Illinois politicians passed a record income tax increase in January 2011. Part of the deal they made was to allow most of that tax hike to sunset in 2015.
That deadline is quickly approaching – Illinois’ income tax rates are legally required to come down in nearly six months.
Lawmakers should have been preparing for the tax-hike sunset since the day they passed the tax hike. They should have spent the last three-and-a-half years focused on reforming how Illinois spends money. They should have balanced the budget, paid down the state’s unpaid bills and left enough room in the budget to keep their promise of tax relief.
But they didn’t.
Now state legislators are trying to hash out a budget at the last moment. And the numbers games are in full swing.
Depending on the revenue numbers used, the state is looking at about a $1.8 billion budget hole next year.
It’s no doomsday, but politically it’s still a tough pill to swallow given the special interests that depend on maintaining the status quo of overspending.
Across-the-board cuts are one way to deal with the drop in revenue. A 5 percent cut would be enough to zero out the budget gap. But indiscriminate budget cuts aren’t a very attractive political strategy. Nor do they do much for the state’s long-term financial situation.
There’s a comprehensive list of structural reforms the state could pass to make up for the budget gap next year. But big reform can take time. That’s no excuse not to do it but because we are closing in on the budget timeline quickly, politicians are looking for actionable reforms they can implement today.
Here are five legislative actions that could be passed immediately and save the state more than $1.8 billion next year:
- $400 million in Tax Increment Financing, or TIF, reforms: Illinois should stop using state funds to subsidize TIFs at the local level. TIFs are essentially political slush funds that hide under the guise of economic development. TIFs are embedded in complex education funding formulas and ultimately reduce local funds available for schools. Ending this practice would save the state $400 million.
- $350 million in Medicaid scrubbing: Illinois simply can’t afford to pay Medicaid benefits to individuals who are ineligible to receive them. It’s already been shown that scrubbing the Medicaid rolls can save the state a significant amount of money. Illinois should continue using a private contractor to scrub Illinois’ Medicaid eligibility rolls. This could save Illinois $350 million per year.
- $800 million in retiree health insurance: Illinois can’t afford to give state retirees Cadillac insurance benefits that are virtually unheard of in the private sector. State government retirees contribute little to nothing to their health insurance plans in Illinois, while retirees in other states on average pay about 54 percent of their retiree health insurance costs. By increasing the average retiree contribution to 54 percent of the total cost, the state could save about $800 million in fiscal year 2015. Low-income workers could be protected through means-testing of these benefits.
- $150 million-$300 million in payroll costs: Employee compensation costs are at the center of the state’s crisis. Immediately reducing state payroll costs by 5-10 percent could save the state between $150 million-$300 million.
- Millions in wasteful spending: The House voted in mid-May for a series of budget bills that contain far too many instances of wasteful spending or funding for low-priority programs. Examples include spending $2 million for public radio and TV, $1 million for the medical cannabis program, $20 million for bureaucrats’ travel costs and $1.7 million for the DuQuoin state fair building and grounds. These amounts are relatively small, but they’re just the tip of the iceberg and are indicative of how politicians chose to handle the budget in what they call a crisis situation.
Figuring out a state budget that funds core services while doing right by taxpayers will require some tough but necessary decisions. There’s absolutely no excuse for lawmakers to not allow the tax hike to sunset. It’s more than a promise – it’s the law.
Benjamin VanMetre is Senior Budget and Tax Policy Analyst for the Illinois Policy Institute.