Wednesday, February 15, 2017

Rauner’s Illinois "Budget Address Does Not Break New Ground" from Center for Tax and Budget Accountability

February 15, 2017

“Governor Bruce Rauner delivered his budget address to a joint session of the General Assembly today. The speech broke little new ground, and repeated some long debunked myths. CTBA is combing through the details of the proposed budget, and will be providing in depth analysis over the next few days and weeks.

“One of the most glaring myths repeated by the Governor is that Illinois has the 5th largest state and local tax burden in the nation. This ranking comes from the Tax Foundation's report, ‘State-Local Tax Burden Rankings FY2012.’

“However, the Tax Foundation's ranking does NOT ISOLATE in-state only tax burden. Instead, it includes all state taxes paid by Illinois residents to all 50 states. Hence, it simply cannot be used to compare Illinois to other states.

“If you look only at the taxes actually collected by governments in the state of Illinois, our state ranked 27th for combined state and local revenue as a percentage of income in 2014, according to a report by the Federation of Tax Administrators-slightly below the median state. If you account for the phase down of the temporary income tax increase that began in 2015, Illinois would rank 37th in total state and local tax burden-putting Illinois in the bottom third nationally, tied with Idaho and Texas.

“The Governor also contended that government spending should be lower than economic growth. It's not at all clear where this comes from, or that it has any valid economic or policy basis. CTBA addressed this claim on our blog when the Governor made it during his State of the State address earlier in the year. As we wrote then:

“‘According to the Bureau of Economic Analysis, Illinois' GDP grew by 1.8 percent in 2015. However, at the same time, Illinois cut all General Fund spending by 9.2 percent from FY2015 to FY2016. (Spending on General Fund current services-education, healthcare, human services, and public safety, as opposed to payments on things like debt-was cut by 18.3 percent.)’

“So the poor economic growth the Governor derides, is in fact occurring when the rate of change in state spending is already well below the rate of state GDP growth. The problem is not with the rate of government spending. The problem is that our revenue system is outdated and creates a permanent structural deficit. Until we address the revenue side of the fiscal ledger, Illinois will not be able to cut or grow its way out of the deficit.

“Much of the Governor's address was focused on economic growth as the solution to the state's fiscal woes. The Governor repeatedly said that job growth was the key to his budget, but offered few concrete ideas for how to generate said growth. CTBA agrees that in the long run, a healthy growing economy is crucial to fiscal stability. However, in the short run the most important thing is to have sufficient revenue to pay for adequate levels of core public services like education, healthcare, social services, and public safety which in turn create an environment conducive to economic growth.

“To the extent the Governor did address ideas for job growth, he implied that lower taxes lead to increased growth. However, the research shows there is no statistically meaningful correlation between tax policy and job growth. States like California and Minnesota have seen tremendous job growth after substantial income tax hikes, while Kansas is in economic disarray after massive tax cuts.

“The Governor was very specific when he talked about revenue cuts or which revenues he will not increase, but was very vague about how he would increase revenue. CTBA is a proponent of broadening the sales tax base, but the Governor provided few details of how he might do this.

“The Governor was similarly vague when talking about reforms to public pensions. Based on media reports, it appears the Governor is still looking to cut the pension benefits of current public employees, a solution that the Illinois Supreme Court has overruled in the past as unconstitutional. Illinois does not have time to spend on another unconstitutional pension initiative that will ultimately be struck down by the courts.

“The Governor's demand for a permanent property tax freeze is not sound fiscal policy. Freezing the main revenue source for local governments and public education will cause severe strain in communities across the state. Indeed, such an initiative would make it virtually impossible for communities to maintain adequate levels of such basic services as police and fire protection. This is an especially questionable proposal now, given that recent state law imposed a significant increase in pension funding requirements that continues to grow over the next two decades.

“CTBA applauds the tone of the Governor's budget address seeking solutions rather than further political fights. However, the Governor provided little in this speech that can be used by leaders in the General Assembly to craft a meaningful resolution to the ongoing budget impasse.

“We'll be taking a closer look at the Governor's FY2018 budget proposal and providing a more detailed analysis. Visit our blog for the latest analysis and follow us on Twitter or like our Facebook page to get data-based analysis of the state's budget.

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