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IGPA Researchers Find Way Out of Deficit, But Policies May be Too Tough for Struggling State to Handle

Despite a large income tax increase implemented a year ago, economists remain skeptical that the long-term structural deficit issue will be resolved though current policies. New projections by IGPA experts found that a combination of tough policies could bring the state into fiscal balance by the end of the decade.

In their most recent analysis for The Illinois Report 2012, IGPA’s Fiscal Futures Project team found that maintaining increased income tax rates after they are scheduled to expire and extreme austerity with respect to spending could bring Illinois into fiscal balance by fiscal year 2019. The Illinois Report 2012 will be published in February. Click here to read the chapter.

“We have decided to release this chapter of The Illinois Report 2012 ahead of publication because it focuses on the most important problem facing Illinois – its fiscal condition,” said IGPA Director Robert F. Rich. “The work of our team presents an innovative and clear way of examining the state’s budget and I believe it is must reading for those interested in addressing this most critical issue.”

The Fiscal Futures Project does not endorse—or reject—the policy plan. The nonpartisan, evidence-based analysis by researchers Richard F. Dye, David F. Merriman and Nancy Hudspeth is intended to provide information that can assist in the discussions of alternative fiscal plans.

"I think it is important to identify a set of actions with the potential to bring Illinois to fiscal balance,” said Dr. David Merriman, co-director of the Fiscal Futures Project. “This identifies a baseline set of actions than can be improved through public debate and political compromise in the hope of finding a less painful and potentially more expedient way to move toward fiscal stability."

The projections show that the tax increases enacted in January 2011, which are scheduled to phase out in 2015, and the spending cuts that have been made so far, have had a positive impact on the deficit. “The policy choices made thus far have whittled the gap from impossibly large to potentially manageable,” Dye, Hudspeth and Merriman write.

However, it looks as though the tough decisions have just begun. Keeping the growth rate of all spending down to 2.1 percent per year would require severe cuts in some state programs. Pensions, medical costs, and other government spending are projected to continue to grow. And politically, IGPA economists say it may be nearly impossible to extend the tax increases further.

The Fiscal Futures Project was created in 2008. The project utilizes a model of the Illinois budget and a detailed database about past revenue and expenditures to develop projections of future fiscal scenarios.

 

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The State of the Illinois Economy

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