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The Fiscal Futures Project releases budget analysis
In three new papers, IGPA’s Fiscal Futures Project takes a close look at the income tax increases of 2011 and subsequent effects on the state budget when they begin to sunset in 2015. This looming fiscal cliff is part of a long-term fiscal imbalance.
Facing a fiscal crisis during the Great Recession that exacerbated long-standing budget shortfalls, the Illinois legislature and governor agreed on a package of fiscal policies in January 2011. These included temporary increases in the personal and corporate income tax rates and limits to General Funds spending.
Current law stipulates that the tax increases will begin to be phased out in 2015. The Fiscal Futures Project examined how often states have allowed temporary tax increases to sunset. Between December 2007 and January 2013, 13 states (including Illinois) enacted tax increases that were scheduled to phase out at a later date.
The project found that most states that passed temporary tax increases have allowed the taxes to expire, but most also made modifications to the original phase-out. (Read the Issue Brief here.)
As Illinois faces its own looming sunset date, many policymakers have asked how the tax increases have affected Illinois’ economy, which is an important factor in the coming debates about whether or not to let them expire.
Using employment, unemployment and average weekly earnings data, The Fiscal Futures Project found that Illinois’ economy has been in worse condition than our Midwestern peers since January 2011. This can be attributed to many factors, including the income tax increase. (Read the Issue Brief here.)
Those other factors: unpaid pension liabilities, a backlog of unpaid bills, and the resulting projected budget deficit are covered in depth in the project’s latest Fiscal Projections.
Using a long-term consolidated funds budget model, the project found that the state faces a budget gap of $1 billion dollars in 2014. That gap is projected to grow to $14 billion by 2025. Even if the 2011 tax increases are made permanent, Illinois will still face a budget gap of more than $7 billion by 2025. Making the tax increases permanent will not be a silver bullet for Illinois’ chronic fiscal condition. Much of this is due to debt.
Illinois currently has approximately $100 billion in unfunded pension liabilities, which are scheduled to grow by $2 to $3 billion each year for the next decade. A backlog of $6 billion in unpaid bills will also have to be paid from revenue in future years. (Read the Fiscal Projections here.) No one policy option is a clear solution.
The Fiscal Futures Project concludes that Illinois must make aggressive changes in multiple areas, or will face fiscal imbalances for many years to come.
Wednesday, March 4, 2015 - 12:00pm
Wednesday, March 18, 2015 - 12:00pm
Wednesday, April 1, 2015 - 12:00pm