Truth in Accounting’s latest “Financial State of the States” rankings placed Illinois in 49th place—barely beating out New Jersey. The Prairie State was labeled a “Sinkhole State” and earned a “financial grade” of “F.”
If you’re wondering why Illinois earned such putrid marks, here are some of the state’s “highlights” from 2017: Illinois owes a mind-boggling $244.9 billion in outstanding bills and unfunded future liabilities. To put this in perspective, every current Illinois taxpayer would have to write a check for $50,000 to cover this colossal debt burden. Since the odds of Prairie State taxpayers sending an extra $50,000 to Springfield is highly unlikely, what does the economic future hold for the residents of Illinois?
If you guessed that Illinois residents are staring straight into a boatload of new taxes, you are correct. To cover the ticking debt bomb, three economists at the Federal Reserve Bank of Chicago recently proposed a 1 percent statewide property tax on homes for the next 30 years. In addition to the property tax, The Institute for Illinois’ Fiscal Sustainability (ILFS), a nonpartisan government research organization, advocates a litany of other taxes, including levies on sales, gas, mileage, congestion, retirement income. ILFS also recommends replacing the state’s flat income tax with a graduated tax.
Unfortunately, Illinois residents already face one of the highest tax burdens in the United States. High property taxes (combined with other taxes) are the major reason Illinois residents are fleeing the state in droves. In 2017, Illinois raked first in outbound migration, at 63 percent. The mass exodus from Illinois has been so significant that the state has dropped from being the fifth-most populated state to number six. Between July 2016 and July 2017, one person left the state every 4.6 minutes. Illinois faces quite the dilemma, because the outmigration rate would increase even more if any of these taxes are implemented, especially the proposed property tax increase.
Illinois is digging itself into a massive debt hole, but lawmakers simply refuse to stop borrowing more and burrowing further. Instead of addressing the source of the debt problem—i.e., out-of-control spending and unsustainable pension plans for public employees—Illinois policymakers are taking the “easy way out” and kicking the can down the road.
Eventually, the rubber will meet the road, and Illinois lawmakers will be forced to face their economic day of reckoning. Since raising taxes will only increase the velocity of Illinois’ downward spiral by causing more residents to abandon the state and further decreasing the tax base, how can policymakers actually prevent economic Armageddon?
For starters, they should slash spending, but that would be just a drop in the state’s debt bucket. To truly avoid the coming crisis, significant changes must be made to Illinois’ bloated pension system, and to reform the state’s pension plans, the Illinois Constitution will most likely need to be amended, which would surely not be an easy task.
To foster fiscal sanity, Illinois must end its defined benefit pension system and replace it with a defined contribution system. Other institutional changes to the state’s pension system should include altering the cost of living increases (COLA) to be based on the final retirement salary and not compounded; index COLA to the Consumer Price Index; cap retiree pension benefits in line with an employee’s final salary prior to retirement; and ban all pension spiking above and beyond normal pay increases.
Even if the tax increases promoted by the three economists at the Federal Reserve Bank of Chicago and the Institute for Illinois’ Fiscal Sustainability somehow miraculously were to solve Illinois’ pension debt and budget debacle, it would do absolutely nothing to fix local municipalities’ unfunded liabilities.
As has been demonstrated in Harvey and North Chicago, towns are now facing the consequences wrought by decades of deficit spending. Harvey was forced to lay off 40 police and fire employees. Other municipalities are borrowing money, selling off assets, and/or levying a “public safety pension fee.”
Overspending (and unsustainable pension promises) at all levels of government have been rampant across Illinois for decades. Irresponsible Illinois lawmakers have caused this economic virus to invade and debilitate a once-thriving and healthy state. It will be up to Illinois’ (remaining) residents to reverse the years of damage that selfish unions and corrupt politicians have wrought on the state’s finances.
Like any good student knows, delayed gratification always pays off in the end. From a young age, students are taught to “work before they play,” i.e., complete assignments on-time, study for tests, and show-up for class. By putting work before pleasure, students avoid long-term pain: summer school, detention, and failing to graduate.
Unfortunately for the people of Illinois, their lawmakers still haven’t learned this lesson. For decades, Illinois lawmakers valued instant gratification and political expediency above all else, and as a result, Illinois is now a state teetering on the brink of financial collapse.