Illinois’ financial crisis is structural, not cyclical, meaning it isn’t going away by itself. This is according to the Report of the State Budget Crisis Task Force, released Wednesday, which evaluated budget problems in detail in six states: California, Illinois, New Jersey, New York, Texas and Virginia. The hole is so deep in Illinois, says University of Illinois economist Richard F. Dye, that even keeping the income tax increase in place won’t solve it.
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“If the tax increase did not go significantly down, if not completely expire, after 2014, there would still be a structural gap on the order of $4 billion,” he said. The current budget deficit is estimated at $3 billion; it is projected to reach $13 billion by 2022 if nothing changes. This problem has been building for some time, but the report’s authors note that spending on Medicaid doubled from 2000 to 2011, and spending on debt service tripled from 2002 to 2011, and these expenses are “crowding out” the states desire to spend money on education, human services, transportation and public safety.
The state has also been underfunding its retirement systems for decades – definitely since the 1980s, and some experts say as far back as 1946 – and has seen its tax base narrow, making revenue unstable.
Dye, one of the authors, says the state would break even by 2019 if it kept the 2 percentage point income tax increase in place, and limited spending increases to the rate of inflation on all items except debt service, pension service and transportation. This sounds simple, he says, but it is difficult because of the degree to which medical costs – which affect Medicaid and employee and retiree health care costs – are rising faster than inflation. He says noticeable and difficult spending cuts are coming.
The report also criticized the state for a lack of planning and for a budget that is difficult to understand.