The most recent attempt to solve Illinois’ budget crisis on June 14.

 
Republican state lawmakers announced the most recent attempt to solve Illinois’ budget crisis on June 14.

This latest budget proposal is nothing new. Like the “grand bargain,” the Brady plan and the Senate Democrats’ budget before it, the GOP plan relies on more than $5 billion in new tax revenues because it includes no significant structural spending reforms.

Republicans presented the plan as the latest and best chance to reach bipartisan consensus in the near future. Now that any legislation requires approval of a three-fifths majority in both the House of Representatives and the Senate to move to the governor’s desk, both political parties must support the plan for it to pass.

If successful, state lawmakers will claim victory, declaring the budget crisis resolved. Meanwhile, the financial crisis will continue for Illinoisans, who already pay the highest property taxes in the country.

The Republican plan hits Illinoisans in fiscal year 2018 with the same $5 billion-plus tax hike contained in the “grand bargain” plan that failed in May. That plan includes a 33 percent income tax increase and questionable new and expanded taxes on items such as Netflix, laundry services and more.

Under this proposal, each Illinois household would eventually have to pay $1,125 in additional taxes annually, on average.

Illinoisans don’t need, nor can they afford, the Republicans’ “compromise” plan.

Every one of Illinois politicians’ past deals – from former Gov. Jim Edgar’s pension ramp to former Gov. Rod Blagojevich’s pension bonds to former Gov. Pat Quinn’s temporary tax hike – has something in common: They all avoided fixing Illinois’ structural spending problems, and sent the bill to taxpayers instead.

Thirty years of continued reliance on tax increases and debt instead of reforms is why Illinois has perpetually teetered on a financial cliff and its credit rating stands at the precipice of junk.

Illinoisans want a different deal. Nearly 80 percent of Illinoisans surveyed agreed that “Illinois state lawmakers should pass major structural reforms before passing any tax increase,” according to a recent poll conducted by Fabrizio, Lee & Associates and commissioned by the Illinois Policy Institute.

Illinoisans don’t need a compromise deal that will only offer more of the same failures.

Here’s why the Republican “compromise” is just another plan that fails taxpayers:

 1. It hits Illinoisans with over $5 billion in tax hikes.

The Republicans’ budget plan relies on the same $5 billion-plus tax hike contained in the “grand bargain” plan that failed in May. That plan starts with a 33 percent income tax increase, and includes questionable new and expanded taxes on items such as Netflix, laundry services and more.

The plan:

  • Hikes personal and corporate income taxes by $5 billion for four years. The personal income tax rate increases to 4.95 percent from the current 3.75 percent rate. The corporate income tax rate rises to 7 percent from the current 5.25 percent rate.
  • Expands the sales tax to laundry and dry-cleaning services, as well as storage and other services to bring in an estimated $55 million.
  • Raises an estimated $54 million in new cable and satellite TV taxes.
  • Closes corporate income tax loopholes worth an estimated $125 million.

The total $5.4 billion tax hike means each Illinois household will eventually have to pay $1,125 in additional taxes annually.

2. It creates a property tax “freeze” time bomb.

The plan freezes property taxes for four years to coincide with the four-year income tax hike.

The Republicans’ plan will fail to help struggling homeowners. Illinoisans shouldn’t have to pay billions of dollars of extra income taxes just to get a freeze on the highest property taxes in the nation.

And the freeze isn’t absolute. Local debt service payments are exempted from the freeze, meaning homeowners’ taxes could still rise.

Most importantly, the freeze doesn’t address what’s been driving up property taxes in the first place: local government overspending and unfunded mandates. Without structural spending reforms, any relief to taxpayers will be short-lived. Local governments’ continued spending increases will result in massive tax hikes when the freeze expires in four years.

3. Its spending cap isn’t coupled with reforms.

The Republican plan caps spending at $36 billion for four years. That cap still leaves a $5 billion budget deficit in 2018 – based on the latest revenue estimates from the Commission on Government Forecasting and Accountability – that the Republican plan fills through tax hikes, cuts and fund transfers.

The four-year spending cap is deceptive. A “cap” on state spending will force direct cuts to government programs but will do nothing to stem the growth in core spending drivers such as pension costs. A cap must be coupled with structural reforms to be effective.

4. It agrees to adopt an expensive education funding plan that won’t help student achievement.

The Republican plan requires the state to adopt an “evidence-based” education funding program. The spending program, which prescribes precisely how much Illinois should spend on everything from instructional materials to employee benefits, calls for an eventual $3.5 billion to $6 billion a year in additional taxpayer funding, which will mean more tax hikes. That new money won’t improve education. Evidence-based funding has failed to improve student achievement wherever it’s been tried, whether in Wyoming, Arkansas, North Dakota or Ohio.

It’s also a lot of money for a state that already spends far more per student on education than any other state in the Midwest and the 13th-most in the nation. Illinois spends 40 percent more than Kentucky, 37 percent more than Indiana, 32 percent more than Missouri, and 16 percent more than Wisconsin per student.

5. It forces state taxpayers to bail out Chicago teacher pensions.

The Republican plan calls for the state to pay an extra $156 million to Chicago Public Schools teachers’ pensions in 2018. The state will be forced to pay the normal cost – meaning the annual benefit earned by teachers for working one more year – of Chicago teachers’ pensions every year going forward.

State lawmakers are forcing downstate taxpayers to bail out Chicago after more than 20 years of district mismanagementskipped pension paymentsexcessive borrowing and unaffordable teacher contracts.

The plan ignores the fact that Chicago already benefits from state education subsidies and CPS-only carve-outs that are worth more than the proposed pension bailout.

Rather than pay for CPS’ pensions, the state should stop paying for the pensions of suburban and downstate school districts. Teachers are not state employees. The responsibility for paying the employer’s pension contribution for teachers should be shifted back where it belongs – local school districts. The current law encourages undisciplined spending. Districts dole out higher pay, end-of-career salary hikes, and perks that spike pensions, knowing the state will pay the pension costs.

Districts will only moderate the pension perks they dole out when they are required to pay for them.

6. Enacts pension “reforms” that are unconstitutional and will perpetuate Illinois’ crisis.

The Republican proposal attempts to reform pensions for current workers using the “consideration” model, an idea Senate President John Cullerton first proposed several years ago. The problem is Cullerton’s consideration model doesn’t offer current workers a choice between the existing plan and another retirement plan of similar value. The Illinois Supreme Court has already ruled against plans that cut benefits. The consideration plan will likely be found unconstitutional as well.

The “compromise” proposal also enacts for new employees a new hybrid plan with pension and 401(k) components, which perpetuates pensions, despite the damage pensions have done to the wallets of taxpayers, the retirement security of state workers, and the programs that assist Illinois’ most vulnerable. Keeping pensions alive will prevent Illinois from ever having stable finances because pension costs are inherently unpredictable and unmanageable.

Instead of continuing to support these unaffordable retirement benefit plans, Illinois lawmakers should move away from pensions by expanding the existing 401(k)-style retirement plan for state university workers. Going forward, all new state workers should be enrolled in a standalone 401(k)-style plan. That’s the only way to begin an end to the state’s pension crisis.

7. It offers few structural spending reforms.

The Republican plan doesn’t contain the structural reforms Illinois needs. It balances the budget with $5 billion in short-term cuts and fund transfers. Temporary cuts and transfers are not reforms. They won’t slow the growth of government spending.

The plan’s other reforms – limited changes to workers’ compensation rules, new lawmaker term limit rules and changes to local government consolidation requirements – don’t do enough to deliver structural changes either.

Illinoisans need a plan with structural reforms, not tax hikes

Illinoisans don’t need any more of lawmakers’ “tax-hike, no-reform” budget proposals.

And Illinois can no longer put off real spending reforms. Politicians have to pass a balanced budget that actually solves the state’s structural problems without tax hikes.

The Illinois Policy Institute has provided a reform plan – Budget Solutions 2018 – that balances the budget without tax hikes.

The plan provides tax relief to struggling homeowners through a comprehensive property tax reform package, begins an end to the pension crisis through 401(k)-style plans, and makes changes to curb bloated administrative expenses in higher education and state government.

Craig Lesner
Budget and Tax Research Director Illinois Policy

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