The News-Gazette

State's income drops by $2 billion over previous year

Friday, July 09, 2010

SPRINGFIELD – It's no surprise, but devastating nonetheless: Revenue into the state's coffers for the fiscal year that ended last Wednesday dropped a breathtaking $2 billion, or 7 percent, from the year before.

In terms of dollars, it's the largest single-year decline ever, easily eclipsing last year's decline of $515 million.

In terms of a percentage decrease, it may be the biggest year-to-year drop since the Great Depression.

A year ago at this time, state budget officials had projected $155 million in revenue growth for the recently ended fiscal year.

"So the fact that we didn't even grow that small amount and in fact dropped by more than $2 billion means that the budget as initially implemented was off by more than $2.2 billion," said Jim Muschinske, revenue manager for the state's Commission on Government Forecasting and Accountability.

It was a dismal year for the Illinois economy and the state's budget. Combined revenue from state and federal sources dropped from $29.1 billion in fiscal year 2009 to $27.1 billion. The state's own "big three" revenue sources – personal income tax, corporate income tax and sales tax – were down by 7.7 percent, 20.5 percent and 6.9 percent respectively.

Together, revenue from those sources was down by more than $1.6 billion.

The revenue numbers reflect high unemployment, reduced business investment and dampened consumer and business spending.

"I think it's a bit of a surprise," said University of Illinois economist J. Fred Giertz, "because I think the expectation was that most of the damage would have occurred in the prior fiscal year and it wouldn't have fallen this much. I don't think the expectation was that revenue would have fallen by 7 percent."

State Sen. Mike Frerichs, D-Champaign, a member of the commission, said the report highlights the need for more revenue and less spending.

"For people who have been crossing their fingers and hoping the economy would turn around and solve all their problems, those people now need to confront reality and realize that this is going to require some tough decisions to stop the state from being a deadbeat," said Frerichs, one of 12 lawmakers on the commission.

But Republican gubernatorial candidate Bill Brady, who also is a state senator from Bloomington, said the report shows the state must reduce spending. Brady also opposes Gov. Pat Quinn's proposed income tax increase, said spokeswoman Patty Schuh, because it would harm hiring and job growth.

The new fiscal year – which began last Thursday – looks almost as distressing.

The Quinn administration is projecting an overall 2 percent revenue decline this year – the third consecutive year of negative revenue growth – mostly because of the loss of federal stimulus money. The state will receive an estimated $711 million less in federal aid this year than last year.

The commission, too, projects less revenue. Four months ago it estimated that general fund revenue this year would be down to about $26.5 billion.

"The governor's got his work cut out for him, whoever the governor is," said Muschinske. "The reality is that this is going to be a multi-year dig-out for whoever is governor. I don't think anyone assumes that there can be a one-year fix. It took us years to get into this situation and in my opinion it will take years to get out of it."

Giertz and Frerichs said a tax increase is necessary.

"The hole's so deep that it's never going to be solved with normal revenue growth, like (former Gov. Jim) Edgar did back in the '90s," Giertz said. "We're so far behind the 8-ball now. Something dramatic has to happen. It would help to have some revenue growth, but we're not going to have revenue growth ever that would stop this situation."

Frerichs said lawmakers must stop telling voters what they want to hear.

"At some point legislators need to start treating their constituents like adults and be honest with them about the problems we're facing. It is time for a combination of new revenue and cuts," he said. "Anyone who says we don't need to cut state spending and we can raise some revenue later isn't being honest with their constituents. Even with new revenue it will require some cuts in state government.

"Likewise, any candidate who says they have a plan to cut 10 percent from the budget and balance the budget is also lying to their constituents."

Although year-end reports are not available from other states, Muschinske said he believes tax revenue is down elsewhere as well.

"Certainly all states, with the exception of the Dakotas and maybe one other small state, because of energy sources, are all suffering," he said.