Illinois Democrats fended off their Republican colleagues and a governor’s veto to pass the state’s first budget in three years, including new income tax hikes, in an effort to ward off a fiscal crisis that conservative critics say was devoid of any effort to address the issues driving the problem.
On Thursday, the Illinois House of Representatives followed the lead of the state senate in overriding Republican Gov. Bruce Rauner’s veto of the $36 billion budget, including five billion dollars in new income taxes. The vote was 71-46.
Fifteen House Republicans went along with the Democratic plan on the initial vote. Ten voted to override Rauner’s veto.
Democrats are celebrating a political victory and claim they prevented the state’s bond rating from sinking to junk status with this legislation.
That fiscal peril catapulted the Illinois budget fight into a national news story about whether tax increases or difficult reforms are the proper path to sustained stability.
Conservatives say ignoring the state’s biggest problems will not make them go away.
“The trend over the last eight to ten years is that states recognize you cannot put these problems off,” said Illinois State Rep. Tom Morrison, who was first elected in 2010 and voted against the tax increase.
“You have to reform. You have to deal with your growing pension problem You have to make your state as friendly as possible to business, to private investment, so that you have a growing economy, so that you have more people working so that you increase your tax revenues via a growing economy,” said Morrison.
He says Illinois Democrats refuse to follow that path.
“Illinois is going in the wrong direction, in the sense that we are increasing taxes rather than making the state friendlier to taxpayers,” said Morrison.
The tax hike comes in the form of a 32 percent increase in the state income tax, which now rises from 3.75 percent to 4.95 percent.
Even though Illinois has a flat rate for the state income tax as mandated by the state constitution, Morrison says the income tax rate is not as benign as it looks.
“A lot of people would say, ‘What’s the big deal in Illinois? You’ve got a flat tax. You’re still under five percent. That seems to be fairly reasonable,'” said Morrison.
“What that argument is excluding is the overall tax burden in Illinois. We’re only behind New Jersey in terms of property taxes. We also have a very, very significant sales tax,” he added.
“When you put all of those factors together, it is a very high tax burden, especially compared to our neighbors. The other things is we haven’t dealt with our unfunded pension liabilities. No real reform was done to those,” said Morrison.
Instead of figuring out a way to bring major programs like the pension and health insurance systems under control, Morrison says the state often burdens local governments with massive unfunded mandates, which translate into sky-high property taxes for residents.
Morrison says the failure to address the key drivers of government spending will leave the government scrambling for even more money before long.
“So with $130 billion-plus in unfunded pension liability, there’s going to have to be another tax increase to help cover that and/or cuts in services,” said Morrison.
The tax burden in Illinois has already triggered the exodus of some businesses. Morrison says it’s impossible to predict what higher income taxes will do to the business climate, but he’s confident they won’t help.
“There will be an increase in revenues in the short term. People can’t plan to move in 24 hours (since the tax increase was enacted). these things take time to roll out,” he said.
“Unless we address the underlying cost drivers, we’re really not going to get out of our situation. Even if tax rates go up, if your tax base shrinks, you could – over time – actually get less tax revenue,” said Morrison.
While Democrats tried to pin the state’s financial woes on a stubborn Gov. Rauner, Morrison says years of Democrats whistling past the financial graveyard led to the balance sheet nightmare of billions in deficits and unpaid bills.
“We had 12 years of total Democrat control, between Gov. Rod Blagojevich, and his successor, Gov. Pat Quinn, a supermajority of Democrat House members and Senate members and these problems have been growing and growing and growing,” said Morrison.
He says Democrats have shown zero interest in working with Rauner.
“Finally, a reformer, Republican Bruce Rauner gets elected and the Democrat-controlled legislature continued to just stand in the way of the reforms he needed to get done.
“They would not agree to compromises, so as this impasse has dragged on, unpaid bills continued to rise and the pressure points on social service providers, universities and K-12 schools came to this head,” said Morrison.
So what reforms would Morrison like to see? He used insurance as an example.
“One of the major issues in Illinois is our worker’s compensation insurance costs. We’re significantly higher than our Midwestern neighbors, so as a consequence it’s very difficult to operate a business in Illinois. If you’re heavy on labor, your costs are going to be significantly higher,” said Morrison.
He says even when Democrats address such issues they dance around the heart of the matter.
“About six years ago there was an attempt at reform but didn’t really deal with the driver of worker’s compensation costs, that is causation. Was the worker actually injured because of the job or were they injured during their off hours but then getting covered on the employer’s worker compensation plan?” said Morrison.
“Any attempts at reform that don’t include that (kind of ) reform aren’t really going to save businesses money,” he added.
Morrison believes Illinois is poised in many ways to see vigorous growth but he says the politicians need to let it happen.
“This state can thrive if we get our policy right. Illinois has so much going for it: the natural resources, the human resources, the diverse economy, the access to world markets, the Central Time Zone, fresh water. We’ve got so much going for it but the people are frustrated and upset because the policy has been so wrong,” said Morrison.
“I continue to fight for better policy that will make this state grow again. I think we can recover but not if we keep choosing policies like these,” he said.