A Study in Contrasts
Conservatives and Republicans in Illinois have long looked longingly to our neighbors to the east in Indiana where that State has been governed by the steady head of Mitch Daniels for the past eight years. Daniels has successfully balanced his budgets without borrowing and has implemented other government reforms, including reforming education and promoting a favorable business climate. But now we look longingly to the north to the more controversial Governor Walker who famously passed last year a comprehensive government reform bill that forced public employees of the State to contribute payments toward their retirement pensions for the first time since they were unionized in 1959 and to increase their contributions toward their medical care. These two reforms alone saved the State approximately $724 million annually, which went a long way to help Wisconsin solve its $3.6 billion biennial deficit. There were other reforms as well, having to do with the rights of State employees to bargain collectively and to have the State automatically collect and deliver union dues to the union. What they all had in common was the relentless focus on the main drivers of costs for the State – medical and retirement costs for public employees, whether those employees are teachers, truck drivers, State troopers, or bureaucrats.
Meanwhile, what does our own Governor propose for Illinois? More spending of course (on top of the massive tax hikes he passed last year)! Like most Democrats, Governor Quinn euphemistically calls this spending “investment.”
Cuts alone will not get us to a better budget. We must build and grow our Illinois economy like never before to keep Illinois moving forward…But we’ve not just made Illinois a better place to do business, we’ve also invested in our public works – our highways, our bridges, our railroads and our schools – to make Illinois stronger…We started Illinois’ first venture fund to encourage investors to jump into cutting-edge technologies…We’re going to continue to think big in Illinois…Today, I’m announcing a $2.3 million dollar investment in “1871,” a new technology center at the Merchandise Mart in Chicago to foster and launch digital start-ups…Today, I’m also announcing a $6 million dollar statewide competition to build ultra-high speed broadband in neighborhoods across Illinois. Through this challenge, we want our neighborhoods to become Gigabit communities with Internet connections more than 100 times faster than today! Our goal is to build smart communities that will foster the job engines of the future.Etc. Etc. The quotes are from his recent State of the State speech which was received with all the excitement of a scheduled root canal. My local paper quoted my State Senator (John Mulroe, Democrat) saying the Governor’s “proposals are sound” but there “is no money to fund them.” “We don’t have a healthy environment in this state, but the worse things get the more it is necessary to get results, and you need to make tough decisions because you can’t kick the can down the road any more.”
Well, Senator Mulroe got one thing right. Illinois does face a very unhealthy environment. While most of the nation has experienced some improvement in the unemployment picture, Illinois placed more people on the unemployment rolls in 2011 than any other state in the nation. Back in early 2010 our unemployment rate was coming down from a high of 11% to 8.7% a year later, soon after the tax hike was implemented. Then, slowly but surely, our unemployment started to climb (up to 10% as of this writing) as the business climate in the state deteriorated. As the Illinois Policy Institute explained:
The tax hike spurred a number of companies to leave or threaten to leave. The state resorted to handing out tax incentives to keep large businesses from leaving. This reinforced Illinois’ reputation of favoring the powerful and connected at the expense of everyone else. It is this perception – grounded in reality – that keeps many entrepreneurs from even considering Illinois as a place to found or grow their business.Meanwhile, the ostensible reason for raising taxes, to get our fiscal house in order, remains a distant goal. At the beginning of this year Illinois faced $7 billion of unpaid bills which led to a downgrade from Moody’s rating agency from A1 to A2 which is now the lowest rating among all 50 states (although for the moment, we are currently rated slightly higher than California by Fitch and Standard and Poor’s). By the end of the fiscal year, the unpaid bills are expected to grow to $9.2 billion at the end of the next fiscal year and one local fiscal watchdog organization predicts that if serious reform is not implemented soon, the bills could grow to $34.8 billion – which is simply unsustainable as no one will be willing to do business with the state if they can’t expect to be paid in a timely manner.
Illinois’ poor business environment is reflected in the Tax Foundation’s respected State Business Tax Climate Index. A forthcoming 2012 edition will show a precipitous fall for Illinois, thanks almost entirely to the personal income and corporate income tax hikes. Overall, Illinois fell to 28th place in 2012, from 16th place in 2011 (revised). In particular, Illinois fell 16 places in the corporate sub-index, dropping to 45th in the nation, from 29th prior to the tax hike.
In short, there is debt and unsustainable spending as far as the eye can see with Governor Quinn, although, to be fair, according to his recent budget address delivered in February, a pension reform working group is to deliver recommendations to the Governor on how to reform the pension system in April. (Quinn has also proposed a Medicaid “roadmap” which the Governor says he will use to work with our state legislature “to find a combination of liability reductions, modernized eligibility standards, utilization controls, rate reduction and reform, acceleration of integrated managed care, and coordination of long-term care programs to manage Medicaid spending.”)
So in one state you have a Governor who faced the problem of out-of-control spending and attacked it at its roots – by reducing the spending and by implementing structural reforms to help the state and its local government partners deliver services more efficiently and effectively. In another state you have a Governor who faced the problem of out-of-control spending and attacked the problem by raising taxes, by talking about reform, and by spending money like the problems he faced weren’t that serious. Is it any wonder that Wisconsin thrives while Illinois struggles?
Jeffrey Singer is a public policy observer who lives (and suffers) in the city of Chicago.