Illinois Senate budget plan includes $5 billion in tax hikes, $7 billion in borrowing

The new budget plan coming out of the Illinois Senate does little to nothing to reform the state’s reckless spending and financial mismanagement, but does plenty to hurt state taxpayers.

Illinois Senate members have a drafted a new budget plan that relies on multibillion-dollar tax hikes, but little in structural spending reforms.

The plan punishes taxpayers with more than $5 billion in additional income and other taxes, borrows $7 billion from the bond market and adds casinos in Chicago – none of which provide relief to struggling Illinoisans. The plan also leaves pensions unreformed, does little to workers’ compensation costs and burdens job creators with a higher minimum wage cost.

There are limited, smaller reforms in the overall package, but nothing that slows the growth in government spending. It’s why the plan relies on massive tax hikes – even if those hikes accelerate out-migration of people and businesses. It’s a bad plan for Illinoisans.

Below are the major parts of the budget plan:

• 33 percent income tax hike: The proposal hikes personal income taxes up to 4.95 percent, up from the current 3.75 percent and corporate rates to 7 percent from 5.25 percent. This will cost Illinoisans at least $5 billion a year. 

• New sugary drinks tax: Illinoisans will also be hit with a new sugary drinks tax that would take another $560 million from Illinoisans’ wallets annually.

• More borrowing to cover unpaid bills: Illinois politicians propose to borrow $7 billion to pay down the state’s unpaid bills. But with no major accompanying spending reforms, unpaid bills will only continue to grow.

• Pension “reform”: The reforms don’t end Illinois’ broken defined-benefit pension system and do little to fix the $130 billion pension crisis.

• Uses Senate President John Cullerton’s consideration model as a basis for pension reform for lawmakers, university workers and Chicago and downstate teachers. Workers choose between limiting their salaries that can count toward their pensions or receiving a smaller cost-of-living adjustment in retirement.
• Ends the General Assembly Retirement System for new workers going forward.
• Creates a 401(k) plan for workers, but enrollment is restricted to 5 percent of total employees.
• Lowers the ceiling for pension spiking penalties for teachers and university workers to 5 percent from 6 percent.

• Property tax freeze: The plan freezes property taxes for two years. However, a property tax freeze alone will not decrease local taxpayers’ burdens. Without structural reforms in spending, local governments will continue to accrue more debt and bigger pension liabilities. 

• Adds term limits for legislative leaders: The plan fails to address term limits for all legislators.

• Minimum wage increase: The plan calls for an increase to the minimum wage that will only result in fewer jobs for Illinois’ minorities and lower-income residents.
  • Illinois’ minimum wage will grow to $11 in 2021 from $9 in 2018. Establishes tax credits for small businesses to help them afford the wage increase.
  • Prevents localities from offering a minimum wage lower than the state’s.

• CPS pension pickup: The state will bail out Chicago by paying $215 million in 2017 and $221 million in 2018 to the Chicago Teachers’ Pension Fund. Every year after, the state will pay for the annual (normal) cost of Chicago teachers’ pensions.

• Local government consolidation reforms: Eases the process of consolidating local governments.
  • Expands DuPage consolidation model to all counties.
  • Allows referendums to consolidate townships, among other reforms.

• Gambling expansion: Additional gambling facilities let Illinois governments avoid needed fiscal reforms.
  • Creates Chicago Casino Development Authority.
  • Authorizes six new casinos.
  • Sets up new lottery department for administering internet gaming.
  • Allows gaming stations at horse racing tracks.

• Tax credit changes and other taxes items:
  • Allows research and development tax credits through 2027.
  • Increases the state’s education tax credit to $750.
  • Repeals film tax credits.
  • Repeals franchise tax, adds annual fees for late reporting and refunds overpayments.

• Procurement changes: The plan makes several changes to the state’s procurement rules.
  • Enacts several procurement code reforms, increases the limit of small purchases to $100,000 from $10,000 and changes applicability for higher education institutions.
  • Creates the Special Committee on Procurement Efficiency, Minority, Female, and Veterans Contracting, and Illinois Preference in Purchasing.
  • Allows purchase of off-road construction equipment utilizing best value methods.

• Workers’ compensation reforms: The plan does little to fix workers’ compensation in a way that will satisfy the complaints of Illinois businesses struggling to pay for the nation’s seventh-most expensive workers’ compensation system.
  • Adds language on causation and traveling employees that only codifies current law.
  • Changes weekly compensation rate maximums.
  • Addresses professional athletes and physical therapy treatments.
  • Creates of a new drug formulary that limits prescription.

• Supplemental budget: The plan also includes $4.56 billion in supplemental appropriations for the second half of 2017. Appropriations include over $1 billion for higher education, $1.8 billion for state worker health insurance and over $800 million more for various social service expenses.

This is not the starting point for negotiations that Illinoisans deserve. A property tax freeze and consolidation reforms do not make up for the fact that lawmakers are demanding overburdened taxpayers swallow billions in additional higher income taxes. Worse, the plan does not enact any serious pension or spending reforms.

Illinoisans already pay some of the highest taxes in the nation. When all local and state taxes are added up, Illinoisans paid the fifth-highest overall rate in the nation in 2012, according to the nonpartisan Tax Foundation’s most recent state-by-state comparison. The Senate’s plan will only further add to that burden, bringing Illinoisans’ income tax burden almost back to where it was with the 2011 tax hike.

The Senate’s budget plan is a repeat of the same failed strategy the state embarked upon six years ago: tax hikes now with promised real reforms later. Lawmakers promised the additional revenue of the 2011 tax hike would stabilize the pension crisis, pay down the state’s unpaid bills and help the economy.

The hike ended up accomplishing just the opposite: The pension crisis wasn’t fixed, Illinois’ bills weren’t paid off and Illinois suffered the weakest economic recovery in the nation. Even worse, Illinoisans left the state in record numbers – to the point where Illinois has been losing population.

New migration data from the U.S. Census Bureau show that from July 2015 to July 2016, Illinois lost 114,000 people, on net, to other states, a record high for the Land of Lincoln. In total, Illinois’ population actually declined by over 37,000 people. It’s the only state in the region with a shrinking population.

Illinois’ rate of exodus is now one person every 4.6 minutes.

A different plan

Illinois doesn’t need a plan that destroys its tax base.

Instead, it needs a budget plan that grows the tax base – one that keeps its residents and businesses here and attracts new ventures and families.

That plan doesn’t include multibillion-dollar tax hikes. It needs real spending and economic reforms that end Illinois’ perpetual fiscal crises.