It appears the state of Illinois and the city of Baltimore have a lot of things in common – not just two American League baseball teams with under .500 records. Falling population numbers, pension shortfalls, high tax rates, terrifying finances, and inept leadership: This is life in both places. Well, at least Illinois can say that it doesn’t suffer a rat infestation like Baltimore. Unfortunately, if this is the best thing you can say where you are living, then there may not be much cause for celebration.
Residents Are Illinnoyed
When a significant percentage of the population is headed for the exit door, prepare for troubling times ahead. An economy cannot survive when there is a mass exodus because the government has to soak the left-behinds, who will be increasingly burdened to cover the state’s ballooning debt levels.
Fewer people typically leads to diminished economic growth, less investment, and a smaller tax base.
Using data from the US Census Bureau and the Internal Revenue Service, Wire Points put together a new report, titled “Illinois’ Demographic Collapse.” Researchers found that The Prairie State has netted a loss of 1.5 million residents to other states since 2000. What is even more fascinating is who is coming and going – and what is in their pockets.
According to the study, Illinois saw an inflow of about 165,000 people, bringing in an Adjusted Gross Income of $6.3 billion, in 2016. At the same time, more than a quarter-million residents took a combined $11 billion and fled. If you are keeping count, that is a net loss of roughly 86,000 Illinoisans and $4.8 billion in taxable income.
This is not an anomaly either. Between 2000 and 2010, the Land of Lincoln has averaged net losses of nearly $2 billion in taxable income every year. Since then, losses have expanded half-a-billion every year.
What might be the most compelling part of the study is exactly who is absquatulating. The average taxable income of people sauntering out of Illinois topped $81,000. But those who are migrating from other states have taxable incomes of about $67,000.
Rebuilding Illinois with Debt
If it isn’t obvious enough, policymakers have attended the Prometheus School of Running Away from Things.
Illinois is facing a fiscal collapse, but Gov. J.B. Pritzker (D-IL) has a plan to reverse the downward trend: tax and spend. One of his latest proposals is a six-year capital construction project that comes with a price-tag of $41.5 billion. His “Rebuild Illinois” initiative comes just months after signing a $3.2 billion budget for the fiscal year 2020 that is out of balance by up to $1.3 billion, despite raising the state income tax by 32% in 2017.
So, how does Gov. Pritzker plan to pay for it all? Two ways.
The first consists of introducing close to $2 billion in new or higher taxes and fees annually until 2026. Here is what you can expect to pay:
- $1 levy for all ride-shares.
- 6% parking garage tax.
- 38-cent tax for every gallon of motor fuel.
- $250 per year in car registration fees.
- A new levy on cable, satellite, and streaming services.
- A hike in the liquor penalty.
The second is borrowing. The state legislature plans to borrow about $17 billion by selling bonds on the open market. But it might be a risky play for investors, considering that the state now has the worst credit rating in the nation. Will Illinois be considered junk bonds? That would be a riveting development.
But while policymakers think infrastructure is the state’s biggest problem, they are burying their heads in the sand and ignoring the real catastrophe: $137 billion in unfunded pension liability. The pension system, covering civil servants and much of the state’s teachers, is only 40% funded; about one-third of the state’s income goes to covering the liability and other long-term debt, which is the highest in the Union.
Fitch Ratings was right when it wrote that Illinois was guilty of “irresolute fiscal decision-making.”
Is it a surprise that Chicago wants to secede from the state?
Baltimore vs. Illinois: Who Loses?
Is Illinois turning into the next Baltimore?
A declining population? Check! Experiencing both white flight and black flight since the 1980s, Baltimore’s population has been on the decline for years. In the 12 months ending July 1, 2018, Charm City endured a net loss of approximately 7,300 residents, or 1.2% of the population. This was the largest single-year drop in two decades and the fourth straight annual population decrease.
A pension shortfall? Check! Baltimore is responsible for a $100 million unfunded pension liability for city education staff – Maryland also has a $20 billion pension gap.
A budget deficit? Check! Despite raising taxes, Baltimore is staring down an $81 million budget hole and officials are warning that it will get worse. Surprisingly, unlike Illinois, Baltimore has retained a Triple-A bond rating.
Illinoisans share the same reasons as Baltimoreans for leaping off a sinking ship: high taxes, poor finances, mediocre education, crime, and lackluster job growth (it ranked 46th in the nation in private-sector job growth last year). The only thing missing is the rats.
Fiscal Shortfalls? We Also Like to Live Dangerously
To say that Illinois’ finances are a mess would be a serious understatement. A couple of years ago, things were so bad the state operated its legislature without a budget for two consecutive years! It seems you’re taking a gamble on living in Illinois as your tax bill is a crapshoot from year to year. Speaking of gambling, up until just last year, the state refused to pay lottery winners with prizes of over $25,000. When your jurisdiction can’t even cover lottery prizes, then you know you’re tanking like the Chicago White Sox.
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