March 3, 2014
Prior to the release of the Governor’s annual budget recommendation, the Institute for Illinois’ Fiscal Sustainability at the Civic Federation releases an analysis of the State of Illinois’ fiscal condition. The report reviews Governor Quinn’s three-year budget projection and proposes a comprehensive five-year plan for achieving long-term fiscal sustainability for the State of Illinois. The Civic Federation’s plan would fully pay down the State’s $5.4 billion backlog of unpaid bills while gradually reducing income tax rates by 20%, broadening the tax base to include federally taxable amounts of retirement income and building a reserve fund as protection against future economic downturns.
After examining the effectiveness of multiple State budget scenarios through FY2019 based on a series of long-term financial goals, the Civic Federation’s recommendations are as follows:
- Completely pay down the bill backlog over the next five years by establishing spending controls that limit the growth in net agency spending and create annual operating surpluses to fund bill backlog payments.
- Gradually reduce the income tax rates by 20% by eliminating the pending revenue cliff that would accompany the January 1, 2015 income tax rollback through a one-year extension of the current income tax rate, followed by gradually reducing rates over the next three years.
- Broaden the income tax base to include federally taxable amounts of retirement income to create greater equity among taxpayers and facilitate the gradual rollback of income tax rates. Out of the 41 states that impose an income tax, Illinois is one of only three that exempt all pension income and one of 27 that exclude all federally taxable Social Security income.
- Build a rainy day fund totaling at least 5.0% of General Funds revenues to help cope with the next economic downturn.
- Restore the full share of income tax revenues to local governments to 10%. Municipalities did not share in the additional revenue generated by the 2011 tax increase, which reduced their share of total collections.
For a more complete description of recommendations, click here. These recommendations provide a comprehensive approach that, combined with the implementation of major pension reform legislation, would finally allow the State to move beyond what has become a perpetual fiscal crisis.