Our Fiscal Challenge
Illinois faces a budget shortfall of more than $11 billion. This represents nearly one-third of our tax-funded spending, or the General Revenue Fund (GRF). Our budget is hindered by the STRUCTURAL DEFICIT. Without substantial changes in spending or revenues—or both—the fiscal mess will only get worse.
What's Happening to Revenues
Income and sales tax revenues have suffered through the recession. State tax revenues have declined during the recession. After reaching a high in fiscal year 2008, total state source revenues — comprised primarily of the “Big 3 Taxes” (individual income tax, corporate income tax and sales tax) — have fallen to their lowest levels since 2005. As Illinois and the rest of the nation endure a JOBLESS RECOVERY, income and sales tax revenues will likely remain depressed for months – possibly years – to come.
The American Recovery and Reinvestment Act (ARRA) is creating opportunities for states and citizens across the country. Likewise, Illinois Jobs Now!, the state’s first capital program in almost a decade, is investing in Illinois’ communities, and will continue to do so for several years. However, neither ARRA nor any other program will turn the economy around overnight. In time, the jobs outlook will improve, and tax revenues will increase. But we must have tax reform now to stabilize the state and sustain it for the future.
Where the Money Goes
Nearly three-quarters of GRF spending goes to education, health care and human service-related programs. Because many of these programs are tied to federal matching funds, reimbursements or grants, GRF cuts can mean that the state also sacrifices non-state revenues, compounding the adverse effects to the programs.
Medicaid accounts for a substantial portion of spending in health care and human services. As Medicaid is subject to the substantial inflationary growth of health care costs, this part of the budget follows macro economic trends.
How Pensions Affect the Structural Deficit
Pension costs will continue to grow significantly in years to come unless the system is reformed. Last year, Governor Quinn advocated pension reform to provide a reliable, sustainable foundation for state pensions. A modernization of the pension system has yet to be realized but is vital to solving the long-term structural deficit problem.
The Five Pillars of Fiscal Recovery:
Promote JOB GROWTH
The future success of Illinois depends on a strong fiscal footing and a robust economy. Last spring, the General Assembly passed and the Governor signed Illinois Jobs Now!, a $31 billion capital program which finances projects in communities throughout the state to stimulate job growth and the Illinois economy. It will support nearly 439,000 jobs.
Economic development cannot stop there. Illinois must welcome new companies the state, promote growth in economically-depressed regions, encourage small business owners, and continue to expand exports and foreign direct investments.
Request continued FEDERAL ASSISTANCE through the recession
The federal government’s stimulus plan brought billions of dollars to Illinois, which funded vital services like education and health care. As federal stimulus dollars are exhausted over the next fiscal year, decreased federal assistance will have serious consequences in Illinois. Reduced federal funds will result in fewer teachers and overcrowded classrooms. Children’s health care coverage and prescription drug coverage for seniors will be jeopardized, and businesses throughout Illinois will be forced to close down. Governor Quinn is committed to working with the President and members of Illinois’ Congressional delegation in support of continued federal assistance.
Use short-, intermediate- and long-term BORROWING
Being able to pay bills on time is essential to the state’s financial well-being. Borrowing money during the short- and intermediate- term will enable the state to fund vital services and programs in the long-term. When the state can pay its providers on time, residents can continue receiving the uninterrupted services they need, and businesses can stay open.
Continue to CUT SPENDING
Families throughout Illinois are curbing their spending, and the state must do the same. Governor Quinn has made reductions in spending such as limiting employee travel and consolidating state office space. In addition, significant cost-saving changes have been made to some state employee benefits.
Spending has been reduced in other ways as well. A recent agreement with state employees will save over $200 million in operational expenses. Major reforms such as implementing an integrated health care delivery system for low-income seniors and people with disabilities, and working to modernize the state’s pension system so that it will provide cost-effective, quality benefits to state retirees will save taxpayers hundreds of millions of dollars.
Adopt REVENUE ENHANCEMENTS
Even with continued federal assistance, borrowing and reduced spending, the state is still faced with a budget deficit of several billion dollars. Illinois’ current tax structure can no longer finance the state’s fundamental needs. Illinois’ income tax rate is the lowest (among those with an income tax) of any state in the country, and it relies heavily on taxing working families. Governor Quinn has proposed a fair individual income tax increase that will lower taxes for millions of families. The new revenue will enable the state to continue investing in education, healthcare, human services and public safety.