A Chicago financial watchdog group — Truth-in-Accounting — puts out daily reports about the financial health of various cities and states, including Illinois.
Last week, one cited statistics released by moving company United Van Lines on the share of “outbound shipments in total shipments for all 48 continental United States.”
“The latest results ... are dismal for Illinois and other fiscally challenged states,” Truth-in-Accounting states.
United Van Lines reports that “Midwestern states including Illinois (66.5 percent), Kansas (58.5 percent), Ohio (57.8 percent), Michigan (56.9 per-cent) and Iowa (55 percent), all returned to the list of top 10 outbound states in 2019.”
The 66.5 percent number refers to those leaving Illinois with United’s assistance. Just 33.5 percent of its customers were moving in.
United’s numbers provide anecdotal evidence that back up recent statistics released by the U.S. Census Bureau showing that Illinois’ population fell by more than 50,000 from July 2018 to July 2019. The previous year, it fell by more than 55,000.
The census numbers show that the state’s population has declined for six straight years.
Despite that downward slide, the state’s population exceeds 12.5 million, making it the fifth/sixth largest.
Why is population decline a problem?
Sheila Weinberg, chief executive officer at Truth-in-Accounting, said the problem is fundamental to the function of government at all levels.
“The state is slowly losing its tax base,” she said. “So the people who are staying are paying more taxes to make up for the people who are leaving.”
A worst-case example of that scenario is the city of Detroit, whose tax base withered away until the municipality was forced to file bankruptcy in 2013.
Weinberg said Illinois isn’t close to the desperation that engulfed Detroit. But she said she sees “stress signs” that indicate Illinois is headed in that direction.
They include the state’s inability to pay its bills, its difficulty in borrowing, the collapse of some social-service vendors forced to wait for state payments that never came and additional costs imposed by state contractors worried about getting paid.
The U.S. is a mobile society. While people move for many reasons, where they move can be revealing — low-tax, high-growth states are proving to be big draws.
In a sense, well-off states become more well off because of the kind of people they attract. That’s because movers aren’t just bringing themselves and their families, but their socio-economic status.
Wirepoints financial analysts Ted Dabrowski and John Klingner assert that population increases mean an increasing tax base, a growing workforce, economic growth and investment.
“Florida is once again the biggest winner of both people and money,” they report. “The Sunshine State attracted nearly $32 billion in Adjusted Gross Income from people moving into the state in 2018. In contrast, it lost about $15.7 billion in AGI from those who left Florida, leaving the state with a net gain of nearly $16 billion in new taxable income.”
While Florida finished in the top spot, New York and California sustained the largest out-migration. Illinois was right behind them.
“The state has lost a net of more than 1.5 million people to out-migration since 2000, or more than 11 percent of the state’s population,” Dabrowski and Klingner said.
They said that, since 2010, Illinois has “lost up to a cumulative $32 billion in income to other states.” Further aggravating the problem is that not only are more people leaving than moving in, but those who are leaving earn more (nearly $18,000 more in the 2018 tax year) than those moving in.
Weinberg said she’s not confident that circumstances will improve because “I don’t see elected officials making big (policy) changes or even small ones.”
There is, however, one exception to that claim.
Gov. J.B. Pritzker has characterized his plan to replace the state’s flat tax with a progressive income tax as a solution. He’s repeatedly promised to impose higher tax rates only on the “millionaires and billionaires” who earn more than $250,000 a year.
That could be problematic.
Orphe Divounguy, chief economist at the Illinois Policy Institute, said IRS data suggests that raising taxes on upper-income earners will cause many of them to move elsewhere.
“... Illinois is losing people earning more than $200,000 a year at nearly twice the rate of average-income residents on net,” he said.
For the time being, Illinois’ fragile financial standing is being sustained by a strong national economy that has driven the national and state unemployment to record lows.
But the U.S. economy runs in cycles. While the current recovery is expected to continue for the foreseeable future, it’s not expected to continue indefinitely.
Weinberg predicted that state finances will be in dire straits when an inevitable recession causes revenue shortfalls that severely complicate state government’s ability to function.