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BUDGET
ESTIMATES FALL AS ILLINOIS HITS SLOWEST ECONOMIC GROWTH SINCE GREAT
RECESSION
Illinois Policy Institute
Illinois’ slow economic growth, made worse
by out-migration, needs to be addressed in order to tackle the state’s
budgetary problems.
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 Slow economic growth is one of Illinois’ primary budget problems. When the
economy isn’t growing and businesses aren’t investing in Illinois, fewer jobs
for Illinoisans and less tax revenue to fund the core functions of government
exist. With exploding government spending and weak economic growth, Illinois
ends up like a struggling cable company – raising prices on a subscriber base
shrinking because prices are already too high. That’s not a sustainable business
model, and it’s failing the Land of Lincoln, which has seen its population
shrink due to massive outmigration for two consecutive years.
A monthly report from the Commission on Government Forecasting and Accounting,
or COGFA, shows that Illinois’ total economic output, which is all the goods and
services produced in the state, grew for the first half of 2016 at an annual
rate of 1 percent. That puts 2016 on pace to be Illinois’ slowest growth year
since 2009 according to COGFA Chief Economist Edward Boss.
COGFA also revised downward its general revenue estimates for fiscal year 2017
to $30.9 billion from $31.9 billion. The biggest contributor to the downward
revision was a decrease in expected federal funds. However, one reason Illinois’
budgets are so difficult to balance is because weak economic growth in the state
leads to weak tax revenue growth. Total state tax revenue sources are projected
to grow by only $360 million in fiscal year 2017 compared to fiscal year 2016, a
growth rate of only 1.2 percent. This natural growth in tax revenues is so weak,
and politicians’ urge to spend is so strong, that Illinoisans keep seeing higher
and higher tax rates foisted upon them.
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 A key reason Illinois’ income tax revenues are growing slowly is
because Illinois has seen the slowest recovery in personal income in
the entire Midwest over the recession era, and the second-worst in
the entire U.S. Wages are not recovering strongly in Illinois, as
too many workers are leaving the state
Illinois political leaders across party lines should agree weak
economic growth is a major problem when it comes to budget-making,
and policy strategies need to be devised to enhance growth and
business investment in the state. A rising tide lifts all boats when
it comes to economic growth, and it makes it easier to balance the
budget.
Political leaders should embrace a three-pronged policy strategy for
more economic growth:
Spending reforms such as ending mandatory collective bargaining to
cap Illinois’ growing tax burden
Tax reform to eliminate taxes such as the death tax and franchise
tax that cost Illinois more in lost economic growth than they are
worth
Regulatory reform for items like workers’ compensation and licensing
to make job creation easier in Illinois
In Illinois, the tide of economic growth is ebbing, and political
leaders are doing little to encourage the investment and
entrepreneurship that alone can arrest the outflow of workers from
Illinois. Ironically, political leaders are preventing the very
economic growth necessary for all the spending they want to do.
Encouraging economic growth is a winning strategy, and in fact, the
only strategy if Illinois is ever to fulfill its spending promises.
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