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Kadner: Illinois has money problems

LaurFine (D-Glenview) talks with Elaine Nekritz (D-Northbrook) floor Illinois State Capitol Building Springfield Thursday May 16 2013. | Rob Hart~Sun-Times

Laura Fine (D-Glenview) talks with Elaine Nekritz (D-Northbrook) on the floor of the Illinois State Capitol Building in Springfield, Thursday, May 16, 2013. | Rob Hart~Sun-Times Media

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Updated: April 5, 2014 6:18AM



Illinois is in a financial mess, even with the passage of pension reform last year.

The Civic Federation, a nonpartisan government research organization that includes business leaders in Chicago, this week released a report on the state’s dire financial situation that calls not only for extending the Illinois income tax increase but adding a new tax on pensions and Social Security.

Regular readers of this column will recall that I was sounding the alarm about the state’s budget problems last year, even as most of my colleagues in the media were focusing attention on the pension crisis.

With about $5.4 billion in unpaid bills, even with the $5 billion to $6 billion in new revenue generated by the temporary tax hike, it didn’t take a financial wizard to understand that when the tax hike began to expire in January 2015, Illinois was going to be in big trouble.

The individual income tax rate is set to drop from 5 percent to 3.75 percent in January and the corporate rate from 7 percent to 5.25 percent. By 2016, the Civic Federation warns, that would mean a loss of roughly $4 billion in revenue.

Right on the heels of that report, came another from Voices for Illinois Children, estimating the impact of the lower tax rate on local school districts.

The education advocacy group calculated that Thornton Township High School District 205 would suffer a whopping $3.7 million loss of general state aid, Bloom Township High School District 206 would be hit with a nearly $2 million loss, two Dolton school districts would lose more than $2 million each as would Harvey District 152 and Homewood-Flossmoor High School District 233 and Lansing District 158 both could expect a cut of more than $1 million.

Statewide, there would be cuts of nearly $1 billion in K-12 and early childhood education, according to the Fiscal Policy Center for Voices for Illinois Children.

The organization says it estimated the impact based on budget projections last week by the Illinois House, which projected a $2.2 billion loss in operating funds for fiscal 2015.

The impact on some Southland school districts, such as Consolidated High School District 230 (Sandburg, Andrew and Stagg high schools) would be less. Voices for Illinois Children estimates a 14 percent cut in general state aid would mean the loss of $649,999 to that district. Lincoln-Way High School District 210 would lose $943,000, according to the group.

Of course, all of those are estimates. It’s possible that the governor and state legislators will choose not to make steep cuts in the state education budget despite the loss in revenue.

How could they possibly do such a thing?

Because that’s what elected leaders in this state have been doing for years — neglecting the financial realities and forcing Illinois deeper and deeper in debt.

On the other hand, some of the Republican candidates for governor are telling voters that they can roll back the higher income tax, make cuts in the state budget and increase education funding all at the same time.

And I promise you that the White Sox and Cubs will meet in the World Series this year. That’s how easy it is to make promises that can’t be kept.

While no one would believe my baseball prediction, some voters seem to accept the equally bizarre statements of candidates for office at face value.

The reality is that Illinois is already last in the nation in state support for public education, mental health services and services for the disabled.

The Civic Federation recommends that the state postpone a rollback of the temporary income tax increase for at least a year and then, over a three-year period (ending in 2019) gradually reduce the tax hike by 20 percent. The federation encourages the state to use the additional tax revenue to pay down its backlog of $5.4 billion in unpaid bills.

And I encourage Sox hitters to lay off pitches out of the strike zone — expecting the same results I would expect from the Civic Federation’s recommendation.

Finally, there’s the group’s recommendation for taxing retirement income.

Illinois is the only state out of 41 that has an income tax and exempts all pension income. It’s one of 27 states doesn’t tax Social Security income.

Personally, I don’t like the idea of taxing pensions, even at the $50,000 income level that the Civic Federation suggests as a starting point.

But to all the folks I’ve heard from over the years complaining about those $100,000-plus government pension paychecks, do you now say those people deserve a free ride?

Of course, if you tax their pensions, retirees could decide to move to Florida, where they wouldn’t have to pay any state income tax and have a much more pleasant winter.

The Civic Federation suggests that no discussion of taxing retirement income take place until after the November election, noting that it would become a campaign topic.

Well, yes. And in a world where democracy really exists, it should be.

But everyone knows that politicians would pander to the public and oppose any tax increase on retirees for fear of retaliation at the polls.

Which brings me to the logical conclusion that Illinois needs a graduated state income tax, similar to the federal income tax. But that would require a change in the state Constitution, and, once again, that’s not a popular issue in an election year.

A graduated tax would raise more money than the current flat tax, do it in a fair manner (based on ability to pay) and address the issue of having enough money to both pay the state’s bills and finance public education.

If you don’t like that idea, don’t worry. It isn’t likely to happen.

Because in Illinois, our elected leaders prefer to defer important decisions until the problem becomes a crisis and the public demands a solution.

At that point, lawmakers do something like pension reform, which may yet be overturned by the Illinois Supreme Court.

And if that happens, you will really see a financial crisis.



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