solution, and we know this is wrong because non-budgetary issues are wholly separate.

Snark aside, this is clearly the path. Now, if we can get the people in charge on board….. We need spending cuts, revenue increases, and economic growth. Rauner is for two of these, and has suggested several times he would raise taxes as part of a deal. Madigan is for a tax increase, and is less clear on spending cuts. He seems to view initiatives to increase growth as akin to an infectious disease.

Comment by Anony Friday, Dec 2, 16 @ 10:02 am
“There is no good reason in a state with the wealth and income we have that these fiscal problems weren’t solved decades ago.”

Maybe the state and local governments never had “the wealth and income” to support the promises they made and lack it now to solve the problems.

Comment by Cook County Commoner Friday, Dec 2, 16 @ 10:03 am
== “Growth won’t solve the problem. It is the smallest in its impact of any of the scenarios that we looked at.” ==

Q: Is this why the superstars can’t show their math?

A: IMHO, Yes.

Comment by Hamlet's Ghost Friday, Dec 2, 16 @ 10:07 am
To the Post,

Ownership of Leadership and Trust.

You want a plan to work here? Ownership of Leadership and Trust.

When you sit down with someone the same day you…

… launch a documentary

… launch a website

… begin millions in advertising outside a campaign season to boost your numbers at the cost of your “partners”

You can’t trust anyone whose campaign is more important to the honesty at the job at hand.

When all sides own the plan, work together and “refuse” to attack each other for agreed pain both side will be inflicting for the greater good… then you have my attention.

The premise that you leverage a partner at such an extreme that trust in even meeting for a common goal is lost, that’s not getting it done.

The sole way this works, and I’d be so on board….

The governor acknowledges that revenue is NOT a give.

Go to the Thompson Pivot, ask for help with this “new revelation” within the Pivot, and just be honest. “Revenue IS required. I know this, this how revenue is going to happen, but I see, now, there is NO way we as a state can get out of this without revenue”.

Significant structuring of borrowing with a scheduled downsizing of funding with real dollars being shown with real programs, real loss in structured government.

Here’s the rub.

Borrowing.

Real cuts.

Both are owned by all parties, and borrowing is a huge turn for some, even the restructuring of debt. You think that’s a huge turn, how about actually owning the choice of programs and funding gone. For “realz”, like “really owning”… this cut is this dollar amount, and the funding IS gone.

Both sides need to eat it, own it, support each other, show where their side is giving, but make the effort to “give cover” to the other side and their gives too.

The trust by all? Geez Louise, what trust needs to be.

Finally, map out the 10 years, with real revenue projections, real losses in programs and costs, real goals that “can” happen with a financial house in order…

… and NO politicizing the other side and demonizing the partner in the process.

I’d love to see and work to get ALL that.

It would be so hard, so difficult, so painful, but the ownership and trust in each other… that’s governing, it’s possible, it can be engineered… if there is a want. If there is an understanding the pain you plan to inflict on your own side, the other side has that anxiety too, and they need your trust like they need yours… man, I’m on that train so fast.

But, it has to be real. The trust, honesty, ownership, it all has to be true, and genuine.

Don’t think I’d be on this, please try me. Both sides. Couldn’t back these ideas any quicker.

Let’s begin.

Comment by Oswego Willy Friday, Dec 2, 16 @ 10:07 am
Norseman hit the nail squarely on the head.

Comment by Archiesmom Friday, Dec 2, 16 @ 10:08 am
So term limits and a “permanent” property tax freeze won’t produce the economic growth necessary to provide the revenue to balance the budget?

Better check with Dr. Lucky Pierre, the economist. And Sen. Radogno said she has some metrics somewhere that show how these “reforms” are critical to the state budget. She just can’t find them.

So, if Dunn is correct: what have Radogno and his band of economic cultists been yammering about for two years?

Everyone who actually believed them got played; it’s been all about “squeeze the beast” from the beginning. Willful sabotage to produce an unprecedented fiscal disaster that will require, by necessity, that the state virtually abandon it’s role in social services and higher ed.

How could Rauner’s actions not be more clear to that obvious objective? The “economics” of the Turnaround Agenda have been nonsense since Day One. It’s always been reactionary politics — stick it to those “collectivists” and “elitists” who believe in the social safety net and higher ed.

Doesn’t take long to reach your goal when you use the governor’s office as a wrecking ball.

Comment by wordslinger Friday, Dec 2, 16 @ 10:11 am
===What is needed is a “grand plan”===

That’s the only part of the report that Governor Rauner’s folks are going to be able to recall if they read it.

Comment by Anon Friday, Dec 2, 16 @ 10:11 am
Duh?

Comment by Shemp Friday, Dec 2, 16 @ 10:12 am
OW - agree on the trust issue. Rauner and Madigan have each given the other plenty of reason to distrust the other. They are like the Hatfields and McCoys, and Jews and Arabs. Reminds me of baseball in the 90’s - constant battle without realizing they are partners. It took years to get past it. Once that happens, the little people can figure out the deets.

Comment by Anony Friday, Dec 2, 16 @ 10:15 am
A decade to fix massive financial missteps (mistakes for sure, but also political BS for those in power as well as their friends) seems like a short time given these fiscal woes were many decades in the making.

But first, to use a not so pat phrase these days, the Illinois swamp must be drained of the very persons and practices that brought these decades in the making financial problems to a head.

Reform Illinois government and you’ll reform Illinois’ financials.

Comment by Deft Wing Friday, Dec 2, 16 @ 10:19 am
For those citing California as an example of how to crawl out of a deficit, the CA GRF does not include pensions, so the budget looks balanced. That state still has a big pension issue.

Comment by My New Handle Friday, Dec 2, 16 @ 10:19 am
Re term limits and CA, did some research on that yesterday. Term limits shift power to the governor (as well as staff/agency heads), so I think you could plausibly connect the two in that particular instance.

Not that term limits = solvency. The consensus seems to be that term limits are probably a bit worse than not having them (less knowledgable legislators, more rancor) but there are so many variables that it probably doesn’t matter much either way. If term limits shift power to a very effective governor, that’s great! But you have to elect a good governor.

My current thinking is that since it probably doesn’t matter that much, term limits would be a fine trade chip (feeling the same way about redistricting), compared to something murky and risky like a permanent property tax freeze.

Comment by whetstone Friday, Dec 2, 16 @ 10:20 am
===Reform Illinois government and you’ll reform Illinois’ financials. ===

Simple solutions are almost always neither.

Comment by Rich Miller Friday, Dec 2, 16 @ 10:27 am
This is a reasonable plan for a solution that was around and should have been used two years ago. One can only hope that since the 5 “leadership” figures can’t/won’t resolve this issue, the rank and file members finally shed the yoke,unite and solve this on their own. Deal with removing the other 5 in the next elections. The electorate has to get involved. Inundate them with phone calls,letters, etc. across party lines. I know that is a real Narnia idea.

Comment by oldman Friday, Dec 2, 16 @ 10:27 am
What is the measured and actual dollar amount of term limits?

What are the dollars? No snark, no “choosing a side”…

Show me the real dollar amount. Budgets are the weighing of dollars, that “value” and lowering and raising the value by dollars.

Term limits? What dollars? Show me the measuring.

Comment by Oswego Willy Friday, Dec 2, 16 @ 10:27 am
===Illinois swamp must be drained===

Show me the monetary value.

Not “perceived”, actual tangible dollars, real dollars.

Comment by Oswego Willy Friday, Dec 2, 16 @ 10:29 am
The IGPA policy brief is depressing enough. Still more depressing are the flippant or partisan responses here (with notable exceptions). We can keep fiddling while the fire burns, or we can get busy putting the fire out. Our choice, no one else’s.

Comment by Flapdoodle Friday, Dec 2, 16 @ 10:31 am
==Madigan is for a tax increase==

You haven’t been paying attention. It will be the “Rauner tax increase” Rauner may think he can blame a tax increase on the Dems and get away with it, but he needs it just as much or more than the Dems.

Comment by Joe M Friday, Dec 2, 16 @ 10:31 am
Gettinf a better federal match on medicaid

Comment by illinois manufacturer Friday, Dec 2, 16 @ 10:35 am
One could argue that without term limits you get a legislature which will never have the nerve to make tough choices, like California’s did. But according to a study by the Heritage Foundation (to me not the most trustworthy source), states with term limits *increased* spending by 1.8% (they found term limits resulted in more “office hopping” by pols). But that’s a reason to vote against them, not to keep them off the ballot.

Comment by lake county democrat Friday, Dec 2, 16 @ 10:37 am
The Governor’s focus on ‘term limits’? is simply a way of avoiding the real issues. Anyone, with any sense, understood what the IGPA has now reported. The governor just deals in campaign rhetoric, make a monster out of Mike Madigan, let’s shake-up Illinois politics, etc. Never, has he proposed a path, with real numbers backing his proposals to begin solving this terrible financial mess. Governor, show your ideas on how to solve this budget problem. Show your logic, your numbers! Do what the IGPA has done.

Comment by The Professor Friday, Dec 2, 16 @ 10:38 am
Texas and Illinois have the same per capita income.Why do they get 60 and we get 50?

Comment by illinois manufacturer Friday, Dec 2, 16 @ 10:40 am
According to BLS, the fastest growing segment of the population in Illinois is those of retirement age. So our #1 growth sector is exempt from income taxation. You don’t have to move out of the state to shrink the existing tax base, just retire.

You can’t place the burden of a turnaround solely on the backs of working families. Literally.

Comment by City Zen Friday, Dec 2, 16 @ 10:53 am
Though leadership is obviously lacking, it’s worth remembering that voters want more spending and fewer taxes. They believe that the key is cutting waste, fraud and abuse. So long as voters are so badly informed, pols won’t stick their necks out.

Comment by Anon Friday, Dec 2, 16 @ 11:06 am
OW - Term limits are not a monetary issue. However they allow, at least in principal, members of the GA to be more Pragmatic and less Idealist/Ideological in their approach to solving the State’s problems. The vast majority of politicians have a very powerful sense of self-preservation. They are always looking at the next election, or have aspirations for higher office, that prevent them from taking a pragmatic stand to solve problems. Democrats cannot upset organized labor (worker’ comp reform, prevailing wage, right-to- work, etc.) and Republicans cannot upset business and the so-called 1% (taxes, regulations, etc.) Most reasonable people acknowledge that reforms alone will not transform our State to the point of solvency no more than raising taxes on the rich or a pension bailout of CPS will be anything more than a temporary fix.

To your post at 10:07: how do you break the ice dam that can allow the pragmatic dialog you are advocating they try and what role do term limits have in helping bring back the art of compromise that would be required?

Comment by BGE Friday, Dec 2, 16 @ 11:26 am
===how do you break the ice dam that can allow the pragmatic dialog you are advocating they try and what role do term limits have in helping bring back the art of compromise that would be required?===

Term limits play no role. I didn’t mention them because they are not a budgetary measure or a debt solving measure, or a governing policy measure that has a monetary value.

There is no role for term limits. None.

Comment by Oswego Willy Friday, Dec 2, 16 @ 11:35 am
Start saving money, cut extras, listen to Dave Ramsey and prepare your house for sale and move to a small place or out of state.

This is the future. Term limits or not, unions or not, tax increase or not…..

Comment by Dr X Friday, Dec 2, 16 @ 11:51 am
but the 174 Billion isnt a debt due. ie there is not someone we owe 174 billion. Its a made up number reflecting the cost if every state employee stopped workin today and started receiving their full retirement…. which they cant becuae theu havent worked long enough etc.

so saying the current fix wont fund pensions at 100% i. 10 years assumes there is a need to have pensions funded at 100% in ten years or less. also the 174 Billion pension figure is wrong. The tier 2 pensioners pay in more then they cost. The pension calculatuon appears to be based off an assumption that everyone is a tier 1 pension. There are no mote new tier 1 pensions. so the pension projecting is motnprojecting the money being earned and the pay down from the tier 2 folks.

They need to show the acctual annual amounts being paid for retirress minus the offset from earnings and pension controbutions to show what, if any, annual deficit exisits that the state has to cover. The money the state kicks in over its actual pay outs is money used to pay down the otstanding liability and its flexible. Also if we got to about 80% funding in 30 years we would be fin fiscally. this is all breathless fearmongering to get the State to rob pensioners… being pushed by a grp of ultraweslthy modern robber barons

Comment by Ghost Friday, Dec 2, 16 @ 12:20 pm
- illinois manufacturer - Friday, Dec 2, 16 @ 10:40 am:

Texas and Illinois have the same per capita income.Why do they get 60 and we get 50?

Since you seem to fixated on medicaid match…
It is based on a 3 year average of per capita income. TX is 56% IL is 51% for FY17

https://aspe.hhs.gov/basic-report/fy2017-federal-medical-assistance-percentages

Comment by LTSW Friday, Dec 2, 16 @ 12:20 pm
Reasonably good numbers, but 10 years is optimistic. And getting full political commitment is almost impossible, because most people run on economic ideologies and ignore numbers that don’t confirm them. Also, it doesn’t include fully catching up on pension payments.

Looks like we’ve fallen even further since 2014. Quinn actually had a five part plan, that put us pretty straight in 15 years, including pensions, but not one of the pieces were fully implemented by the legislature. Even a rational long term fiscal plan by a governor, is nowhere near enough to get it fixed — and right now we don’t see that. We see a long term political “reform” plan.

Comment by walker Friday, Dec 2, 16 @ 12:29 pm
===Reform Illinois government and you’ll reform Illinois’ financials. ===

That’s a relief.

So, how much will they knock off the $13 billion FY17 deficit?

That wasn’t “decades in the making.”

Comment by wordslinger Friday, Dec 2, 16 @ 12:33 pm
An interesting report in what it does NOT include.

For instance there is the usual tired first sentence attack on retirement of pensions. Just ignore the reality that those who pay the most in state income taxes can and will move to another state where there are none. Yea, the ones who only pay a $1,000 or less will probably stay.

Then there is little mention of comprehensive elimination of ‘tax expenditures.’

“….exemption of retirement and social security income that is taxed by the federal government
($2.3 billion), the tax credit for residential real estate taxes ($0.6 billion) and the K-12 education expense credit ($0.08 billion). Eliminating roughly 40 percent of these exemptions would be essentially equivalent to broadening the personal income tax base by 10 percent.
The same 2016 Illinois Comptroller study identified more than $300 million of tax
expenditures that applied to the corporate income tax. Since the corporate income tax is
expected to raise about $1.9 billion in FY2017, eliminating $190 million of tax expenditures is
essentially equivalent to expanding the corporate income tax base by 10 percent.”

In 2013 the IGPA put such tax expenditures at $8.356 billon. This report purposely excludes many of those items listed and accounts for only $3.2 billion of that $8.356 billion. As s usual the IGPA just loves to attack retirement income-that is their continued obsession).

And finally, there is extensive discussion of a wide variety of tax increases while no specific proposals as to where the budget would be cut and how this would be done over a decade or so. They chickened out!

This is another phony report and they wasted their time and my time in reading it.

Comment by Federalist Friday, Dec 2, 16 @ 12:45 pm
I believe that we need to increase revenue and look for ways to reduce spending that are as humane as possible. The problem with compromise and shared sacrifice is that we have a governor who makes so much money but wants to load the sacrifice onto many thousands of his employees and other workers.

“It’s always been reactionary politics — stick it to those “collectivists” and “elitists” who believe in the social safety net and higher ed.”

For someone who portrays himself as hating collectivism, Rauner aparently gorges himself at the public pension trough. He mentioned his pension business when the story broke about his making $188 million last year.

Comment by Grandson of Man Friday, Dec 2, 16 @ 12:50 pm
===You can’t place the burden of a turnaround solely on the backs of working families. Literally.===

Nor can you can you place the burden solely on those barely scraping by on a fixed income.

Comment by PublicServant Friday, Dec 2, 16 @ 1:20 pm
=== burden solely on those barely scraping by on a fixed income===

Don’t argue like a child. Nobody says we should shift the whole burden to poor retirees. Heck, every plan I’ve seen exempts quite a lot of income on any retirement tax.

And, remember, those who haven’t retired yet are living on unfixed incomes - meaning they can always go down.

Comment by Rich Miller Friday, Dec 2, 16 @ 1:23 pm
Any new revenue or savings from cuts mean nothing without fiscal accountability.

Comment by Anon Friday, Dec 2, 16 @ 2:38 pm
Dear President Elect Trump;

I am writing you to wish you the best of luck in your upcoming endeavor. Just a litlle reminder that us folks here in the Land O’ Lincoln need a wee bit of a favor. Think you can get your buds in Congress to allow us to declare bankruptcy? If you could make that happen, i think i can turn this state red as a ruby.

I darn near delivered Illinois for ya last election, and if we run another couple hundred thousand folks off, well, ya never know.

I have been a lifelong fan of yours, keep up the good work, and hope we can do business soon.

Your best bud,
BVR

w.

Comment by Blue dog dem Friday, Dec 2, 16 @ 3:10 pm