Week of March , 2009
New Illinois Governor Pat Quinn provided us with his budget proposal for FY10 in the annual budget address. I promised details last week and I will review some of the details contained within Governor Quinn’s budget proposal this week. The proposal calls for a number of strategies to help close the state’s huge budget shortfall. That shortfall is projected to be over $10 billion if you combine the FY2009 shortfall with the FY10 outlook.
The major revenue producing aspect of the governor’s proposal is an increase in the personal income tax for Illinois citizens. He is proposing that the current rate of three percent be raised to four and a half percent. This represents a fifty percent increase over the current income tax rate in Illinois. Under his plan, the increase would not impact all wage earners the same. Tied to this proposed increase is an increase in the personal exemption claimed on the Illinois tax form from two thousand to six thousand dollars. According to the governor, this increase in the exemption would mitigate the effect of the income tax increase for low wage earners. It appears that his intention is to attempt to not raise income taxes on those earning slightly below sixty thousand per year with a family of four. The math is somewhat complicated, but the purpose is clear, he wants to use the personal exemption to create a progressive tax system in Illinois.
The amount of dollars that the state would normally realize if the income tax increase went up by fifty percent would be around $6 billion. The estimated net revenue to the state under the personal exemption increase proposed would be around $2.8 billion. That means, in basic math, that he intends to redistribute the other $3.2 billion to lower wage earners via the increased exemption method or other tax credits.
He also proposes to increase the corporate tax in Illinois from 4.8% to 7.2%, this is also a fifty percent increase in the corporate tax rate. This increase is expected to raise around $350 million. By the way, corporate personal property tax rates also increase when the corporate tax rate increases. When you add the $350 million to the net personal income tax increase of $2.8 billion, the total net revenue increase for the state is around $3.15 billion.
His budget also relies on a tactic that we have seen in the past six budgets in Illinois. He proposes to raise around $200 million via fund raids in FY09 and another $293 million is raids and charge backs in FY10. This budget tactic was used extensively by former governor Blagojevich in his schemes. Quinn also proposes another favorite Blago tactic in that he wants to close “corporate loopholes” to the tune of around $287 million. In addition, he has proposed a $1 dollar per pack increase in the cigarette tax which he estimates would yield about $365 million in new state revenue.
When you add up all of the possible revenue increases, the total is a bit over $4.1 billion net for FY10. If you add to that figure the $2.15 billion in federal stimulus money he intends to use to help with the FY09 budget and the additional $1.8 billion in federal stimulus money for FY10, the total is over $7 billion in new taxes, fund raids, and stimulus money. Keep in mind that the stimulus money is for two years only.
A budget has two sides as you know. As far as spending is concerned, the governor did propose some cuts in spending. His plan calls for requiring all state employees to take four furlough days which eh estimates would save the state around $36 million. He also proposes that state employees and retirees increase their contribution for healthcare and estimates that would save $200 million. He is proposing that the Department of Natural Resources be consolidated with Historic Preservation to save $1.2 million and all other grant programs would be cut by 2% which would save $80 million. These cuts total a bit over $300 million.
The other very controversial part of the governor’s proposal has to do with what he calls pension reforms. First off, he proposes skipping the fourth quarter FY09 payment to the state pension payment completely. The payment that is due to the system for the fourth quarter of FY2009 is $550 million. In addition, he proposes that in FY10, the state skip $2.3 billion of the scheduled payment. He defends these reductions by proposing that Illinois enact pension reforms that would reduce the state’s long term pension liability and therefore reduce payment obligations.
The proposed pension reforms which are the basis for the assumption that the payments could be reduced are as follows: Increasing the retirement age to 62 or older, further reducing the amount of pension earnings for those eligible for social security, capping cost of living increases for retirees and increasing the contribution by current employees by one percent.
There are other details to the proposal which will be revealed in the coming weeks. Remember, at this point, these are just proposals. Many people have identified that these strategies appear to be more of the same types of strategies that we have seen for the past six years. At this point, I tend to agree. The proposal relies on fund raids, one time revenue (stimulus money), closing corporate loopholes, skipping or reducing pension payments, etc… If it sounds familiar, it should. These are the same types of proposals made by the past six years by former governor (that sounds so nice) Blagojevich. The only real difference is that Governor Quinn is proposing a huge personal income tax increase to go along with the raids and other familiar gimmicks. The former governor wanted to pass a gross receipts tax to fund huge spending increases and this governor wants a huge income tax increase. Many feel that this proposal is just as gross.
By the way, although the governor has made some noteworthy changes in personnel in some state agencies, this budget was put together with the assistance of two of the former governor’s budget advisors. Both John Filan and Ginger Ostro were chief architects of this budget and they helped put together past Blagojevich budgets. Maybe that is why this overall strategy seems eerily familiar.
On a final note, also remember that the there is a proposal out there backed by Democratic leaders that would raise the gas tax by either eight or sixteen cents, depending on which leader’s plan one reviews. That is more money out of your pocket every time you fill up and that money would go into a road fund that is regularly raided.
There are alternatives to this type of budget. If we utilize our federal stimulus dollars wisely, institute a moratorium on new spending, make cuts where we can and should, look at privatization of the lottery, sell surplus state property, and adopt reasonable pension reforms, we can get our budget back on track. Unless and until we make some serious cuts to state spending, we cannot expect the hard working citizens of Illinois to provide any additional revenue to the state. Pension reforms are needed, and we can start by eliminating special pension privileges for members of the General Assembly!
We also need to get people back to work. We must have a capitol program. There are better alternatives than raising the gas tax in order to provide the revenue for a capitol program to build and repair roads, bridges and schools too. Also keep in mind that raising taxes on employers risks driving companies and jobs out of Illinois at time when unemployment recently hit a 15 year high of 7.9 percent. I think we can do much better than this.
I am anxious to hear what you think about these proposals. You can phone my offices at 217-558-1040 or 618-563-4128 or 217-932-9082. I also track e-mail closely and you can e-mail me at reddyunit1@aol.com Of course, you can send mail to Box 125, Hutsonville, IL 62433 or 222-N Stratton Office Building, Springfield, IL 62706. My website has frequent updates as well and you can access breaking information at www.peopleforeddy.com