Illinois Still in Debt Despite Tax Hikes

By Chuck Sudo in News on Sep 26, 2011 2:20PM

The Civic Federation released a report this morning on the Fiscal Year 2012 state budget that showed, despite cuts in spending and an increase in the state income tax rate, the state is still running a deficit of $5 billion largely due to added pension and debt costs.

That deficit could grow to $8.3 billion if nothing is done to fight it. The Civic Federation report showed the income tax increase did its job in reducing the deficit, bringing it down from $3.9 billion to $454 million. But Gov. Pat Quinn and Democratic lawmakers drafted and approved legislation to intentionally underfund state Medicaid programs by $1.7 billion, deferring those costs until next year. Illinois also owes $1.6 billion in income tax returns to corporations.

The good news in the report is that the state was able to make a $4 billion pension payment without having to borrow money as a result of the income tax increase. Civic Federation President Laurence Msall said that also showed the need for pension reform in Springfield, which House Minority GOP leader Tom Cross of Oswego has been pushing for, only to be met with resistance by Quinn and other Democratic leaders. If pension reform is attempted it could be a major challenge to state law and result in a long and expensive legal battle.

Still, Msall said pension reform is necessary for Illinois' fiscal stability. "We warned against this. But when you see it put together and do the projections, these are staggering financial challenges the state faces," Msall said.