Former Mayor Calls for State Revenue Revision Commission

It is clear that Illinois’ state income and sales taxes, our two major sources of revenue, are not adequate to fund government services. The state has $130 billion in unfunded pension liabilities, $11 billion in unpaid bills and a deficit of more than $5 billion, and if nothing is done these daunting liabilities will continue to grow. Even with the most stringent cost cutting measures it is unlikely the state will be able to reduce this multi-billion dollar hole without carefully examining its tax base.

An obvious answer is to grow the tax base through economic development. However, it is the very fiscal condition we are in and the instability created by a lack of a state budget that are working against that needed growth. Last year, Illinois lost 37,508 people, more residents than any other state. Further, who knows how many decisions have been made by companies to not locate here given the budget impasse and fractured politics of Springfield.

A first step to resolving the state’s fiscal woes would be creating Tax Revision Commission, which would look at all taxes, fees and charges comprehensively. Issues such as taxing retirement income and services such as health clubs, salons, financial transactions and legal transactions could be weighed against sales and income tax rate increases. Such a task is needed not just to address the state’s current financial woes, but to ensure its tax system fits with the modern economy.

Over the past few decades our economy has shifted from manufacturing and goods to one of services. For example, in 1965 41% of our economic output was from goods and 51% from services. Today only 17% comes from the sale of goods and 71% from services.

The service economy is benefitting from state, and for that matter city services, and yet not sharing in the cost. This is wrong.

The overall goal of a Tax Revision Commission should be threefold. First, develop a diverse basket of revenues so the state is not over reliant on a single source. In fact, the bond rating agencies consider such a structure to be highly positive and it may help our rating, which would lower borrowing costs.

(At present Illinois has the lowest bond ratings of any state in the nation. This added over $12 million in interest to the State’s $550 million bond issued in 2016. It is also estimated that local governments in the state pay anywhere from .20 to .30% more in interest due to the state’s fiscal woes).

Second, by having a broad range of revenue sources the rates should be low enough to not negatively impact economic decisions and the states competitive position.

Third, the revenues should be adequate to have a balanced budget, pay down and keep current our pension liabilities and fully eliminate payables.

If we do all this not only will Illinois no longer be a poster child for bad fiscal management, but rather a leader in sound fiscal management. Hopefully this will result in restored bond ratings, citizen and business confidence, and the adequate provision of critical services such as education, social services and infrastructure.

The composition of such a commission should be broad including financial leadership from both political parties, leaders from impacted industries such as law and financial services firms. Large governments such as the city should be involved as these decisions may impact their tax policies as well. Economists need to be at the table to assess the economic consequences of any given tax.

The Commission should be on a tight time frame as we are in a crisis. My recommendation would be 90 days.