Speaking out: A look at the state budget and our revenue needs

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The Illinois State Budget sets the parameters for what our state can spend. Gov. Pritzker recently presented his proposed budget for the next fiscal year, which begins July 1.

The members of the General Assembly have the responsibility to adopt a budget and, under the Illinois Constitution, the appropriations are not to exceed estimated revenues. In other words, it is supposed to be a balanced budget.

As citizens we should all have some understanding of the budget, and we should give our legislators some input as to our priorities and how to address the challenging task of putting together this budgetary road map.

The budget has been problematic here in Illinois for a long time, and it is even more so this year due to the coronavirus pandemic. The problem stems from a structural deficit, since revenue streams have not kept pace with the needs and demands of state expenditures. Currently, the state has certain hard costs that need to be paid from available revenue, including debt service, pension obligations — which must be honored under the Constitution — and contractual group health insurance for state employees.

What remains is what is available to allocate for core services of education, health care (Medicaid), human services, public safety, and other governmental services. It is significant that the health care amount for Medicaid is leveraged to bring in more revenue since it is matched by the federal government to meet health care needs of needier state residents.

The revenue side is generated primarily by individual income taxes, which represents over 48%, sales taxes representing over 22% and Corporate income which accounts for over 7%, Federal sources over 9% plus other miscellaneous sources.

Gov. Pritzker projects this year’s revenue to be around $41.6 billion ­­– roughly $2 billion less than last year, which included a one-time $2 billion loan through the Federal Reserve.

After hard costs, which this year requires $9.3 billion for pensions, around $30 billion is projected to be left for the Operating Budget to be allocated for core services. This means the budget is flat compared to last year. Consequently, despite needs and commitments, education and safety net services are not going to have sufficient revenue to meet needs. This is after the governor has negotiated around $900 million in health care cost savings, and about $700 million in spending reductions from partial hiring freezes and grant reductions.

Most significantly, though, is that when the education funding reform was adopted a few years ago, there was to be $350 million paid to schools each year for 10 years to bring equity to school systems around the state. This could, potentially, have helped spiraling real estate taxes. Sadly, that payment was not made last year, and under the budget will again not be paid this year. Knowing how residents and businesses around the state have been affected by the pandemic, our safety net needs have increased, and our flat budget will also not help meet those needs.

Had the progressive income tax passed, there would have been additional revenue available to help close the gaps. As an interim approach, the governor has proposed a couple of ideas to increase revenue for the time being without asking for an across-the-board tax increase at the same level for all as required under our Constitution. One approach includes closing some corporate tax loopholes to generate around $932 million dollars. Another is decoupling from the Federal Tax benefit given to certain corporations under an earlier COVID-19 relief bill that allowed them to carry back some net operating losses from previous years. This would allow corporations to receive tax credits today for previous losses they otherwise would not get.

Since Illinois taxation for corporations is tied to Federal tax law by decoupling, Illinois would not lose tax revenue. Several other states have already passed decoupling to avoid this loss. This decoupling change primarily affects large corporations and would mean Illinois keeping somewhere between $500 million and $1 billion dollars, which it will lose otherwise. If you want to help close the revenue gap that can affect our state’s core services, I would urge you tell your legislators to support the approval of closing the corporate loopholes and the decoupling.

Another possibility to close the revenue gap — but not proposed by the governor — could be a tax increase along with credits for those at lower incomes levels. Any tax increase would require the credits for those at lower income levels to be fair. Many who opposed the graduated income tax suggested that such an approach would help reduce the tax burden. You may wish to share your thoughts with your legislators on that concept. For the long term, though, I think at some point legislators need to give the voters another chance to vote on changing our flat tax to a more equitable graduated income tax where increases would be able to be considered without hurting those at the lower end of the income scale.

There are other arenas that can be explored as well. Our sales tax base could be expanded, since it does not reflect our service-oriented economy. How that is done could conceivably lower that rate on many consumers and still increase the revenue pot. Again, I urge you to share your thoughts with your state representatives and senators about what you think might be added to the sales tax base.

Another idea that has been discussed is a Financial Transactions tax, but how much it could generate remains to be seen, coupled with what impact it might have on losing some players. That’s another one on which to share your thoughts.

What we do with pensions is always a big question, but complicated due to rights guaranteed by our Constitution. Some have suggested we should reamortize the pension ramp so that the amount we have to pay in each year is reduced to have more money available for other needs. What do you think?

In the weeks ahead, there may be some more relief for our state and municipalities if the latest COVID relief bill is passed, and such relief stays in the bill. Even if that happens, we need to realize that this will likely be a one-time infusion of dollars.

Depending on the language in the bill, the state will have to grapple with the best way to utilize said funds. Regardless, we need to come up with a long-term plan to ensure we have adequate revenue to meet our state’s core needs, including education and safety net challenges.

We cannot afford to keep the status quo.

• Elliott Hartstein of Northbrook is an attorney and a former village president of Buffalo Grove.

Feeds,News,Region: AH,City: Arlington Heights

via DailyHerald.com > Top News

March 4, 2021 at 09:50PM

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