SPRINGFIELD — A combination of $8 billion in budget cuts and revenue increases over the next five years would turn around state finances, a group of top Chicago business executives said Tuesday.
However, the proposal by the Civic Committee of the Commercial Club of Chicago includes some controversial recommendations that have been rejected by lawmakers in the past, such as taxing retirement income.
The Civic Committee, which released its plan to state lawmakers and others Tuesday, said the changes will eliminate the budget deficit and bill backlog, stabilize pension payments at an affordable level and even establish a reserve fund of up to $5 billion.
“One of the key points we want to emphasize about our plan is that action is required now,” said Jay Henderson, retired vice-chairman of Price, Waterhouse Coopers LLP and chairman of the committee’s Tax Policy Task Force. “Eliminating the uncertainty of fiscal issues (facing the state) will change the narrative about the future of the state of Illinois.”
That means, he said, Illinois’ competitiveness will improve if it gets its finances in order.
The organization determined that for Illinois to accomplish that goal, it needs a combination of $8 billion in spending cuts and revenue enhancements over five years. The recommendations include raising both the personal income and corporate income tax rates by 1 percentage point. That would put the personal income tax rate at 5.95 percent.
The report also recommends applying the sales tax to some services and beginning to tax retirement income. The plan would exempt the first $15,000 of retirement income.
At the same time, the plan calls for elimination of the estate tax and the franchise tax at a cost of about $500 million. The organization said it would make Illinois more competitive and combat its “outlier status.”
The organization believes the state can find significant savings by combing through not only general funds expenses, but also those of the hundreds of special state funds that aren’t part of the general fund.
The plan assumes $500 million in savings by making changes in state employee health insurance, something the committee acknowledges will have to be negotiated with employee unions. Former Gov. Bruce Rauner wanted to make changes to worker health insurance because he thought the benefits were too generous for the amount paid by workers. Unions resisted those changes.
The plan also calls for a new retiree health insurance plan for future state hires. It would change the current system that enables retirees with enough time on the job to have premium-free health insurance after leaving their jobs.
The report also recommends putting more money into the state’s pension plans earlier than currently called for under the long-range payment plan. This would save money in the long run, the authors said, and also stop the increase in the state’s pension debt. Gov. JB Pritzker has also recommended putting more money into pensions earlier to save money in the future. However, he appears to have endorsed a proposal to borrow money to increase those payments. The Civic Committee plan doesn’t borrow money, but relies on the savings found elsewhere in the budget.
The Civic Committee does not weigh in on Pritzker’s goal of enacting a graduated state income tax, which will take several years to achieve.
“The report is very focused on doing things that can be done immediately because waiting makes the problem bigger and will cost the state more money,” said Kelly Welsh. “Waiting causes the state’s bad reputation and negative fiscal situation to continue longer so that we don’t have the turnaround in terms of the state’s growth trajectory.”
The report isn’t limited just to state finances. It says the state should continue monitoring the new school funding formula to ensure that it receives the ongoing increases needed to make it work correctly, that efforts should continue to consolidate Illinois’ glut of local governments and that workers’ compensation laws should be changed to align them “with the best practices from other states.” Organized labor has often complained that means lower benefits for injured workers.