Weekly Review

To answer this question, things could not possibly get worse, could they? Well, they just did. Revenue is now being forecast to be $900 million less in FY 2010 than initially anticipated. That makes next year even better, as the following chart shows.

Illinois' FY2011 Starting Budget Shortfall-Minimum
Replacement of one-time FY2010 revenues and debt	$6.265 B
First installment of five-year Debt Service on Pension Notes	$ .800 B
Carry Forward of Operating Deficits from FY2009/2010	$4.0 B
Increase in required pension contribution under the Pension Ramp*	$1.2 B
Revenue shortfall predicted for FY 2010	$.900 B
TOTAL MIMIMUM FY2011 STARTING DEFICIT	$13.165 B
* In 1995, Illinois passed a pension ramp bill requiring significant, annual increases in the state's contribution to its public employee retirement systems, to make up for a decades long practice of failing to make the full, employer contribution into the system. That is why the pension contribution escalates by $1.2 billion next year. It is also why Illinois has an unfunded liability in excess of $74 billion today. **Note, this chart does not include the $900 M revenue shortfall the Governor's Office of Management and Budget now estimates for FY 2010.

Illinois Inheritance Tax

Recent data from the Comptroller's office and the Commission on Government and Forecasting Accountability indicates that the Illinois inheritance tax generated about $ 2.0 billion in revenue from FY 2003 to FY 2010. Imagine where the state would be without that revenue - which was almost the case. Because Illinois inheritance tax is based on federal law, the tax would have been phased out over five years after the federal estate tax was repealed in 2003. Fortunately, in 2003, Illinois decoupled from the federal estate repeal through the passage of P.A. 93-0030. (CTBA served as technical advisor on the decoupling bill). More information, read CTBA's fact sheet.

House Bill 4599

Faced with a multibillion dollar deficit, you'd expect legislators to consider various proposals to improve the state's fiscal condition. What you would not expect is the House to pass a bill that would cause the state to lose $100 million in revenue currently slated to come in the door. But that's exactly what happened on October 16, 2009, when the House passed HB 4599 by a vote of 112-1. The only dissenting vote was Rep. Barbara Flynn Currie. HB 4599 would give a $100 million tax break to manufacturing businesses, by exempting them from paying their gas utility tax. This type of tax break is frequently called a "tax expenditure," because it is the equivalent of spending public dollars by not collecting taxes otherwise due. The idea was to promote economic growth. The problems with the proposal, however, are many and varied.

First and foremost, the state would generate four and one-half times more economic activity in the private sector if instead of granting this tax break, it collected the $100 million in revenue and spent it on services (for a detailed explanation of why, see CTBA's "Moving Forward" report). Second, this choice to subsidize private sector businesses comes at a cost of $100 million in lost revenue, meaning $100 million in services would have to be cute to pay for it. When the state has a deficit next year nearing $13 billion, has a $4 billion backlog in unpaid bills, and has just revisited its revenue projections for FY 2010 downward by $900 million, it is beyond irresponsible to just give revenue away. Third, HB 4599 actually conflicts with existing tax breaks granted to businesses that locate in Enterprise Zones, making things worse.

Under the Enterprise Zone regimen, businesses either have to create 250 new jobs or maintain 1,000 existing jobs to avoid paying the gas utility tax. There are no similar requirements under HB 4599. Hence, a business currently in an Enterprise Zone would no longer have to create or maintain jobs - but would still get the tax break!

CTBA opposed HB 4599 in the Senate. Fortunately, the bill was held in committee and not passed out to the floor of the Senate, averting an unjustifiable revenue give away.