Ten Key Findings

• A large majority of voters across party lines think the state is off on the wrong track.
• Over 60% of Illinois voters say the state government is spending too much money.
• A plurality of voters (49%) want to cut state spending on important programs rather than having their taxes raised.
• A significant number of conservatives want to cut spending, while a majority of base Democrats want to raise taxes.
• A majority of voters would choose a candidate that will cut spending.
• Over 50% of voters across party lines favor amending the Illinois state constitution to place a limit on state spending growth.
• A majority of Soft GOPers and Inds support a candidate lowering state employee compensation to the level of the private sector during the state’s budget crisis.
• A large majority of voters regardless of party want a candidate who supports making it easier to start and operate a small business.
• Swing voters are relatively divided on vouchers.
• Base GOPers and Soft GOPers are the biggest backers of a candidate who supports the Illinois Turnaround Plan.

We want to spread the word about the Illinois Turnaround Plan to as many people as possible, but we can’t do it without your help.  Will you chip in and help us spread the word about these key reforms for Illinois across the state?

Your support will help to make Illinois a better place.  To learn more, click here.

Illinois’s budget is broken—that’s a fact accepted by almost all Prairie State policy analysts. The state has more than $6 billion in accumulated operating debt, to say nothing of the $83 billion in unfunded public employee pension liabilities.

How did Illinois get into this mess—and more importantly, how do we get out of it?

Until recently, the narrative in Springfield has been “Illinois state government isn’t spending enough; families and businesses should swallow a tax hike to make more funds available for government.”

This perspective is reflective of the same backward thinking that put Illinois in a fiscal pickle in the first place. If we could truly tax, spend, and borrow our way into prosperity, Illinois would be a job creation powerhouse. Hundreds of thousands of Americans would be pouring into our borders instead of heading to low-tax, high-growth states like Texas, Arizona, and Florida. Distressingly, Illinois had a net out migration of 637,979 people from 1999-2008, putting us at 48th in the nation for attracting newcomers to call our state home.

It’s time to take a clear-eyed look at the myths that have propelled Illinois down a path of economic decline. Illinois can once again stand as an economic powerhouse and a beacon of prosperity, provided it sheds the misguided policy prescriptions of the past.

Fact: Illinois state government has spent more in real terms over time.

Overall state spending in Illinois has gone up significantly over the past decade, increasing 39 percent after inflation from 1998 to 2008. In 1998, state spending per resident was $3,500 (inflation adjusted), while ten years later state spending per resident was $4,600.

Within the general funds, spending on major programs is up. For example, government health care—namely Medicaid—is one of the big drivers of Illinois’s budget growth. From 1993 to 1999, Illinois’s Medicaid liabilities grew at a rate of 1.4 percent; over the last 10 years, state Medicaid liabilities grew at a rate of 6.9 percent a year.

Education spending has also been on an upward trend. During the 2008-09 school year, real inflation-adjusted per pupil spending in Illinois schools was at an all-time high. According to the State Board of Education, combined spending in Illinois public schools totaled $12,363 per pupil.

State government debt and tough economic conditions now make high levels of spending unsustainable. Instead of spending more for the sake of spending more, Illinois state government should be pursuing innovative ways to achieve more efficiency in service delivery.

Fact: Illinois has a spending problem.

The fundamental problem in Illinois state government is a lack of spending discipline. For years the taxpayers provided Illinois government with record revenues. In 2008, state government received a record amount of revenues—$29.7 billion10—from the tax-paying families and businesses of Illinois. State leaders spent every dime and borrowed billions more.

Illinois’s total debt per capita has risen from $676 in 2001 to $1,682 in 2010. Total general obligation and capital debt grew from $8.4 billion in fiscal year 2001 to fiscal year $25.4 billion in 2011. Illinois now ranks 37th in debt service as a share of revenue; only 13 states have worse burdens than Illinois.

At its core, Illinois has an overspending problem, not a revenue problem. Future reforms must focus on the spending side of the state’s ledger.

Fact: State spending goes far beyond covering the essentials.

“Needs” are unlimited, while resources are not. Budgeting is always a balancing act of priorities, but unfortunately Illinois has too often allocated resources toward non-core spending and above-market public employee compensation rates.

The Illinois Policy Institute’s 2010 Piglet Book identified hundreds of thousands of dollars in questionable state government spending. Via our transparency website at IllinoisOpenGov.org, we’ve discovered even more examples of non-essential spending by the State of Illinois, including:

• Department of Commerce: $2,520 on “promotional” hot sauce;
• Statewide: $574,759 on registration fees and other conference expenses;
• Department of Commerce: $10,000 on “Dark Knight” Batman movie gala; and
• Department of Transportation: $5,398 on XM Satellite Radio.

High labor costs detract from the amount of resources available for grant and program spending. According to the Bureau of Labor Statistics, private-sector workers in Illinois earned an average annual wage of $48,981 in 2008. Illinois state workers earned an average wage of $56,682—15.7% more. Comparing 2008 Illinois state government payroll data with statewide Bureau of Labor Statistics income numbers, state government cooks earned an average of $42,348 while the income of all Illinois “cooks, institution and cafeteria” averaged just $23,480. State government auto mechanics earned an average of $55,555; auto mechanics statewide only $40,600. State government non-supervisorial janitors earned an average of $41,965; the statewide average is only $25,510.

The problem isn’t just above-market wages. Generous pensions and benefits also add up. In 2009, 536 Illinois public employee retirees earned a pension of more than $100,000. State retirees with 20 or more years of service pay no health insurance premiums.

State government needs to prioritize spending on core needs over discretionary “wants.” Further, the General Assembly must implement salaries, benefits and pensions that do not create inequity between those who pay for these benefits and those who receive them.

Fact: Illinois cannot continue on a path of spending more than it collects.

Leaders of the General Assembly and successive governors have demonstrated year after year that they lack the discipline to set priorities and rein in spending. Each year they have expanded government obligations to unsustainable levels. These expansions of state government obligations create structural overspending, in turn leading to so-called structural deficits.

Certainly, the state’s accumulated budget deficit is not the product of one year’s overspending. It is the result of many years of spending beyond our means. The state ended 2009 with a deficit of $4.3 billion, and it’s slated to close 2010 with an unpaid bill backlog of $6 billion. Looking ahead, Governor Quinn’s budget proposal for Fiscal Year 2011 results in a deficit of $4.7 billion.

It is the rapid, excessive growth in spending during the good times that builds in spending levels that become unsustainable when the inevitable economic slowdowns occur. The state needs structural reforms, together with targeted spending reforms, to move out of today’s fiscal morass.

Fact: Illinois already takes a lot in taxes from families and businesses.

Illinoisans spend on average 101 days—January 1 through April 11—working to pay their combined tax burden, making Illinois the 14th highest in number of days spent working each year to pay federal, state, and local government taxes. Illinois is also 14th highest in state and local tax burden on a per-capita basis, at $4,346.

Illinois has high sales taxes. Illinois has the 6th-highest combined state and average local sales tax rate at 8.4 percent (as of September 29, 2009). Even with a rate reduction to “just” 9.75 percent, Chicago is still known as a sales tax sinkhole.

Illinois has high property taxes. Illinois ranked 7th highest in median real estate taxes paid in 2008, at $3,384. Illinois has the 6th-highest property taxes as a percentage of median home value. Illinois has the 5th-highest property taxes as a percentage of homeowner income. Seventeen out of the top 100 counties on a national list of property taxes paid on owner-occupied housing (as a percentage of home value) are in Illinois.

Illinois has high excise taxes. Illinois has the 5th-highest state gas tax at 39 cents per gallon. Illinois has high taxes on beer, wine, and spirits compared to nearby states. With a $1-per-pack tobacco tax increase, we’d have a higher rate than four of our neighboring states.

Fact: A massive income tax increase is economically harmful to Illinois’s families and businesses.

Illinois’s moderate income tax rate is the best competitive advantage in our state’s tax code. We should not forfeit one of the best incentives for people to live and work in Illinois by increasing the state’s income tax rate.

An income tax hike would hit family budgets hard. According to Bureau of Labor Statistics data, the average Midwestern household is made up of 2.4 persons and has a before-tax income of $61,063. A family with taxable income of $50,000 would pay an additional $500 in taxes under Governor Quinn’s 2010 tax hike plan, on top of the $1,500 they’re already paying in state income taxes, for a total state income tax bill of $2,000. What should families cut from their household budgets to make room for higher tax bills?

Income tax increases will also hurt job creation in Illinois. Scott Moody, a tax-policy economist, calculated that Governor Quinn’s 2009 proposal to hike income taxes by 50 percent would cost the Illinois economy $8.6 billion in lost economic output. According to Moody, “this is equivalent to taking the state’s 2008 revenue from its sales, cigarette, liquor, inheritance, corporate franchise, and insurance taxes and dumping that money into Lake Michigan.”

Hiking taxes will kill jobs—something that Illinois can ill afford to do right now with an unemployment rate above 11 percent.

State leaders need to have the courage to level with voters about the need for government spending reform before asking taxpayers to bail out state government with another tax hike.

Illinois is in rough shape. The state faces $6 billion in unpaid bills, and the unemployment rate is over 11 percent—the highest in 27 years. The state’s bond rating is the second lowest in the nation. Pension plans for public employees are woefully underfunded, with a liability of over $80 billion.

In the face of a record budget deficit, Governor Quinn has proposed increasing top line spending by $3 billion, raising income taxes by 33 percent, and pursuing billions in new borrowing. This is unsustainable and shortchanges future generations.

The Illinois Policy Institute’s Budget Solutions 2011 offers an alternative spending blueprint that addresses our state’s immediate problems rather than kicking the can further down the road.

This brief offers the facts about Budget Solutions 2011 and its recommendations.

Download the full report here.

The Problem
Illinois is in rough shape. The state faces $6 billion in unpaid bills, and the unemployment rate is over 11.3%, the highest in 27 years. The state’s bond rating is the second lowest in the nation. Pension plans for public employees are woefully underfunded, with a liability of over $80 billion, and the state’s increasing annual pension contribution is squeezing out spending on core government programs.

And yet, in the face of this record budget deficit, Governor Quinn has proposed increasing top line spending by $3 billion and raising income taxes by 33%. Under Governor Quinn’s 33 % income tax increase plan, families with a taxable income of $50,000 will pay an additional $500 in taxes to the state – on top of the $1,500 they’re already paying. For many families, that’s too much.

For years, Springfield’s knee-jerk reaction to budget woes has been to search for more revenue from taxpayers. Meanwhile, growing government payroll and unpaid pension liabilities are crowding out core spending for the truly needy. This is unsustainable, and shortchanges future generations.

Our Solution
Budget Solutions 2011 offers an alternative budgeting plan that addresses our state’s immediate problems rather than kicking the can further down the road. It contains three key elements:

1. Spending realignments. We outline savings that would limit current year appropriations to $21.299 billion in Fiscal Year 2011. Including the pension payment and transfers out, total spending would amount to $26.969 billion. This equals outlays of $2,089 per resident. No tax increases or borrowing is required to balance the budget.
2. Right-sizing government labor costs. Roughly 24% of the cost cutting in our proposal pertains to government labor costs, which are out of range with current private-sector rates.
3. Pension funding reform. State pension costs are ballooning and threaten to cut into core government services. Our Pension Funding & Fairness Act ensures that current pensions are funded while offering common-sense budget reforms.

Why This Works
Illinoisans – whether they’re taxpayers struggling to pay the bills or government employees counting on a pension when they retire – deserve better. Budget Solutions 2011 lines up a sustainable path to fix our state’s mounting budget woes.

The Problem

Want to be a hair braider? Get a license. Already a pizza restaurateur? Raise your prices. Starting a business? First prove to the state there is a “need” for your product. Like flowers? Don’t even think about trying to sell them on the street—it’s not allowed. And, don’t dare try to start a cupcake business out of an unapproved kitchen.

In a 2009 report on states’ economic competitiveness, the American Legislative Exchange Council (ALEC) ranked Illinois 48th in economic performance and 47th in economic outlook. ALEC ranked Illinois 40th for its burdensome workers’ compensation requirements and 44th for its costly minimum wage rate, which increased to $8.00 per hour in July 2009 and will increase another 25 cents in July 2010.

Illinois’s maze of regulations has the effect of sending a “KEEP OUT” message to would-be entrepreneurs. Not only do Illinoisans battle against the general tide of a struggling economy, they must also confront costly barriers to doing business, which come in the form of state laws and regulations, licensing requirements and fees.

Our Solution

Workers, families, employers and entrepreneurs are fleeing Illinois for more business-friendly states. ALEC ranked Illinois 48th for its absolute migration because a net 637,979 people left the state from 1999-2008. This trend will continue unless Illinois changes course and reforms—and in some cases eliminates—job-killing barriers to economic opportunity. In order to turn around its unfriendly business climate, Illinois can start by implementing legal and regulatory improvements in the following areas:

1.     Workers’ Compensation
2.     Minimum Wage
3.     Licensing and Fees

Why This Works

Implementing regulatory reforms in the areas of workers’ compensation, minimum wage, and state licensing and fees would create a more favorable business climate in Illinois, attracting more businesses, more jobs, and more state revenue to our state—and, ultimately, providing Illinoisans from all walks of life with a better opportunity to care for their family.

Download the full report here.

The Problem

Out of the 50 states, Illinois ranks 48th in economic performance. According to the ALEC-Laffer State Competitiveness Index, Illinois is doing better than only two states: Michigan and Ohio.

According to this report, as well as government data, Illinois also ranks:

• 44th in economic outlook. Neighboring Indiana and Missouri rank well ahead in terms of future opportunity, at 12th and 17th respectively.

• 44th in GDP growth, averaging only 3.83% over the last decade. Illinois GDP growth has declined since 1977–from 7.6% to 5.9%.

• 46th in debt burden. Illinois continues to spend government revenue growth on government expansion rather than funding past debt obligations, including pensions.

• 44th in personal income growth, averaging at 4.5% in 1997-2007 while the U.S. average is 5.4%.

• 48th in employment growth from 1997 till 2007, ranking ahead of only Michigan and Ohio.

• 37th in improving its standard of living, growing at only 1.13% per year over the past decade. While Illinois ranks relatively high in standard of living (18th), the state continues to fall farther down the ranks.

• 48th in net out-migration, with 735,768 people leaving the state from 1998-2007. Only two states–California and New York–lost more people.

• 7th highest in median property taxes paid.

• 15th highest overall tax burden in the nation.

• 11th highest in property tax burden.

• 4th highest gas tax burden–approximately 40 cents per gallon.

• 1st in sales tax burden (Chicago & Cook County).

• Illinois is shrinking in wealth, once ranking as high as 6th in per capita personal income and dropping to 12th in 2008.

• The growth of the Illinois economy has lagged the rest of the country for the past three decades.

Our Solution

The solution: lower taxes; responsible spending; transparent, accountable government; and a business-friendly environment that empowers entrepreneurs, investors and workers instead of expanding government bureaucracies.

Why This Works

Low-tax, low-spending, low-regulation states like Texas have grown economically over recent years. Under the leadership of Governor Rick Perry, Texas’s economic outlook is bright. If Illinois is to reclaim its place as a land of prosperity, leaders must consider smarter policies that maximize liberty and keep the state in check.