Illinois' path offers lesson: Op Ed from 2/2/12 Urinal Sentinel

Don't think I'll be moving to Waukegan anytime soon....pretty much says it all. Explain to me again why the other side can't understand basic economics?

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By Kristina Rasmussen
Feb. 1, 2012

Last year, Illinois and Wisconsin each faced serious budget crises. Projected revenue could not cover expected spending, and massive deficits threatened the fiscal stability of both states.

You're probably familiar with the budget-repair efforts by Gov. Scott Walker. I'd like to tell you more about the route Illinois took, which was vastly different and over the past year has proven itself a failure.

Rewind one year. As Wisconsin's budget discussions were underway, Illinois faced a shortfall equal to roughly half of our general funds budget. Years of spending beyond our means were catching up with the state. Billions in unpaid bills piled up. Money was borrowed to make annual pension contributions. Illinois' credit rating was on a downward slide. Human services faced large cuts. And nobody knew how the state was going to pay for a recently inked contract awarding multiple raises to unionized state employees.

Illinois' response to these problems were tax hikes. In the final hours of a lame-duck session, Gov. Pat Quinn and the Democratic-controlled legislature, raised taxes by record amounts. The tax hikes passed with the barest of majorities, thanks only to the support of lawmakers who would retire a few hours later or had lost re-election bids the previous November.

The personal income tax was increased by 67%, costing the average Illinois family an extra week's pay each year. The corporate income tax climbed 46%, giving Illinois one of the highest rates in the nation. In exchange for this mandatory sacrifice, backers promised that the revenue - combined with an austere budgeting approach - would clear a backlog of unpaid bills, put the budget back on the right track and help strengthen Illinois' economy.

How did things actually play out? It isn't pretty.

A new gusher of tax revenue came into state coffers, and almost all of it went to the state's rapidly rising pension costs. Plans to seriously reform the two drivers of budget growth - pensions and Medicaid - fizzled as pressure dissipated. Cuts were made to some budget line items, but the growth of big programs ate up any savings and then some. This led to an overall budget of record proportions.

It gets worse. Not wanting to tip off dissatisfied voters to the continuing budget mess, Illinois lawmakers pushed more than $1 billion in expenses into the upcoming fiscal year to improve the math. This gimmickry didn't run afoul of a toothless spending cap, which was purposefully set too high to have real impact.

And what about those state workers? When it came time for the raises, Quinn simply decided not to honor their contracts because there wasn't any money left over.

Illinois entered 2012 with an accumulated deficit of $8.5 billion, and it's going to get worse. Doctors and nonprofits providing services to Illinois' disadvantaged don't know when they'll get paid. Some have closed their doors. The state's credit rating was just knocked to the lowest in the nation, beating even California for the bottom rung. And because it's an election year, it isn't clear if state officials will have the courage to tackle big problems.

Illinois' unemployment rate continues to hover near 10%, up from 9% before the tax hike. During that time, 61,000 more Illinoisans have joined the unemployment rolls. Illinois has had to ply companies with tax incentives to keep them from leaving. Some companies, such as FatWallet.com and Catalyst Exhibits, already have left. So much for a stronger economy.

A pending gubernatorial recall may give voters an opportunity to weigh in on the budget-repair choices made in Wisconsin. From one neighbor to another, I've seen where unreformed spending and higher taxes will lead. It doesn't work. Count yourself lucky that Wisconsin took a different path - one that is showing real results.

Kristina Rasmussen is executive vice president of Illinois Policy Institute, a free market think tank.