By: Mark Glennon*
COGFA, Illinois Commission on Government Forecasting and Accountability, on Tuesday released its three-year budget forecast. That forecast itself means little because it does not reflect the likely impact from the new downturn.
However, COGFA did provide some rough guidance on that impact: A revenue loss of $8 billion is a reasonable scenario – about 20% of the state budget – though it likely would be spread over several years. Specifically, COGFA said,
While the certainty of the country, and world, plunging into recession seems to grow each day, attempting to value the impact of COVID-19 on State revenues is virtually impossible. With that caveat, it seems reasonable to offer a scenario with more devastating impacts on revenues in the near-term than even the “Great Recession”. As a result, should revenues experience a peak-trough decline of 20%, a revenue reduction of over $8 billion would be experienced, although likely spread over multiple fiscal years.
That’s obviously very significant. For a little perspective, the estimated additional annual revenue from the pending progressive tax increase is about $3.5 billion, and it has already been promised away on other things.
COGFA provided this additional background from recent downturns:
[During the recession between FY 2001 and FY 2003] overall tax revenues fell a combined 5.5% (see following graphon page 7). Revenues from the “Big 3” fell a similar 5.7% during this time frame. The Commission estimates that if the State were to experience a similar recession over the upcoming fiscal years, a falloff in revenues of near $2 billion would be expected. Again, the timing of how this would affect particular fiscal years is difficult to predict, but it is likely that the impact would be felt over more than one fiscal year.
[During the Great Recession] overall revenues fell a combined 8.7% between FY 2008 and FY 2010 (see graph on page 7). During this timeframe, net revenues from the “Big 3” (personal income tax, corporate income tax, sales tax) fell a combined 16.6%. Since that time, due to recent income tax increases, their composition of overall revenues has grown from around 60% to near 78%. Because of the increased reliance on these sources, significant changes in these taxes will have a greater impact on overall revenue performance. Because of this, the Commission estimates that if Illinois were to have another severe recession similar to the “Great Recession”, the decline in total receipts could reach 11%. In terms of receipts, this would equate to a revenue loss of around$4.5 billion. This revenue reduction would likely be spread over multiple fiscal years.
It’s all a moving target, of course, because we don’t know how long the shutdowns will last.
*Mark Glennon is founder of Wirepoints.
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
Just raise taxes if you need more money. Just as long a cops, teachers and Firemen on HUGE PENSIONS do not pay any taxes. Long live the most valuable part of Illinois.
Fair is fair. The poor hard working taxpayer and their family should work two jobs till age 70 to only have meager social security.
Mark or Ted, how much are we guessing the pensions (let’s say Cops, Fire or Munis) lost in value on the down turn? Or will it be more of a bond issue, which is dependent on confidence? Finally, is it the case that the rating agencies ultimately have these guys as “customers” so they never say that they are below BBB-?
Thanks
I’d expect their assets shrank by 10% to 20%. Markets may recover, of course. For the worst-off pensions like Chicago police and fire that are just 20% funded, it might not move their numbers that much because they just don’t have many assets to shrink. Rating agencies are indeed inclined to go easy on their customers, but I expect they will have a hard time avoiding downgrades, not just because of the pension losses but because of lost revenue.
This is a 1929 type depression, I think. The Wuhan Virus is just the catalyst that will flush out the years of excess. These excesses would have otherwise slowly been excised through minor recessions or by natural replacement, are instead being taken out in one quick pull of the band-aid. Goodbye major retail chains, restaurant chains, anyone who bought real estate in the last four years, the unicorns in silicon valley (TAKL commercials on TV?), the entire gig economy (goodbye money losing uber), the overbuilt condo markets, the overbuilt warehouse markets, the 84 month car loan, the retail store card… Read more »
You need medication. Trump and Hoover have few similarities, and there were about 4 significant causes of the Depression, and 2 significant causes of the 14 yr length of the Depression, those two being FDR and Congress…Democrats going bat-shirt crazy. Hell Dems and a few wishywashy Repubs twisted Hoover’s arm until it broke and Smoot-Hawley was passed, one of the reasons theDepression became so bad.
What is really great is that all the greedy cops, teachers and firemen do not pay State Taxes on the Huge Illinois Pension payments. Screwing the taxpayer is what it is all about.
The Party is over for the Greedy Cops, Teachers and Firemen.
The taxpayer is tapped out, no money to tax.
Now for the hangover.
Leave the state as fast as you can. Anywhere is better than Illinois now.
these are not essential workers. Haven’t been essential for years. I will do it for free. HIGHER TAXES, NEVER STOPPING TO FIND EVERY PENNY THEY CAN STEAL FROM ME, PEOPLE FROM ILLINOIS RUSH TO LEAVE, BANKRUPTCY
Media and others should start putting pressure on Jabba the Hut to release benchmarks for which he lift the shelter in place. Can you imagine if this ever hit the numbers we see from a normal seasonal flu season??
He’s drunk with power right now. Those epidemiologists are whispering sweet nothings into his ear, “you are the power of the state, you are the sun and the moon, you alone can decide the fate of everyone in your kingdom”
Just like you should never ask a barber if you need a haircut, you should never only ask an epidemiologist if you should issue a shelter in place to combat a bad seasonal flu.
Combine the revenue loss with huge losses in the pension funds due to the market downturn and it’s hard to imagine that Illinois’ bond rating won’t sink into junk territory.
8 billion in IL really means 10-13 billion in reality. You have to account for bribery, cronyism, inefficiency, buying union votes and Keynesian economics/communism etc.
Like the public employees they are, they have no appreciation for what this is doing to the private sector. None. Blissfully ignorant. The brilliant statisticians in the Treasury office are using the Great Recession as a comparison, tacking on a few percent to get their numbers. This is laziness, at best. Comparing the 2008 financial crisis to the Chinese Plague Apocalypse is like comparing your kid’s goldfish to Moby Dick. These aren’t even in the same ocean. When was the last time you ever heard that all hotels are completely empty? Airlines have completely grounded their planes? That there is… Read more »
There will be mass layoffs in Illinois government. It will be the last resort. After the state is denied a federal bailout, it can’t obtained credit in the private markets, defaulting on all other creditors, and raising taxes. Fortunately for the rest of us, this day of reckoning is coming soon. I expect by the end of summer many state agencies that you’ve never heard of will be half empty.
Illinois will not make it. Checks will be bouncing soon.
It will happen in other states (Democratic) also.
Can not overpay the help and expect the party to go on when income stops.
Everyone should say a prayer for Illinois and see if that helps.
Only the poor will be left in the state soon.
Lotta lives are going to be ruined in Illinois
I would like to see Team Fair Tax re-evaluate their proposed rates and put forward what they REALLY think those rates need to be post-pandemic. I think it would shock many sold on “only the top 3%.” It would also show how vulnerable the $100K+ crowd is to future tax hikes. Typically, the state generates $1 billion for every quarter-percent increase in the flat tax. I could see them implementing a “temporary” flat tax hike of 0.75% for next year’s budget and then selling it as “pass the fair tax or it becomes permanent.” They will then tout the “massive… Read more »
If they don’t do it we will — as soon as we have some solid numbers.
It will most certainly be worse than this.