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In January 2013, Time Magazine featured the story “Why Illinois is Going Bankrupt.” It pronounced the state’s financial prognosis as terminal, with little hope of recovery. From its gaping annual billion-dollar deficit, to its bulging unpaid pension debt and revenue-draining Medicaid, Time described the state’s budget condition as grave.
That was two years ago, and Illinois’ finances remain on life support with the condition deteriorating daily. Despite a nearly $64 billion revenue transfusion, Illinois’ pension funding dropped to 22 percent of where it should be, at $331,579,500,000 in unpaid obligations.
Reacting to the dire situation, Illinois voters chose to bring in a political outsider — a 56-year-old investment capitalist with experience in rescuing failing companies. They’re hoping he can diagnose the problems and come up with a plan to save America’s fifth most populated state.
Bruce Rauner is the first Republican to be elected governor of the blue state of Illinois since 1998. His campaign spent over $65 million to become “doctor on call” of a state that is in financial death spiral.
If Rauner is able to persuade the Democratic super-majorities in both legislative chambers to take the medicine he prescribes, then he’ll be a miracle worker hailed in both Illinois and across the country. If he fails, he could become a laughingstock.
So where does Rauner start?
On his left he has the Keynesians like Ralph Matire of the Center for Tax and Budget Accountability. Martire says Illinois doesn’t have a spending problem, it has a flawed and inefficient tax policy that minimizes the state’s potential for revenue. In other words: it needs to increase taxes.
“Cutting spending at this stage would be immoral,” says Martire. Instead, he argues we need “tax reform,” which he defines as:
Increasing the state income tax three to five percent
Expanding sales tax to include services
Targeting tax relief to the poor and low income
Taxing retirement income over $50,000
Increasing taxes on corporations
Martire’s idea was tried under Democratic Gov. Pat Quinn who “temporarily” raised the state’s income tax rate by 67 percent in 2011. The increase did result in record high revenue. But the increased revenue only resulted in increased government spending. And now that the tax increase has sunset, revenue is down, but the increased state government spending remains.
On Rauner’s right is State Senator Matt Murphy of the Chicago School (Hayek, Friedman, etc.) who argues that Illinois’ problem is too much spending, not a lack of revenue. Murphy points to the fact that despite record high revenue, Illinois still has the same $9 billion deficit it had before the massive 2011 tax increase.
“Since 2011 Illinois has continued to teeter between the second and the third highest unemployment rate in the country,” Murphy said. “And it now has the worst credit rating in the nation, having been downgraded five times since the tax increase was passed.”
Most troubling to Murphy is a Gallup poll that showed fifty percent of Illinoisans wanted to leave the state.
The fiscal prognosis for Illinois is grim at best. If the patient can be saved, the treatment is going to be painful, the recovery long, and the medicine limited.
A pension reform law that candidate Rauner opposed because “the reform wasn’t dramatic enough” sits before the Illinois Supreme Court, and may be tossed out. Furthermore, Republicans in Illinois’ Congressional delegation wrote state lawmakers they would vigorously oppose any federal fund appeal to bail out the state’s finances.
So, the tension builds. All Illinois eyes are on Dr. Rauner. Just what will he do to save the Land of Lincoln?