Issues: State Fiscal Policy
Position in Brief
The League of Women Voters of Illinois supports a diversified revenue system that principally relies on a combination of broad-based taxes and user fees, and is equitable, progressive, stable, responsive, and simple.
For too long, the State of Illinois has been operating at a deficit. It cannot pay its bills as they come due. Schools, health care providers, social service providers and other businesses are not being paid on time by the state for work they have performed. This deficit continues despite the State’s borrowing schemes and dramatic cuts in social and human services. The need to balance the budget (required by the Illinois Constitution in Article VIII (Finance), Section 2) has resulted in a hodgepodge of tax increases to raise revenues combined with cuts in human and social services. The unsustainability of Illinois' pension system makes the task of balancing the budget more challenging.
During the 1990s, the League of Women Voters of Illinois supported and advocated for progressive tax reform--a proposal which would swap an increase in the state income tax with a reduction in property taxes--in the context of the school funding debate.
The slow recovery of the national economy since 2008 and the failure of Illinois’ elected officials to deal with the structural deficit have made the discussion about tax reform more timely than ever.
The League will work to ensure that tax, fiscal, and spending policies are fair; promote economic growth; and provide adequate and consistent funding for public schools and other programs the League supports. (LWVIL 2014)
The State of Illinois has a budget, or a partial budget. The governor and the state legislature agreed on a budget which covers six months of Fiscal Year 2017 for most government operations. The budget covers twelve months of FY 2017 for Illinois public elementary and high schools and promises that school districts will not receive less money than they received for the prior school year.However, the state does not have enough revenue to fund this budget. Estimates of this year's deficit range from $8 billion to $10 billion. This means that payments will be late or never made if there is not enough money. For many social service agencies, the budgeted amount of money covers only 65% of the amount needed to cover last year's spending plus the first six months of FY 2017. Also, there is no guarantee that state payments will continue after January 1, 2017 because there is no budget for the second six months of FY2017. State universities and other government operations face the same grim prospect. So what is needed to produce more revenue? The League of Women Voters of Illinois supports:
There is a recent effort to nibble at the edges of the budget to economize in an area in which Illinois leads the country: units of local government. As of the 2012 U.S. Census, Illinois had 6,963 local governments (about 2,000 more units than the next highest state of Texas); 3,227 special purpose districts that make up about 46% of the local governments (e.g. library districts, forest preserve districts, solid waste disposal districts); and the most municipal and township governments in the country at 2,729, amounting to about 39% of the local governments.
Established in 2011, the Local Government Consolidation Commission, after two years of meetings, reported that “simply reducing the number of local governmental units does not necessarily result in a reduction in costs to the taxpayer.” The commission found after a review of other states that “successful models of cooperation and consolidation in local government aim to achieve great economies of efficiency and increase the effectiveness of government at all levels.”
On Aug. 18, Governor Quinn signed into law House Bill 5785 as Public Act 098-1002 and House Bill 5856 as Public Act 098-1003. Both statutes aim to facilitate the process of annexing, consolidating and dissolving local government. The latter specifically allows fire protection districts to annex or consolidate with neighboring counterparts.
The Affordable Care Act requires the State of Illinois to cover an additional 200,000 citizens who are eligible for Medicaid. Their applications were not processed in time for the state to include them in the budget projections for FY 2015 that were used when the General Assembly was meeting in spring session. The cost to cover the additional Medicaid recipients will be almost $1 billion. This money is not in the budget that the General Assembly adopted for FY 2015.
The General Assembly passed a budget that reduces the income tax rate on individuals to 3.75% from 5% and the rate on corporations to 5.25% from 7% in January 2015. This will result in a loss of $2 billion in revenue for FY 2015. The state plans to make up for the loss by a combination of late payment on bills, borrowing and reduced spending. This strategy did not anticipate the additional Medicare costs. Where can the state find this revenue?
Speaker Madigan and Senate President Cullerton favor shifting the cost of paying teacher pensions from the state to local school districts. The Chicago Public School District is responsible for paying for its own pensions while the state pays for all of the teacher pensions for school districts outside of Chicago. The problem for the districts outside of Chicago is that the cost shift will become a new cost for them at a time when 66% of these districts are deficit spending. They do not have enough money to pay for current operations. They cannot rely on the state for help. For several years the state has paid school districts 89% of the amount that has been budgeted for education.