Tax reforms can end budget crises for Illinois, Chicago
By
Ralph Martire
Source
Chicago Sun-TimesTax reforms can end budget crises for Illinois, Chicagosuntimes.comWhen it comes to funding their primary operating budgets, the state of Illinois and city of Chicago seem stuck in a constant rut of déjà vu. Last month, state lawmakers enacted a general fund budget that, after inflation, will spend about $455 million, or 1.1% less, on public services in fiscal year 2027 than this past year.
Mind you, the reason for that parsimonious outcome wasn’t a desire to rein in profligate spending.
Indeed, the evidence shows most public services Illinois provides, like K-12 education, higher education and human services, are collectively underfunded by billions. The problem is, and historically has been, state tax revenue doesn’t increase sufficiently to maintain the same level of public services from year to year. In fiscal terms, that consistent mismatch between revenue and service cost growth is called a “structural deficit.”
Then there’s Chicago, which has a structural deficit of its own. Fresh off closing a $1.1 billion hole in its $6.3 billion corporate fund for the current fiscal year, the city faces a budget shortfall that’s projected to range from $700 to $780 million next year.
And like the state, Chicago’s revenue shortfalls are expected to continue. In fact, over the next 30 years, corporate fund revenue is projected to grow by around 43%, while service costs are projected to grow by 87% and the schedule for repaying Chicago’s underfunded pension systems grows by 85%.
That’s problematic, given the corporate fund is Chicago’s primary operating budget, which covers police and fire protection, streets and sanitation, libraries, and most social and health services the city offers.
No more Band-Aids
To get off this inimical deficit merry-go-round, state and city decision makers must stop relying on short-term Band-Aids and instead implement long-term, structural reforms. To that end, there’s much to like in the final report released by the 325% increase. Meanwhile, real, average annual incomes for the remaining 99% of Illinoisans grew from $62,734 to $81,845 — a 30.5% increase.
The task force recommended Illinois fix this obvious flaw by either pursuing a constitutional amendment to permit a graduated rate, or increasing the flat rate while simultaneously implementing a tax credit targeted to low- and middle-income earners, to offset any additional income taxes the rate increase would otherwise generate for them. Either reform would reduce both entities’ structural deficits, while simultaneously making the tax burden fairer in Illinois.
Second, each local government in Illinois, including Chicago, predicates its sales tax base — that is, what the sales tax applies to — on the state’s base. Unfortunately, unlike the rest of the nation, Illinois’ sales tax predominately applies to goods, not services, even though service transactions account for 73% of Illinois’ gross domestic product.
The task force noted this economic mismatch causes revenue underperformance for the state and city, so it recommended the Illinois sales tax be extended to include consumer services, thereby simultaneously redressing both the state and city structural deficits.
The task force made other recommendations that cover the complex fiscal relationship between the state and Chicago, but the bottom line is neither can solve its fiscal problems without structural tax reforms.
Ralph Martire is executive director of the Center for Tax and Budget Accountability, a nonpartisan fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University.
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