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Civic Federation calls for income tax hike, as state misses payments to transit agencies, universities

Today the business-oriented Civic Federation surprised many with a report calling for raising the Illinois income tax from 3 to 5 percent for individuals and from 4.8 to 6.4 percent for corporations and repealing the income tax exemption for federally taxed portions of retirement and Social Security income, coupled with spending cuts and pension reforms, to reduce the state’s record $12.8 billion deficit. "The Civic Federation does not enjoy advocating a significant tax increase in the middle of a difficult recession," said President Laurence Msall. "However, continuing to do nothing would be, by far, a worse option."

MPC and our partners have been keeping close tabs on Illinois’ growing fiscal crisis, which hit even closer to home last week when news broke that two services most families use every day, schools and public transit, are owed almost $1 billion – and there’s talk of more borrowing. For a clear picture of just how untenable Illinois’ deficit has become, here’s an analysis of the effects on public transportation and higher education. 

Transit left in the lurch
The state provides a small portion of funding to the region’s public transit agencies in monthly payments.  So far this fiscal year, it has been delinquent in paying the Regional Transportation Authority (RTA) $250 million.  As a result the RTA has had to borrow money to pay debt service on outstanding bonds and has just $90 million in cash on hand, which will help cover operating costs and debt payments only through the end of May.  In a letter to Gov. Quinn, Steve Schlickman, RTA executive director, states, “If state funding is not forthcoming in the near future in amounts sufficient to pay our ongoing debt service obligations and resume providing ... money to the service boards, disruptions to transit service, including CTA, METRA and Pace, across the region may be inevitable." (Note: That’s on top of the CTA service cuts that began Feb. 7.)  Schlickman went on to state, “After May, the debt trustees will start intercepting our funds.”

Universities owed $735 million
The state also provides funding for the nine Illinois public universities, making monthly payments based on budget appropriations.  So far this year, it’s been late on making $735 million in payments, more than $4,600 per full-time student.  Forced with not being able to make payroll, university presidents have taken the unprecedented step of looking to borrow money.  Illinois Senate Bill 416 authorizes seven of the state’s public universities to borrow “in anticipation of receiving tuition and payments from the State of Illinois.”  The bill passed the Senate Executive Committee this week. 

If passed by the full Senate and House and signed into law, universities could borrow up to 75 percent of payroll through June 30, 2010, and would be obligated to repay the loan plus interest within 18 months.  Southern Illinois University president Glen Poshard expects the interest rate on any loan to be no more than three percent.  SIU pays about $43 million a month in payroll, so if the university took out a loan in April, May and June to cover 75 percent of its payroll, the interest owed would be about $3 million.

State budget appropriations owed to:

  • Chicago State: $10.6 million
  • Eastern Illinois: $23.4 million
  • Governors State: $9.5 million
  • Illinois State: $40.5 million
  • Northeastern: $18.4 million
  • Northern Illinois: $59.6 million
  • Western Illinois: $21.3 million
  • Southern Illinois: $119.9 million
  • University of Illinois: $431.7 million

President Poshard said SIU "just barely made payroll in December."  Northern Illinois University President John Peters said, “There's no state money coming in. We're out of solutions, so short-term borrowing might be all that we have left."  So far, NIU imposed a hiring freeze, extended winter break to save energy costs, delayed equipment purchases and has approved only emergency repairs.

The University of Illinois has not signed onto the legislation; citing borrowing is only a temporary solution that would cost the school money in interest.  To meet its cash crunch, last month University of Illinois announced unpaid furloughs for 11,000 faculty employees and has referenced the possibility of a tuition increase.  Unpaid furlough days for faculty members have resulted in class cancellations.

Damaged image?
University of Illinois President Stanley Ikenberry said universities have to work overtime to fight their damaged images among prospective students, potential employees, companies, and other institutions.

Halfway through the fiscal year, the state owes $8.75 billion in bills, $250 million of that due to the RTA, $735 to public universities, $1 billion to pre K-12 schools, and the remainder to small businesses that provide social services. To put icing on the cake, those numbers don’t include the $67 billion the state owes its retirement systems and the other $22 billion in general obligation bond debt.

Don’t forget Illinois received almost $2 billion in federal stimulus dollars last fiscal year; it won’t again in FY 2011.

Solutions lacking
When state leaders crafted the budget last spring, it was no secret that FY2010 was going to be a challenging revenue year.  To promise money to these programs and then not pay them is worse than making cuts because, had they known earlier, spending adjustments could have been made, instead of going further into debt.

So far no solutions to the budget deficit, cuts or revenue changes have been seriously presented by state public officials. However, today’s loud-and-clear message from the business-oriented Civic Federation is a sign of the times. “Doomsday is here for Illinois,” said Msall.

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