Fixing Illinois: Making tough, but informed, fiscal decisions
By David Merriman
Illinois' economy has been slow to recover from the Great Recession of 2008. Like in other states, Illinois saw huge drops in housing values and sweeping job losses. But unlike many other states, the Great Recession exposed long festering fiscal imbalances in Illinois.
Years of shortsighted public policy weakened the state government's ability to help during the economic downturn. Illinois has mountains of unpaid bills. The state's tax revenue can't keep up with the spending programs it has in place. And we can't rely on economic growth to help fix this long-term problem: Illinois' unemployment rate is now third highest of any state and employment growth is merely crawling. The bond rating agencies have noticed; Illinois has the nation's lowest credit rating.
So what can be done? Some tough political decisions have already been made. Illinois policymakers passed a substantial income tax increase in January 2011. They also significantly modified the public pension system, reducing a major source of fiscal strain. The rate of spending growth has slowed substantially. Regardless of whether these particular actions are fair public policy, taken as a whole they illustrate a political and legislative system that is able to act.
Unfortunately, these actions alone have not yet put Illinois on a sustainable fiscal course. The Fiscal Futures Project at the University of Illinois Institute of Government and Public Affairs (IGPA) has conducted analyses demonstrating that without significant changes Illinois will slide deeper and deeper into debt. There is no simple fix. The December 2013 public pension legislation greatly reduced long-term unfunded liabilities but did little to reduce the structural budget deficit. The 2011 personal income tax hikes are scheduled to begin phasing out in January 2015. Keeping tax rates at their current levels will cut the projected deficit approximately in half, but will not be sufficient to achieve a balanced budget.
Without further policy change, confidence in the state's economic future may erode. This could create a self-fulfilling prophecy and initiate a negative cycle of economic decline, fiscal hardship, austerity, pessimism and further economic decline.
Citizens must demand, and legislative leaders must enact, a balanced, comprehensive and farsighted set of revenue and spending policies that set Illinois on a sustainable fiscal course. Ad-hoc, temporary policies will not rectify long-term imbalances. As the 2014 campaign for the Illinois governor's seat heats up, political candidates should explicitly articulate detailed, realistic and well-documented long term plans to bring Illinois to fiscal balance.
To help inform this public debate, a team of researchers at IGPA has developed the Illinois Budget Policy Toolbox (igpa.uillinois.edu/budget-toolbox), which analyzes a variety of revenue and spending policy options that Illinois could pursue. We encourage voters and policymakers to visit this virtual research center and educate themselves on these important issues throughout the upcoming election season.
The state of Illinois is facing big policy and fiscal decisions in the next few years. Voters need to pay attention to these debates and make informed choices. The fiscal health of the state government—and the health of the state's economy—depend on it.
David Merriman is a professor of public administration at the University of Illinois at Chicago and an economist at the Institute of Government and Public Affairs.
About this series
These two commentaries by experts from the University of Illinois Institute of Government and Public Affairs are part of the Illinois Budget Policy Toolbox series. The toolbox is a virtual resource center that assesses policy options that the state's leaders can consider as they work to put Illinois on sound fiscal footing.
Learn more at igpa.uillinois.edu/budget-toolbox.