Forget California: There Might Be A New Contender For The Most Dysfunctional State

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While much has been made about the economic woes and population declines of states like California and New York, recent economic data indicates that Illinois is struggling with huge issues of its own.

Illinois had the 5th worst unemployment rate out of any other state in March at 4.8%, along with one of the nation’s highest tax burdens, and has only added 26,100 net jobs in the last year while adding 30,100 government positions, according to data from the Illinois Department of Employment Security. At the same time, residents are fleeing Illinois in droves as the state grapples with some of the largest pension debt in the country.

Stagnation in the Illinois economy, fueled by oppressive taxes and high crime, especially in Chicago, has led to businesses and residents exiting the state, eroding the tax base and exacerbating budget issues, experts told the Daily Caller News Foundation.

“Unemployment rates are very high; wage growth is lagging compared to most other states,” Bryce Hill, director of fiscal and economic research, at the Illinois Policy Institute, told the DCNF. “The Census Bureau has reported that residents are leaving the state en masse to the tune of hundreds of thousands every single year, so much so that the state’s population has actually been declining for the past 10 years. So on any metric, quantitatively on outcomes, Illinois’ economy is lagging.”

The state’s population was 12,549,689 in July 2023, 32,826 less than it was the year before and more than 260,000 less than it was in April 2020, according to data from the Census Bureau. Similar population losses in California cut tax revenue in the state and resulted in a massive $73 billion projected budget deficit for fiscal year 2024.

“Illinois is in awful shape in many ways, and its economy is dreadful,” S. T. Karnick, senior fellow at The Heartland Institute, told the DCNF. “Opinion polls cite high taxes as the top reason people want to leave Illinois, with crime and safety second. Illinois has the fourth-most regulations among the 50 states, which raises prices and kills jobs.”

The state’s pension debt grew $2.6 billion in fiscal year 2023, totaling $142.3 billion, according to a report from the state’s Commission on Government Forecasting and Accountability. The ballooning cost of the state’s pension crisis stems from a provision placed into the Illinois Constitution in 1970 that dictates that pension benefits may not be “diminished or impaired,” with the state’s Supreme Court later determining that that included a cost-of-living adjustment.

Illinois Governor J.B. Pritzker laid out in his State of the State address in February a plan to hike taxes on sportsbooks and extend the cap on how much in operating losses businesses can write off from their taxes to help close the budget gap, estimating to increase revenue by $726 million, according to Capitol News Illinois. The state is projected to have an $891 million budget shortfall this upcoming fiscal year.

“So the state is projecting budget shortfalls for the next several years, absent any changes in spending or revenues,” Hill told the DCNF. “Which is certainly affected by out migration. Migrants take over $10 billion worth of income with them out of state when we lose people due to domestic migration, so it certainly has an impact on not only the state’s pocketbooks but local tax revenues as well. But they’re not the root cause of the state’s budgetary stress, because the state also has another very large issue to contend with, which is unfunded pension liabilities that are eating into state and local government budgets and crowding out funding and taking up large sources of revenue.”

Pritzker boasted of Illinois’ economy in his February address and highlighted strong rankings compared to other states for infrastructure, education and power reliability, according to NPR Illinois. Pritzker did stress the toll that illegal migrants have taken on the state, calling for President Joe Biden to coordinate a greater federal response to the massive inflows at the southern border that Illinois is not equipped to handle.

“We’ve also grown Illinois’ economy to over $1 trillion,” Pritzker said in the address, according to NPR Illinois. “That’s more than most nations. In 2023 alone, we attracted billions of dollars in new business investments and created tens of thousands of new jobs.”

Illinois’ gross domestic product grew by just 2.3% year-over-year in the fourth quarter of 2023, far lower than the national total of 3.4% in the quarter and lower than California, which grew at 3.1%, according to the Bureau of Economic Analysis. Nevada had the largest growth in the quarter at 6.7%, followed by Idaho and Utah at 6.6% and 5.4%, respectively.

Heavy tax burdens have weighed on many large corporations in Illinois, with Boeing, construction equipment manufacturer Caterpillar and hedge fund Citadel all announcing plans to reduce operations in the state in the last few years. Violent crime in Chicago is also weighing on businesses, surging 18% in 2023 compared to ten years prior, with thefts and carjackings jumping the most, while arrests have dropped 33%, according to research from the Illinois Policy Institute.

“Those are all things entirely under the control of the state government,” Karnick said. “For decades, the Illinois government has paid much more attention to the well-being of government workers than to taxpayers. The state has the nation’s worst pension-funding crisis — which is saying a lot — with an unfunded liability of more than $140 billion.”

 

The Illinois government has also moved to strengthen organized labor in the state in recent years, with voters approving an amendment to the state’s constitution in November 2022 that guarantees collective bargaining rights over wages, hours, working conditions and even “economic welfare and safety at work,” according to the Chicago Tribune. The amendment also bans all right-to-work laws that are common in red states.

“Illinois is caught in a destructive-governance spiral,” Karnick told the DCNF. “Bad government diminishes residents’ living conditions and returns on business investment. People move out or work less, and businesses leave the state or reduce operations. Those actions decrease the tax base, so the state raises tax rates and uses accounting tricks to meet spending goals. That makes things even worse and further damages the state’s economy. More productive people and businesses leave. This process has the state heading steadily toward bankruptcy, an increasing outflow of the hardest-working people, and their replacement by immigrants from other nations.”


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