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 Economic fallout from COVID-19 is already creating a financial
crisis for families and businesses across Illinois. Many will face challenges in
paying rent, making payroll and paying other bills. Workers have already been
laid off or faced severe reductions in hours.
While Illinois’ worst-in-the-nation budget health severely limits its ability to
use state aid to offset those costs, lawmakers should act to immediately delay
or cancel taxes and fees wherever possible.
Specifically, Illinois should:
1. Order a delay in the collection of business property taxes until at least
Oct. 1, helping companies keep workers on the payroll while the economy is shut
down.
2. Expand Chicago’s fine and penalty relief policy statewide and broaden its
scope, lifting government demands off workers facing major new financial
challenges.
In addition to these emergency relief actions to address immediate economic
harm, state lawmakers should vote to remove the $3.7 billion progressive income
tax hike from the November ballot, which would harm workers and roughly 100,000
small business owners across the state – potentially just as they begin to
recover from this unprecedented downturn. Per the Illinois Constitution, the
question can be removed by a simple majority vote in the House and Senate.
Illinois Gov. J.B. Pritzker and local officials around the state of Illinois
have taken drastic public health action to fight the transmission of the novel
coronavirus, including the governor’s recent “stay at home” order, which the
governor has extended through April 30. As a result, businesses across nearly
all sectors have seen their income streams severely cut or eliminated.
Lost business income means employers, especially small- and medium-sized
companies, will struggle to pay their workers and may need to resort to layoffs
or permanent closure. Illinois saw more than 178,000 new unemployment claims for
the week ending March 28, an 1,833% increase from the same week one year
earlier.
Many new unemployment claims are doubtless from workers who have been
furloughed, or temporarily told not to report to work, and may not represent
permanent job losses. Illinois quickly expanded unemployment insurance
eligibility through emergency rules to ensure those out of work as a result of
COVID-19 shutdowns will be able to receive benefits. The cost of expanded
unemployment benefits will be covered by the federal government through the end
of the year as part of the Families First Coronavirus Response Act, the second
federal emergency response bill.
However, the longer the economic shutdown continues, the more likely it is to
result in long-term layoffs that make it harder to bounce back in an eventual
recovery. The primary goal of Illinois’ economic and fiscal policy during the
crisis must be preventing job losses and business closures.
To mitigate economic harm as much as possible and put Illinois in the best
position for a quick recovery, Pritzker and the Illinois General Assembly must
take emergency action to minimize financial burdens imposed by the government.
1) Delay property tax collections for businesses to save jobs
In order to help businesses cope with lost revenue and prevent layoffs, the
state of Illinois should mandate through emergency legislation that all local
governments delay the collection of one installment of this year’s business
property tax payments until at least Oct. 1. Property taxes are typically the
largest portion of total tax burdens imposed by Illinois governments. A property
tax holiday would leave thousands of dollars more in the hands of each business
to preserve jobs and pay recurring expenses while the economy is shut down.
Property tax payments are generally due in two installments. Business property
taxes apply to commercial, industrial, agricultural, railroad and mineral
property. The first payment in Cook County was already due March 3, but the
second installment, which is usually due in August, should be delayed. Most
other counties do not collect the first installment until June and could delay
taxpayers’ first payment until at least Oct. 1, to give companies breathing room
during the shutdown.
State officials can make use of emergency borrowing authority granted in the
state constitution to issue short-term bonds of about $6 billion – equal to 15%
of this year’s appropriations as the constitution allows – to cover the
temporary loss to local governments.
The state constitution reads:
“State debt may be incurred by law in an amount not exceeding 15% of the State’s
appropriations for that fiscal year to meet deficits caused by emergencies or
failures of revenue. Such law shall provide that the debt be repaid within one
year of the date it is incurred.”
After the last recession, the state used this authority to issue $1.3 billion in
bonds for the operating budget. Today, this provision would allow Illinois to
provide tax relief where it is needed most without harming local government
finances. Because the bond must be repaid within the year, the interest cost
could be relatively minor and be covered by modest changes to the fiscal year
2021 budget. The principal of the debt would be repaid when counties collect the
delayed installments.
According to the most recent data from the Illinois Department of Revenue,
property tax collections across all business types equaled just under $11.5
billion in 2018. Deferring half of that amount would cost $5.74 billion, less
than the state’s emergency bonding authority.
2) Implement local fine and fee relief for at-risk residents
Chicago Mayor Lori Lightfoot announced on March 18 that the city would stop
collection activity and penalty growth until April 30 for existing tickets and
utility bills, as well as halt booting, towing and impounding unless related to
public safety. Additionally, city officials will “prioritize” public safety
violations for new citations until the end of April.
The announcement offers a much-needed break from worrying about late payment
penalties related to parking, red-light and other violations with limited ties
to safety.
A Pro Publica investigative report in 2018 detailed how Chicago’s ticketing
system disproportionately impacts low-wage workers and other disadvantaged
residents. In 2017 alone, more than 10,000 Chapter 13 bankruptcies in Chicago
included debts to the city, averaging $3,900 per person. Many individuals at
risk of city debt driving them to bankruptcy are the same people facing
COVID-19-induced economic insecurity, including bartenders, restaurant servers
and hospitality sector workers.
“Now is the time to act. It’s the right thing to do,” Lightfoot said while
announcing the policy. “We know that cash flow is a significant issue and we
want to make sure that we’re doing our part to really hear people, recognize
what their daily struggles are, and use the levers of city government to help
them rather than leave them reeling and potentially driving them into
bankruptcy,” she said.
Chicago’s fine and fee relief policy should be expanded statewide and should be
broadened to include the suspension of Illinois’ controversial red-light camera
program. Gov. Pritzker can make use of his emergency powers to clarify that all
activity related to issuing non-safety citations, debt collection and the
assessment of penalties is not an “essential governmental function.” Pritzker’s
Executive Order 8 already prohibits anyone from leaving their residence for
non-essential purposes, but currently leaves it up to local governments to
determine for themselves what counts as an essential function of government.
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“Essential Government Functions means all services
provided by the State or any municipal, township, county,
subdivision or agency of government and needed to ensure the
continuing operation of the government agencies or to provide for or
support the health, safety and welfare of the public, and including
contractors performing Essential Government Functions. Each
government body shall determine its Essential Governmental Functions
and identify employees and/or contractors necessary to the
performance of those functions.”
Issuing tickets, collecting debt and assessing
penalties for violations not related to public safety does not
“provide for or support the health, safety, and welfare of the
public” during an economic and public health crisis. In fact,
continuing these government activities at this time undermines the
welfare of some of Illinois’ most vulnerable residents. Pritzker
should make that clear statewide to provide all state residents with
the same relief granted in Chicago.
Additionally, Illinois should establish a non-safety ticket
forgiveness program for those making less than the median household
income of $63,575 who have lost their jobs or were furloughed as a
result of COVID-19. Whenever the immediate crisis has subsided,
consumers and businesses must be put in the best possible position
to help the economy recover. That means eliminating all
government-imposed financial burdens that are not absolutely
necessary.
Illinois could explore using some of its expected $4.9 billion in
federal stimulus dollars to offset the cost of penalty forgiveness,
although generally speaking public budgets should not rely on
unpredictable revenues such as fines and fees to cover recurring
expenses. The federal Coronavirus Aid, Relief, and Economic Security
Act, or CARES Act, will provide state and local governments with
$150 billion nationwide in direct aid for previously unbudgeted
costs related to the viral outbreak through the end of the year.
To adequately supplement federal aid, Illinois must go beyond
modest steps taken so far
COVID-19 economic fallout requires bold and urgent action from
policymakers. While the federal government has taken significant
action already, Illinois’ current state and local response is
insufficient.
Experts are constantly adjusting estimates for economic growth and
unemployment to reflect the changing realities of the coronavirus
crisis. They range widely. Worst-case estimates see the economy
shrinking and joblessness rising more than during the Great
Recession, although over a much shorter period. For example, James
Bullard, president of the Federal Reserve Bank of St. Louis, told
Bloomberg in an interview that unemployment could surge as high as
30%. And as The Wall Street Journal reports, Goldman Sachs Group
Inc. now expects a 24% contraction in the economy from April to
June.
Preventing the worst-case scenarios will require policies that
“bridge the gap” of lost cash flow for businesses and individuals.
By preventing long-term joblessness and helping individuals avoid
default during the partial quarantine, lawmakers can put the economy
in the best position to quickly bounce back whenever public health
restrictions are eased or lifted.
Goldman Sachs projects the economy will rebound sharply this summer,
with 12% gross domestic product growth from July to September and
another 10% increase in the fourth quarter. But in order for a quick
turnaround to materialize, governments must act now to prevent
permanent economic harm.
Most economic assistance will come from the federal government. The
Federal Reserve has already started major monetary stimulus and
Congress has passed a series of three emergency aid bills. The bulk
of federal aid to date will come from the roughly $2 trillion CARES
Act, which includes the following forms of assistance:
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Direct cash payments worth $1,200 for every
individual making less than $75,000 on their 2018 tax return and
$500 per dependent child. Payments for adults will be reduced by
$5 for every $100 earned over $75,000 and end completely for
those making $100,000 or more. Income thresholds are doubled for
married couples filing jointly. All of the payments will be
tax-free advance rebates.
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Boosting unemployment insurance payouts by $600
per week across the board and extending benefits for an
additional 13 weeks, which will supplement the 26 weeks Illinois
already provides. Additionally, eligibility was expanded to
include independent contractors such as Uber and Lyft drivers,
the self-employed and people with limited work history.
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$454 billion worth of loans intended to help
companies bridge the gap during the shutdown and make up for
lost revenue. State and local governments may also apply for the
loans.
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$349 billion in “Paycheck Protection Program”
loans of up to $10 million per loan to small- and medium-sized
businesses, those with fewer than 500 employees per location,
which can be forgiven if used to cover payroll, rent, mortgage
costs or utilities so long as companies retain their workforce.
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Billions more in direct grants for hospitals,
medical supplies, schools, airlines and other affected entities.
So far, Pritzker has taken positive but modest
steps to supplement federal aid, including:
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Joining the federal government and the majority
of other states in delaying the income tax filing deadline to
July 15
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Establishing a $90 million state program for
small businesses outside Chicago, consisting of loans worth up
to $50,000, $25,000 grants to companies in low-income
communities, and additional grants for small restaurant, bar and
hotel owners who have been closed by the state
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Securing authority for Illinois small
businesses to apply for federally backed Disaster Assistance
loans worth up to $2 million
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Waiving interest penalties and deferring sales
tax payments to the state for small restaurants and bars with
less than $75,000 in sales tax liability
Chicago’s mayor implemented a $100 million loan
program for Chicago small businesses, deferred collection of a
number of business taxes and fees until April 30, and announced fine
and fee relief.
Any and all assistance is helpful during this unprecedented crisis,
but Illinois must go farther. A deferment of nearly $6 billion in
business property taxes would provide far more relief than existing
measures for companies looking to preserve jobs and put Illinois in
the best position to regain economic losses whenever the recovery
begins.
The state should also avoid policy choices that counteract the
stimulus and threaten to derail the recovery, such as the $3.7
billion progressive income tax hike. Illinois lawmakers made the
mistake of hiking taxes amid recovery from the Great Recession in
2011. The 2011 tax hike raised $31 billion in additional revenues,
but cost the state $24.8 billion in GDP and 9,300 jobs between 2012
and 2016. The negative economic effects continued even after the
partial sunset of the 2011 tax hike and lawmakers permanently hiked
taxes again in 2017.
Illinois economic potential is already restrained by the state’s
high combined state and local tax burden. Punishing small business
owners with a substantial tax hike this year is not only a poor
policy choice, but fundamentally unfair.
While states cannot engage in large-scale stimulus spending that
creates debt and deficits in the same way as the federal government,
they can look for opportunities to let taxpayers keep as much of
their own earnings as possible during a crisis. Delaying the due
dates for local property taxes and expanding Chicago’s reduction of
ticketing and fines to municipalities across the state would give
Illinoisans desperately needed breathing room in these difficult
times. Removing the progressive income tax from the ballot would
ensure the recovery has a chance to thrive.
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