from the Huffington Post of last February, 2010: “ILLINOIS BUDGET CRISIS 2010: Civic Federation Says Only Big Tax Hikes Can Fix “Horrific” Budget Problems”
(That headline and the article below was yesterday, that is, nearly a year ago. The financial condition of the state of Illinois has deteriorated significantly since that woeful headline. Last week Illinois Democrats moved to increase state taxes by 66% as the first measure to slow down the money bleeding.)
Huffington Post article: “Are massive tax hikes coming to Illinois? A government watchdog group says if the state wants to “become solvent,” tax hikes and $2 billion in budget cuts are the only way to go.
The Civic Federation, one of the state’s most prominent tax watchdog groups, released a report Monday saying that raising the personal income tax rate by 66 percent–among other hikes–is the only way Illinois can repair its “horrific” financial situation, the Chicago Sun-Times reports.
The Civic Federation recommends that the state income tax be increased from 3 percent to 5 percent for individuals, that retirees’ pension and Social Security checks be taxed for the first time at the same rate as workers’ paychecks, and the tax on cigarettes be raised by another $1 per pack. The group also favors getting rid of $181 million in corporate tax breaks.
“Doomsday is here for the State of Illinois,” Civic Federation President Laurence Msall told the Sun-Times.
The Civic Federation’s recommendation comes at a bad time for Gov. Pat Quinn–with an upcoming election, a recession and many Illinois families struggling to get by. But the state’s $12.8 billion budget deficit that that has stopped the flow of cash to universities and schools, transit systems and social-service agencies is going to force Quinn and the state Legislature to make painful choices.
“Illinois’ financial crisis was not created by the great recession,” Msall told the Chicago Tribune. “It is a self-made crisis fed by a lack of responsibility.” The Tribune reports:
Msall said his group’s proposal, if adopted in full, would lop more than $10 billion off the deficit for budget year 2011. He also conceded that some of the red ink would have to be rolled into the following budget year before being erased in its entirety. It estimated the income tax hikes alone would raise $6 billion in new state revenue, while another $1.6 billion would be generated by requiring retirees for the first time to pay taxes on retirement income.
But will state officials go through with the Civic Federation’s plans? Quinn’s office wouldn’t comment on the new report, saying only to the Sun-Times that he plans on “working with the group during the upcoming budget debate.” Speaker Michael Madigan’s spokesman said that Madigan supports cigarette tax increases, and that Illinois Republicans have “done nothing” to help the state’s financial situation but continue to vote down any tax increase proposals.
“It’s not sustainable to continue to ignore your vendors,” Msall told the Sun-Times. “It’s not sustainable to ask your schools, local governments and homes for the developmentally disabled to go out to the market to borrow” because the state isn’t fulfilling its funding promises, Msall said. “A failure to effectively address this crisis in a comprehensive form will result in not only lost opportunities but in greater pain.”
JANUARY, 2011 FROM THE SUNSHINE REVIEW THE ILLINOIS BUDGET
On January 12, 2011, lawmakers raised the state income tax 66%, from 3% to 5% of income, with Governor Pat Quinn explaining it was necessary because, “our fiscal house was burning.”
Illinois‘s Gov. Pat Quinn signed the state’s $25 billion FY2011 state budget on July 1, 2010. In December 2010, Quinn proposed borrowing $15 billion to pay the state’s bills.
Illinois’ financial situation is worse than any other state in the country according to a study by the National Conference of State Legislatures. The state ended Fiscal Year 2010 in worse shape than any other state (the state’s general fund balance was the lowest it has ever been at negative $4.7 billion) and the state’s budget situation has been called “tenuous at best.”
Illinois will receive $974 million from the federal government under H.R. 1586, a $26 billion plan to give states money for Medicaid and education that the President signed into law on August 10, 2010.
Gov. Pat Quinn signed a new state budget for FY2011 on July 1, 2010. The state is second only to California’s budget woes in terms of budget woes and is currently facing a $12.8 billion budget shortfall for FY 2010 and 2011, according to a January 2010 study by the Civic Federation. The budget as passed does not come close to erasing the state’s $13 billion deficit, the largest in history.
In the FY2011 budget, Quinn planned to reduce $509 million in spending plans for a variety of state agencies, with the largest reduction, $313 million, is primarily targeted to programs that serve the mentally ill and developmentally disabled through the Department of Human Services. State employee layoffs are not part of the plan due to a deal earlier this year in which the AFSCME agreed to defer part of its scheduled pay raises in exchange for a guarantee of no layoffs or facility closures through June 30, 2011. The study by the National Conference of State Legislatures reported in its study that the state plans to boost spending for FY2010 by 15.1%.
Illinois has a total state debt of $120,743,173,392 when calculated by adding the total of outstanding debt, pension and OPEB UAAL’s, unemployment trust funds and the 2010 budget gap as of July 2010.
- See also: The Illinois State Budget on State Budget Solutions
2010 State spending & deficit in billions
Of the state aid approved by Congress in August 2010, Illinois anticipates receiving $400 million for education and $550 million for Medicaid. It was less than the state had hope to receive. Gov. Quinn said he doubted a special legislative session would be necessary the state to spend the federal funds. Quinn previously detailed a $215.7 million cut to the state’s Department of Healthcare and Family Services, responsible for the state’s Medicaid and public insurance programs, which was a 2.7% cut compared to FY2010. That was also contingent on a “continued enhanced Medicaid match,” which the state did not get. The state is now responsible for an additional $200 million.
The state closed 13 of its 15 tourist information centers to save approximately $2 million per year.
In July, Gov. Quinn said he eliminate $1.4 billion from the budget but did not offer many specifics on where those cuts would be made until early August 2010, when he detailed $891 million in budget cuts. The August announcement of budget cuts still did not provide details of how the cuts would be made and savings achieved. Many of the cuts were described simply as “efficiencies” and “changes.” For example, one $60 million cut was described as: “DHS will achieve operating efficiencies through review of contracts and programmatic changes.” No information on programmatic changes was given.
The governor’s cuts include:
- $576 million from the Department of Human Services, or 14%, most of which is the result of cutting $515 million in grants
- $311 million will be cut from preschool through 12th grade education, amounting to a loss of 4.3%
- the State Board of Education budget will lose $10 million from operations, $10 million from principal mentoring and arts and foreign languages and $62 million for student transportation, meaning transportation funding is 42% less than last year. In addition, the department will lose $68.5 million in reading improvement block grants.
- $42 million from the Department of Corrections
- $28.4 million from the Department of Aging
- $18.2 million from the Department of Public Health
- $2.4 million from the Department of Natural Resources, wiping out the Wildlife Prairie Park subsidy
- $2 million from Amtrak
Not all agencies were cut. Department of Juvenile Justice’s budget increases $6.4 million more, and the Department of Veterans’ Affairs received an addition $7.8 million.
Gov. Quinn’s cuts reduce the state’s $13 billion deficit, but still leaves a $6 billion gap between expenses and revenue and about $6 billion in unpaid bills from last year. That shortfall amounts to approximately half the budget’s general funds, where state officials have broad authority to raise or lower spending.
Despite the state’s fiscal issues, Gov. Quinn gave salary increases averaging 11.4% to 35 members of his staff from April 2009 through July 2010. When criticized by his gubenatorial opponent, Quinn reversed course and saved the state approximately $18 million when he ordered his employees to take 24 unpaid days off instead of 12. The governor’s order required 2,700 non-union state workers to take 24 unpaid days off.
Although the governor issued the order for the furloughs on fears that the state would not receive federal Medicaid funds, the federal government approved $974 million in funds, $550 million for Medicaid. After the passage of the federal funds, the governor did not rescind the plan to require furloughs but his administration developed new rules permitting nonunion state workers to use vacation and personal days to fulfill their furlough days requirement, meaning that employees will not lose pay. The administration previously said the furlough requirement would save the state $18 million, but the governor’s spokeswoman would not provide a revised estimate based on the new rules.
Reliance on Debt
As of the end of August 2010, Illinois had borrowed $9.6 billion in the prior 12 months; the Civic Federation estimates will eventually cost Illinois taxpayers $551 million in extra interest payments.
Illinois and California are the two lowest-rated states by the three major credit-rating agencies. The low rating means that residents will pay as much as $551.3 million extra for the state’s borrowing over the last year, according to the Civic Federation. It also found that more than half the state’s additional borrowing costs, amounting to approximately $301.2 million, will come due in the next five years.
Illinois plans to borrow more than $3 billion to pay the bills for FY2011 and in June 2010, the legislature permitted the university systems to borrow millions more to make up for the fact that the state has not made the payments it had promised them.
The state is relying heavily on debt, drawing comparisons to debt-ridden Greece. The state’s heavy reliance on borrowing to “balance” the budget has resulted in the state’s bond rating being lowered by Fitch Ratings and Moody’s. Fitch observed, “The recently enacted FY 2011 budget does not begin to address the current operating gap, relying almost entirely on various forms of deficit financing to close the gap.” In fact, the state’s bond rating is lower than all but seven sovereign nations, ranking only slightly higher than Iraq. The state’s budget director said that the state would raise tax rates in part because companies that rate municipal bonds have pressured the state to show it has the ability to address its deficit.
The cost of insuring five-year Illinois bonds to protect $10 million of debt against default in June 2010 rose to $370,000, a record, from a low of $155,000 in January, 2010. The price fell back to $281,000 at the end of July 2010.
The state plans to raise $900 million starting July 15, 2010, through Build America Bonds, a Recovery Act program, to fund its first capital program in more than a decade. Although the bonds are taxable, the federal government subsidizes 35% of the interest payments. Midway through 2010 the state had issued $2.3 billion in Build America Bonds, attracting many new investors, including those from overseas.
Illinois then plans to generate $1.3 billion in short-term notes at the end of July 2010 and $1.4 billion in debt related to tobacco settlement funds in November. Despite the fact that the state sold $2.4 billion in pension notes in January 2010, it plans to once again turn to the debt markets to fund $3.7 billion in pension obligations in December 2010, pending approval by the state legislature.
Pension plans The state’s pension funds are among the most underfunded in the country. In October 2010, the Executive Director of the Illinois State Board of Investments, which manages one-fifth of the state’s pension funds, said it is selling $80 million of assets a month to pay pension benefits. Gov. Quinn proposed that the state pay $300 million less than the total $4.5 billion estimated contribution to the state’s pension systems for FY2011. The legislature passed bills to scale back pension benefits expected to save $100 billion over several decades, according to legislators , who passed the bill in one day in March, 2010. The governor signed into law on April 13, 2010.
Every year the state contributes to the retirement systems that cover state workers, downstate teachers, university employees and others. The government owes about $3.7 billion to the systems for FY2011. The state borrowed money to pay its pension contribution last year and Democrats said that now that the state faces a roughly $13 billion budget shortfall for that fiscal year, borrowing the money was the only realistic way to get the pension funds. Borrowing the pension money would cost about $1 billion in interest; skipping the payment entirely would cost pension systems roughly $20 billion in lost income and interest.
Jobs and Unemployment Insurance
Gov. Quinn claimed in August 2010 to have created 60,000 jobs in the state since Jan. 1, 2010. A spokeswoman for Bill Brady, Quinn’s gubenatorial opponent, said “The U.S. Bureau of Labor Statistics tells a different story, with 200,000 fewer Illinois jobs in the past 18 months.”
Illinois has borrowed more than $2.2 billion from the federal government to pay unemployment benefits to laid-off workers and owe approximately $250 million in interest. The deficit in the fund is estimated to be $2.75 billion by the end of 2010. The fund is financed by employer contributions, which does not receive state tax dollars.
Income Tax Increase
Gov. Quinn said he expects the income tax revenues to climb by $3 billion if lawmakers approve his plan to institute a 4 percent income tax, up from the current 3 percent rate.
The Illinois Constitution requires the governor to prepare and present a State budget recommendation for the state to the General Assembly. The Constitution also requires that the proposed budget be balanced and include recommended spending levels for state agencies, estimated funds available from tax collections and other sources, and state debt and liabilities. The Governor’s Office of Management and Budget (GOMB) estimates revenues in consultation with the Department of Revenue and GOMB subsequently develops budget recommendations that reflect the governor’s programmatic and spending priorities.
The Governor presents the Budget Address in February. After the Governor’s Budget Address, legislative review of the governor’s budget recommendations begins almost immediately with hearings before House and Senate appropriation committees.
Final approval of the budget usually occurs at the end of the legislative session, typically by the end of May. The Illinois Constitution requires a simple majority vote of the General Assembly for a bill passed on or before May 31 to take effect immediately. On or after June 1, a three-fifths super majority vote of the General Assembly is required in order for a bill to take effect for the upcoming fiscal year.
Once the General Assembly passes the budget, the governor must sign appropriation bills before funds can be spent. If the Governor chooses not to approve a specific appropriation, he may either veto a specific line item or reduce it. The rest of the appropriation bill is unaffected by these vetoes and becomes effective. Line items that have been vetoed or reduced must be reconsidered by the General Assembly during the fall session. The General Assembly may return an item to the enacted level by simple majority vote in both chambers in the case of a reduction veto and by a three-fifths super majority vote in the case of a line item veto.”
Comment: It is expected that Illinois will not survive this Democrat Party effort to pay the pipers. Countless businesses which have foolishly done business with Illinois in the past are in or will be in bankruptcy which this State caused by failing to honor State debts. Illinois will continue to pay government workers’ pensions at regular rates, but on more borrowed money.
Experts claim that the Democrats have inflated their estimates of incoming revenues….sums the state will never see, which will deepend the financial collapse.
Nothing like Democrats spending your money to buy votes, promising services, controlling workers on the government plantations. Progress progressing to Marxism…..(“Government 101″ and “Sociology 211″ or “Black Studies 111″ and “Gay and Lesbian Studies 306″, or “History 1″ at your local university and college.) Don’t worry……it’s all the same class.
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