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What Can Illinois Learn from Other States’ Budget Disasters?

Kansas and Minnesota chose two very different options to fill their budget gaps, and ended up with opposite results.

Protesters hold a “vigil” outside Governor Bruce Rauner’s office Tuesday as the budget deadline looms.   Photo: Zbigniew Bzdak/Chicago Tribune

Illinois is far from the first state to find that its budget doesn’t quite balance - that it’s paying out more money in services than it’s taking in, or that pension or education payments are ballooning.

Two states in particular—Kansas and Minnesota—have taken definitive steps to address their budget shortfalls. One state cut taxes, the other raised them. Their approaches fall on opposite sides of the ideological spectrum, and the result of their efforts is also drastically different.

As the Illinois budget stalemate drags on, what can we learn from the examples of Kansas and Minnesota?

Both states were hard hit by the recession, struggling with foreclosure, job losses, a spike in childhood poverty—and, of course, significant struggles to find state revenue. Minnesota’s budget impasse in 2011 led to a nearly month-long government shutdown when the legislature couldn’t figure out how to pass a budget with a $5 billion deficit, while Kansas borrowed $225 million from various state accounts to pay budget bills in 2009.

But that’s where their paths diverge.

In 2012, Kansas would go on to enact tax cuts that the Institute on Taxation and Economic Policy called ”among the largest” enacted by any state. Under the leadership of recently elected Governor Sam Brownback, the state dropped the top income tax rate by one-fourth, nixed taxes on “pass through” business profits (business profits passed directly to the owners), and then in 2013 slashed income tax rates again. Brownback promised the cuts would “create tens of thousands of new jobs” and “make Kansas the best place in America to start and grow a small business.”

Mark Dayton, the governor of Minnesota, meanwhile, took on its $6.2 billion budget deficit by raising the state’s income tax to among the highest in the country, from 7.85 percent to 9.85 percent on people who earned over $150,000 and couples who earned over $250,000, as well as ordering a graduated rise in the minimum wage to eventually reach $9.50 an hour.

Five years since Kansas passed its budget cuts, the state is doing markedly worse. The general fund has taken a plunge, with total revenues in 2016 $570 million less than they were in 2013, when the second round of tax cuts was put into place, and slower economic growth than the national average. Just this year, the Kansas Supreme Court ruled that public schools were being underfunded at unconstitutional levels. And Brownback has seen a political backlash coming primarily from his own party.

The situation in Minnesota is quite different. By 2014, Minnesota announced it would pay $134 million for full-day kindergarten across the state. Three years after that, Minnesota finds itself with a $2 billion budget surplus through 2017.

For Illinois, tax experts say the lesson of our massive budget deficit is first and foremost that our tax policy is broken and there are few ways to solve it that don’t involve raising taxes. “We have our problems because our tax policy doesn’t work in a modern economy,” says Ralph Martire, executive director of the Illinois-based Center for Tax and Budget Accountability, a middle-left group. “There is a lack of adequate revenue, and they’ve got to raise taxes if they’re going to solve the problem.” And when Illinois residents are surveyed, the majority say they are willing to pay higher taxes. Still, there are dissenters: the Illinois Policy Institute, an anti-tax far-right group, has been publishing papers throughout the budget impasse advocating for cuts and policy changes that would avoid any tax increases.

Each state’s economy is different (for instance, Illinois unlike Minnesota or Kansas has a flat income tax), but when it comes to solving a budget crisis the size of Illinois’s, lawmakers should take lessons from wherever they can get them.

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