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 Despite seeing the biggest permanent
income tax hike in state history pass in July, Illinois’ backlog of unpaid bills
stands at $16.37 billion as of Oct. 31.
The backlog peaked earlier in October at more than $16.5 billion. And although
lawmakers said the 32 percent tax hike passed in summer 2017 was necessary in
part to pay down the state’s mountain of IOUs, the tax hikes alone were not
enough.
In addition to the tax hike, Springfield has issued $6 billion worth of state
bonds to help pay down the bill backlog.
The sale of $4.5 billion of the $6 billion in bonds was the largest since 2003,
when the state sold $10 billion in pension bonds.
 S&P Global Ratings, a credit rating agency, estimates the move could save
Illinois up to $368 million in interest payments per year. While interest
payments on bonds are lower than the penalty rates the state is paying on unpaid
bills, taxpayers should not be fooled into thinking this a long-term solution.
Already, the supposedly balanced budget is showing massive holes, leaving an
estimated $1.5 billion structural deficit, according to S&P. And the credit
rating agency isn’t alone in its assessment of Illinois’ finances. In a
September analysis of the 2018 budget, the Illinois Policy Institute estimated
the new budget was on track to spend $1.3 billion more than it was expected to
take in.
Illinois has a debt and spending problem that cannot be fixed on the backs of
taxpayers.
Take, for example, Illinois’ 2011 tax increases. Lawmakers claimed raising state
income taxes by 67 percent on the heels of the Great Recession was the only way
to pay off the state’s bill backlog and catch up on the state’s growing unfunded
pension liabilities. They claimed it was a cure-all: a temporary tax hike that
would solve the state’s litany of fiscal problems.
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But the cure-all turned
out to be little more than snake oil, as the tax hike did none of
what lawmakers said it would do. Despite lawmakers’ promises, the
bill backlog was only marginally affected. The tax hike ran from
2011 through 2014, and brought in more than $30 billion in
additional revenue, yet the unpaid bill backlog only dropped to $6.6
billion in 2014 from $7.9 billion in 2011. At the same time,
Illinois’ unfunded pension liabilities actually grew by $25 billion.
Moreover, the so-called temporary tax hike wasn’t really temporary.
Rather, the state individual income tax rate only partially
sunsetted in 2015 to 3.75 percent, and did not return to its
previous rate of 3 percent. The corporate rate fell to 5.25 percent
from 7 percent (excluding the personal property replacement tax) and
did not return to its pre-hike 4.8 percent rate. The result: a net
permanent tax hike.
But this was not enough for Springfield. Rather than tighten their
belts and enact new spending reforms, lawmakers decided to push for
a new tax hike to make the permanent individual income tax rate 4.95
percent and the permanent corporate tax rate 7 percent in 2017. And
they succeeded.
This latest permanent income tax hike didn’t happen in a vacuum.
Illinoisans already pay some of the highest property taxes and sales
taxes in the country. And if spending reforms at the state and local
levels aren’t implemented, these burdens are likely to get worse.
Unless the Land of Lincoln’s lawmakers get serious about addressing
the state’s biggest cost drivers, the push for more borrowing, and
eventually more tax hikes, will only grow.
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