Illinois Witnessed $2.2 Billion Tax Income Drop in 2010

(Springfield, IL) — March 28, 2011. Tax money coming into state and local governments in Illinois fell sharply —  by $2.2 billion dollars between 2009 and 2010, according to the U.S. Census Bureau.

The decline in tax revenue from $32 billion to $29.8 billion is on par with a pattern that has emerged during the past several years. Areas that measure a state’s economic health — income, sales and property taxes — all have weakened.

Illinois isn’t alone in watching tax revenue drop off. The 50 states saw a decrease of $14 billion in tax money between 2009 and 2010, according to census numbers.

While income dropped for Illinois, general fund spending increased from $27.9 billion to $29.7 billion between 2009 and 2010.  The total state budget is a combination of general fund spending and other dedicated and federal dollars.

Experts in government and economics say the driving factor behind the numbers was the most recent economic recession.

“We were not expecting, like no one was really expecting back in 2008, that revenues would fall that much,” said Kelly Kraft, spokeswoman for Governor Pat Quinn’s Office of Budget and Management.

What made Illinois government’s problem more dire than others, even from cities within the state, was its increased spending during the past decade, according to J. Fred Giertz, an economics professor at the University of Illinois at Urbana-Champaign.

The trend of spending more while taking in less exacerbated an already disintegrating financial situation.

Municipalities have made layoffs, encouraged early retirement and reduced services to cope with leaner financial times. The state has yet to take such drastic measures, said Giertz.

“Local governments don’t have as many ways as delaying the problem. It’s actually good. It forces them to make adjustments right away while the state has been able to make some probably not very good delaying tactics and made the problems worse in the long run,” he said.

Less money coming in coupled with poor financial decisions in the past were two major reasons Quinn gave when pushing for a temporary income tax increase earlier this year. The personal and corporate income tax hike, which passed without a single Republican vote, should bring in more than $6 billion annually.

“When you see general tax increases, even in an environment where the Republicans made big gains in the midterm elections, despite that you still see some tax increases it just shows how severe the fiscal problems were,” said David Merriman, head of the Department of Economics at the University of Illinois at Chicago.

The worst of the worst is probably behind the state. The unemployment rate has been declining in the state, and projections by Quinn’s office and the Legislature’s Commission on Government Forecasting and Accountability show income tax collections for this year above last year, even before factoring in the recent tax hike.

Illinois’ fiscal environment might be off its deathbed, but like anyone recovering from a near-death experience, there are hurdles to overcome. One of those is fast approaching.

By the end of June, most of the federal stimulus money that served as lifeline for states, including Illinois, will run out. Quinn recently has proposed a new borrowing plan to squeeze as much money from Washington, D.C., as the state can before being cut off.

Experts agree that to avoid winding up in the same situation a few years down the road, the state and municipalities have to look at running leaner operations.

“State and local governments have to look at both the revenue and expenditure sides of their budgets and determine how they go about balancing these budgets, because the local and state governments cannot print money as is done by the federal government,” said James Nowlan, research fellow at the University of Illinois Institute of Government and Public Affairs.

Andrew Thomason, Illinois Statehouse News