COGFA forecast: Illinois Economy
Slow economic growth continues; budget deficit continues to mount a yawning challenge. The staff of the Commission on Government Forecasting and Accountability (COGFA) presented their FY16 Economic Forecast to COGFA members at the Commission’s meeting in Springfield on Wednesday, March 10. COGFA is the nonpartisan economic think tank of the Illinois General Assembly, and their Revenue Update for FY15 and numbers for FY16 will be key background data to be used by the General Assembly as they modify the State’s FY15 budget and craft a FY16 budget to meet the urgent fiscal needs of the State.
COGFA’s numbers confirm that the post-2009 Illinois “recovery” has been the slowest economic expansion of the post-World War II period. In each previous recession, not only were the rates of decline in economic output less severe, but the ensuing recoveries were faster and steeper. Illinois economic trend lines, starting in 2010, show steady but very shallow, palely upward-trending movements. New jobs are created in relatively low numbers and are being created, in Illinois, in sufficient numbers to force increases in median overall wage rates.
The pale post-2009 “recovery,” combined with the pushdown of State income tax rates in January 2015 are two forces that continue to combine to create a worsening State of Illinois budget crisis. A spreadsheet presented to staff by the Commission shows net income tax revenues dropping more than $4 billion in FY16, below what would have been paid to the State under the tax rates in effect in FY14. Growth rates in tax revenues attributable to underlying rates of growth in the Illinois private-sector economy are expected to make up only $500 million of the lost income, leading to a structural deficit of $3.5 billion in FY16. To this number is supplemented accumulated past-year deficits and unpaid State bills of many billions of additional dollars, plus the spending pressures created by many “entitlement” lines within the State’s budget.
Illinois Economy: Unemployment
Unemployment remains higher than U.S. as a whole, but drops another 0.1%. The figures for January 2015, reported on Thursday, March 12 by the Illinois Department of Employment Security (IDES), show that Illinois’s jobless rate fell from 6.2% to 6.1% in January 2015. The same number was 8.2% in January 2014, down 2.1% over the 12-month period.
Soft spots in the statewide economic picture complicated the continued trend toward lower unemployment. Illinois employment – the number of Illinois residents with nonfarm payroll jobs – also dropped by 7,100 jobs in the same month. The declining employment and unemployment numbers reflected a stagnating Illinois population and the continued movement of many Illinois residents out of the labor force altogether. Movement out of the labor force is often correlated with a stagnant statewide economy, and with possible despair on the part of individuals of working age that they will be able to successfully find a job. “It’s clear Illinois has more work to do,” said IDES Director Jeff Mays, “to catch up with other states.”
Specific sectors that showed strength in Illinois included leisure and hospitality (up 3,300 jobs) and educational and health services (up 2,300 jobs). Areas of weakness included manufacturing (down 2,100 jobs), construction (down 2,500 jobs), government (down 2,700 jobs), and professional and business services (down 5,500 jobs).
State of Illinois: Budget
Clock is ticking on FY15 budget crisis situation. The decision by the General Assembly and former Gov. Quinn to pass and sign an unbalanced FY15 budget in spring 2014 continues to endanger many Illinois residents. These are persons who are paid from, or dependent on, budget lines in the FY15 State budget where the amounts set aside were not enough to fully fund the expense item until the end of the fiscal year on June 30, 2015.
Examples of groups affected by unfunded FY15 budget expense lines include providers of subsidized Illinois child care, Illinois prison guards and circuit court reporters. These are individuals and contractors who have been told of a fast-approaching date when Illinois must find more money to pay them. Gov. Bruce Rauner has presented a proposal to the Illinois General Assembly to move money around within the budget to cover these anticipated urgent needs, but factions in the General Assembly who are politically opposed to the Governor have so far refused to allow this plan to come to the House floor for a vote.
Income Tax: Tax Refund Alerts
Comptroller Munger urges Illinois individual income taxpayers to register. The Illinois Tax Refund Alert system, rolled out this spring by new Illinois Comptroller Leslie Geissler Munger, allows taxpayers to monitor the status of their Illinois tax returns, including an automated text-messaging system. Similar to the familiar warnings that many of us get when our phone or cable bill is due, the test message will tell eligible taxpayers of their payment notifications. Registration is free through this portal: https://myrefund.illinoiscomptroller.com/.
Supreme Court hears oral arguments. The Illinois pension reform law enacted in December 2013 faced questions before the Illinois Supreme Court at oral arguments on Wednesday, March 11. The Illinois Solicitor General, advocating for the law, stated that the controversial law had been enacted to solve a fiscal emergency. Established constitutional law authorizes a state, in furtherance of its constitutional duty, to exercise what are called “police powers” that potentially override other considerations. Plaintiffs seeking to strike down the law say that it improperly violates a section of the state Constitution. Illinois has the worst-funded pension system of the 50 states. A decision by the state Supreme Court, which is expected later this spring, could affect budget and pension law policies that will be before the General Assembly as it approaches the May 31 adjournment date.
From the Illinois Senate Democrats:
House hears Manar school funding reform for first time
State Senator Andy Manar (D-Bunker Hill) testified before an Illinois House committee this week, outlining details of his need-based school funding reform package, Senate Bill 1.
“It’s important to start this conversation early so representatives can educate themselves and their constituents about the need for better school funding. We had some marathon meetings in the Senate last year, but this was the first formal conversation we’ve had in the House,” Manar said. For more, visit the Illinois Senate Democrats blog.
Holmes supports consolidating local governments
Seeking to eliminate some redundancy from local government, State Sen. Linda Holmes (D-Aurora) voiced her support for legislation aimed at bringing separate forest preserve districts into county government.
“Illinois is cited time and again as having too many layers of government, more than any other state in the country,” Holmes said. “We need to find efficiency where we can. If most counties in the state can manage their forest preserves within county government, DuPage County can do the same.” For more, visit the Illinois Senate Democrats blog.
From the House Republican Leader:
Concerns continue as no agreement reached on growing spending crisis. With the FY15 budget more than $1.6 billion out of balance, more and more subsectors of the Illinois economy were affected this week. House Republicans reaffirmed their commitment to solving issues related to immediate funding issues faced by child care, corrections, and court reporter sectors of the economy.
“The unbalanced FY15 budget needs to be corrected immediately and brought into balance,” asserted House Republican Leader Jim Durkin on Tuesday, March 3. Pointing to the State’s failure under former Gov. Pat Quinn to meet its constitutional responsibility to enact a balanced budget, Durkin and his leadership team pledged to help “clean up the mess Governor Rauner inherited on January 12, 2015.”
Filing deadline sees 4,140 bills submitted for House consideration. The filing deadline was Friday, February 27, and by the close of business House members had turned in 4,140 substantive and appropriations bills for their colleagues to look at. Not all of these bills will get out of committee for full House consideration. Some filings, such as appropriations bills and resolutions, will continue after the deadline.
House committees have three more weeks, until March 27, to look at the bills filed before the deadline. Bills that fail to meet this deadline can be worked on by their sponsors and other interested parties for possible future action in the 2016 spring session. In many cases, a bill needs to be carefully looked at before it becomes a law. The status of bills filed in the Illinois House and Senate can be found on the Illinois General Assembly website.
Demmer bill could make equity crowdfunding a reality in Illinois. Current technology allows small businesses to solicit investments and raise capital from friends and acquaintances over the Internet, but Illinois law does not currently allow this activity. Cumbersome laws and regulations require the seller of equity in a firm to follow complex Wall Street-style safety requirements intended to prevent large-scale investment swindles. These regulations are not closely matched to the needs of a small community that hopes to raise money for a neighborhood-oriented commercial enterprise such as a coffee shop, craft store, or small movie theater.
Ironically, it is easier under current law in Illinois to get people to donate charity funds online through a social-media aggregator, such as Kickstarter, than it is to raise equity funds through crowdfunding. This is true even though a typical investor in an equity crowdfunding network is often not looking to “strike it rich” or earn a substantial return on his or her “investment.” Typical crowdfunded enterprises tend to be small-scale enterprises that thicken the social bonds of a community. They tend to be startups and small businesses.
Representative Tom Demmer has introduced HB 3091 to legalize some crowdfunding in Illinois. To be eligible to solicit an investment through HB 3091-style crowdfunding, a small enterprise will have to do substantially all of its business here in Illinois; firms that do transactions that cross state lines will continue to have to follow federal law. HB 3091 was filed on Wednesday, February 25, and was referred to the House Rules Committee.
From the Illinois Chamber of Commerce:
First State of the Budget Speech Outlines Massive Cuts, Plans for Growth
Gov. Bruce Rauner’s speech signals a much-needed return to fiscal sanity. Rauner dubbed this the “turnaround budget”, and it’s a plan that the state’s business community should support. Rauner included pension reform, cost cutting, streamlining rules and regulations, and tax reform as priorities, and the Chamber couldn’t be happier to hear that we have a champion for the state’s economy in the governor’s office.
“For far too long, we’ve been spending beyond our means,” Rauner said. “Saying nois not popular. But it is now or never for Illinois. It’s make or break time.” Rauner was harshly criticized for suggesting cuts, although in many cases, the funding will be higher next fiscal year with the example of an additional $300 million for education. He also touched on the current budget crisis, which sports a $1.6 billion dollar hole, and hopes the legislature will give him the authority to re-allocate current dollars to pay for prison guards, court reporters, and day care centers.
The Chamber’s statement that day explained that “Years of fiscal games have come to close with Gov. Bruce Rauner’s state of the budget speech today.” Chamber President and CEO Todd Maisch continued, “The Illinois Chamber has asked for financial stability for years, and acknowledges that this spending outline is what fiscal reality looks like. The business community anticipated the considerable pain in the governor’s speech because taxing and spending was never going to fix the problem. This is the day the check is due.”
Last week, the House was in session Wednesday and Thursday. The deadline for bill introductions in the House was Friday. Senate members spent the week in district. Senate-bill introductions concluded last Friday. The next substantive deadline is Friday, March 27, which is the deadline for bills to be passed out of standing committees.
Deadlines are for stand-alone introductions. As such, introduced bills may be amended at any time. Committee hearings for both houses will begin this week.
Here is a brief listing of some of the recent introductions.
SB 1836 creates the Healthy Workplace Act and requires employers to provide seven paid sick days to part-time and full-time employees each year they are employed.
HB 3554 provides that employees must be given notice of the shifts to be worked two weeks in advance of the scheduled shift. In addition, it establishes requirements for minimum pay for working shifts outside of scheduled shifts.
HB 3619 expands the Equal Pay Act of 2003 to include all employers rather any employer with four or more employees. It increases the maximum civil penalty for all violations to $5,000.
HB 3336 provides a sales tax exemption for building materials, machinery, and equipment used in the construction and operation of data centers. It includes an electricity excise tax exemption to help offset some of the high-power costs incurred in the operation of data centers.
SB 1863 would encourage new investment in several infrastructure areas including public buildings, transportation assets, and other public assets that are in dire need of improvements.
SB 1660 focuses on the EDGE Credit sale or transfer. The EDGE credit is a credit against the Illinois Income Tax Act awarded for a combination of investment and new job creation in Illinois. This legislation provides that a company that is unable to use the credit against its own income taxes because it has no income may sell or transfer the credit to another company.
SB 1737 amends the Illinois Income Tax Act to allow small businesses to immediately expense property that must be depreciated for federal income tax purposes.
HB 3888 addresses the sunset of the Manufacturers’ Purchase Credit by modifying the definition of manufacturing machinery and equipment to include production-related, tangible personal property used in a manufacturing operation.
Minimum wage legislation SB 11 seeks to raise the minimum wage from $8.25 to $9.00 beginning July 1 and increases it by $0.50 each July 1 until July 1, 2019, at which point the minimum wage will be $11.00. It creates a $1,500 per employee income tax credit for employers with fewer than 50 employees.
HB 166 creates the Family Leave Insurance Program Act, which requires the Illinois Department of Labor to establish and administer a Family Leave Insurance Program that provides family leave insurance benefits to eligible employees who take unpaid family leave to care for a newborn child, a newly adopted or newly placed foster child, or a family member with a serious health condition. The program is financed by a $2.50 per month fee paid by employees of employers of 50 or more employees.
HB 432 proposes employers would be required to pay overtime to any employee earning less than $69,000 per year. The weekly or monthly equivalent will increase annually by the percentage of increase in the consumer price index.
Earlier this month, I had the pleasure of serving on a panel with Congressman Bill Foster and Mayor Tom Weisner, among others, to raise awareness of Illinois being a “Payer State” within our country.
In a typical year, $20 billion leaves Illinois; we pay $1.36 in federal taxes for every dollar of federal spending returned to the state. In fact, according to figures compiled by the Pew Charitable Trust, Illinois receives the third smallest amount of federal spending per capita in the country.
While the entire country is governed by the same federal tax code, individual and corporate tax burdens vary substantially between states. Many states get much more back in federal spending than others. This transfer of wealth from the “Payer States” to the “Taker States” inevitably shows up as higher state taxes, higher government debt and underinvestment in education, infrastructure and health care in the “Payer States.”
While much has been said in recent years to malign Illinois employers, they have done their best through the economic downturn to support their employees, communities, state and even their country.
According to the Tax Foundation, Illinois businesses are among the most generous in the nation. Only businesses in four other states had a higher tax rate than Illinois’ 9.5 percent last year.
It’s no wonder business men and women from throughout the state are frustrated with the opportunities before them.
With respect to our neighbors, Wisconsin had the next closest corporate income tax rate at 7.9 percent. And yet for every dollar generated from taxes, Wisconsin saw a return of $1.68.
Indiana, at 7.5 percent, realized more than $2 in the exchange. Nearly every state around Illinois saw a positive return…but not Illinois.
According to WalletHub.com, Illinois was the second least dependent on federal return on taxpayer investment. During the 1990s and 2000s, Illinois contributed $2 trillion in Federal taxes. Unfortunately, during that same 20-year period, we received less than $1.3 trillion in Federal spending — a mere 65 percent of what was contributed.
How would look if there was more equity in the distribution of Federal spending? Illinois could focus investment in new technologies and equipment, stimulate the expansion of existing businesses, address stagnant wages and revitalize infrastructure and education services. With refocused investment, Illinois would be poised to attract new business ventures and top talent. These changes would reinforce Illinois’ role as a business leader and net contributor to our nation’s prosperity.
Congressman Foster recently introduced The Payer State Transparency Act of 2015. The Act would require the Office of Management and Budget, in conjunction with the Council of Economic Advisors and the Treasury Department, to produce annual assessments of net economic effect on individual states of all federal spending programs. A comparison of these figures against a model of state tax burdens developed by the Bureau of Economic Analysis would be reported.
We appreciate Congressman Foster’s commitment to the people of Illinois. We look forward to better transparency – and more discussion – when it comes to this topic.