Raising, expanding or creating new taxes on income, services and retirement benefits could help solve Illinois’ historic budget impasse, according to recommendations a leading business group says could be part of a plan to raise an additional $9.7 billion a year.
The Civic Committee of the Commercial Club of Chicago on Thursday released a detailed report that has a slew of budget ideas. The big picture suggestion from the private, not-for-profit group of senior executives is that the state must identify $10 billion in expenditure reductions and revenue increases for each year from 2018 until 2022 in order to return the state to fiscal sustainability. It notes revenue increases of “at least” $8 billion will be necessary to get the state back on its feet.
While the recommendations are concise, there’s nary a mention of the political will it will take to enact some of the most unpopular suggestions, such as a tax on retirement income and a hike in the income tax. The group, however, notes the report doesn’t include specific spending or revenue proposals — the responsibility, the report says, lies with legislative leaders and Gov. Bruce Rauner.
The group prioritizes a plan with more revenue than cuts, but no real push for any of the specific reforms Rauner has argued must be part of any budget. While the report notes problems with the state’s reliance on property taxes, there’s no suggestion to freeze them. A property tax freeze tied to an income tax hike remains at the heart of negotiations among senators and the governor’s office with just 13 days before the end of the legislative session.
Rauner has said he’ll sign off on a tax hike only as part of a plan that also includes structural changes. And he’s still pushing for several of his preferred reforms, including changes to workers’ compensation; he has said those reforms will help lower costs for businesses and promote more hiring.
The civic group says raising the personal income tax to 5 percent from 3.75 percent would bring in $4.1 billion in revenue for fiscal year 2018; taxing all federally taxable retirement income would bring in $2.5 billion; eliminating exemptions, property tax credits and education expense credits from those who make more than $50,000 a year would bring in $1.3 billion; and expanding the sales tax to include consumer services based on Iowa as a model would bring in $1.2 billion. Coupled with increasing the corporate income tax to 9.5 percent and other measures, the revenue package could bring in $9.7 billion, the group says.
Current budget negotiations include a 4.95 percent income tax hike. Senate leaders have noted they support taxing retirement income — although Illinois Senate Republican Leader Christine Radogno, R-Lemont, has called it a political “third rail.” Republicans have said they won’t support an income tax hike over 4.95 percent.
“We’re aware that these efforts will require sacrifices and compromise from a wide range of people,” Civic Committee Chairman Rick Waddell said in a statement. “We must all work together. The substantial nature of these recommendations reflect the seriousness of the issue and the importance of a long-term plan that is comprehensive and fiscally-sound.”
The report also suggests several changes in the tax code that would cost about $800 million annually; they include eliminating the estate tax, increasing the earned income tax credit to 15 percent of the federal credit and eliminating the corporate franchise tax.
In order to get between $2.5 billion and $2.8 billion in expenditure reductions, the group suggests pension reform changes — anti-spiking provisions for end-of-career salary increases and high-end salary provisions for members of Teachers’ Retirement System and State Universities Retirement System. That combination of changes would save $750 million. The report did not include savings from a “consideration model” — saying it “will likely be challenged on constitutional grounds.”
The “consideration” model the group said it’s not considering was included in the pension bill that cleared the Senate on Wednesday. Illinois Senate President John Cullerton and Rauner both favor a “consideration” model, which, for example, would sweeten employee health benefits in return for a limit on how much future pay raises would be pensionable.
A bipartisan pension reform bill — which includes similar changes — cleared the Illinois Senate on Thursday, with an estimated savings of $700 million to $1 billion annually.
Other recommendations from the business group include implementing long-term financial planning, eliminating the state’s budget deficit and unpaid bills, establishing a reserve fund and beginning to address the almost $130 billion in unfunded liabilities of the state’s pension funds.
There are reform suggestions as well, including changes in workers’ compensation, reforming the school funding formula and improving the reporting of financial data and encouraging local government consolidation and dissolution.
The group notes there are expenses entailed in getting the state back on its feet, including with school funding, pension parity and capital. Moving towards pension parity between Chicago Public Schools and all other school districts will require a “significant payment” towards the Chicago teachers’ pension in 2018, with increasing contributions in the future, the report says.
In terms of workers’ compensation, the group says the law should be clarified to acknowledge that an American Medical Association report is not required for someone to be found to have a permanent partial disability, noting not all workers’ compensation claims require an impairment report, given its expense. The report also recommends “clear causation standards” where a pre-existing condition or injury contributes to the injured worker’s medical condition.
Senators last week were in negotiations regarding the American Medical Association guidelines. Rauner has said he wants to grant arbitrators the ability to use those guidelines as the sole factor to determine how much an injured worker is paid.
The findings come from the Civic Committee’s Tax Policy Task Force, which began its work in 2015. The group notes that while long-term planning is necessary, an “immediate” plan for addressing the budget crisis is the most pressing concern.
Expenditure recommendations came from a budget analysis stemming from working group discussions, the Senate’s “grand bargain” and the governor’s 2018 operating budget book.
The governor’s office declined to comment on the group’s recommendations.
Mayor Rahm Emanuel on Thursday called the suggestions “an honest report about the state of Illinois finances, the challenges we all face, and the avenues to invest in our future and drive economic growth for families in every corner of the state.”
“While there are many opinions about the best path forward for the state, the Civic Committee’s thoughtful report underscores the importance of fiscal stability for economic growth, the truth that both revenue and reform are needed, and the fact that progress is possible,” the mayor said in a statement.