Experts: Recession worst 'fiscal cliff' outcome

Posted Online: Dec. 10, 2012, 2:21 pm
Comment on this story | Print this story | Email this story

SPRINGFIELD, Ill. (AP) Government experts who run the numbers estimate Illinois could lose $1 billion in federal revenue if President Barack Obama and Congress cannot reach a budget agreement and allow the economy to plunge off the so-called 'fiscal cliff.'

But more unpredictable and perhaps more worrisome is what impact another recession, spurred by the possible federal free fall, would have on Illinois. The state could lose an additional $1 billion because of sagging tax revenue beginning next month and running through at least mid-2014.

States are anxiously monitoring the faceoff between Democrat Obama and House Speaker John Boehner, an Ohio Republican, who are trying to reach a budget deal to avoid automatic tax increases and nearly across-the-board spending cuts that would take effect Jan. 1, a deadline set last year when the two sides reached a federal debt-ceiling pact.

'We watch that every day from Washington,' Illinois Gov. Pat Quinn said last week.

Many states are worried about how to plan budgets for the coming year, based on the uncertainty. But Quinn's office won't discuss the potential fallout.

The state had enough problems to begin with. Officials predict several state agencies' programs and services won't make it through the budget year without additional money. There's also the seemingly never-ending $9 billion backlog of bills owed to vendors and a worst-in-the-nation pension program deficit, a fix for which Quinn calls his top priority.

Nonetheless, the Democratic governor has 'full confidence' in Obama to broker a deal.

The national consequences are clear: Federal income taxes would increase by ending cuts implemented during President George W. Bush's administration. There would be broad-based cuts to most federal agencies, including defense spending. But money for the federal payroll and major programs such as Social Security and Medicaid would be spared.

Should the cuts go into effect, Illinois would lose $305 million in federal grants for education, public housing and nutrition programs for low-income women and children next year, according to Michael Bird, a Washington, D.C.-based lobbyist for the National Conference of State Legislatures.

Bird said the state would lose $740 million in defense money, although specifics aren't known. A spokeswoman said officials at Scott Air Force Base in southwestern Illinois had not received any instructions about potential reductions.

More hazardous could be the economic recession that's almost certain to follow a fiscal cliff dive; experts believe increased taxes and federal spending cuts could choke off business activity.

State Revenue Department officials had already predicted that receipts from the state's three largest sources individual income taxes, corporate income and sales taxes would drop slightly this year, and post only a 2.4 percent gain in the budget year that begins July 1, 2013. If the federal budget crisis is unsolved, those receipts would decline by just over $1 billion between Jan. 1 and mid-2014, officials say.

That amounts to about 4 percent of the estimated $27 billion those three sources would produce for the general revenue fund.

The reduction in receipts would be offset by a $45 million increase in fiscal 2014 with the expiration of Bush-era tax relief there would be fewer federal tax deductions, meaning a higher income on which state taxes are based. For example, the state could possibly see $20 million more because businesses would be allowed less federal depreciation on equipment purchases.

A Pew Center on the States report in November found Illinois more vulnerable to the fiscal cliff's impact than others because about 8.5 percent of its revenue comes from federal sources, above the national average of 6.6 percent.

But Ingrid Schroeder, a Pew Center director, noted that recession could be far worse than cuts to federal programs.

'States have already had to make really tough budget decisions over the last couple of years,' Schroeder said. 'This uncertainty about exactly what their revenue is going to be makes an already difficult process that much more difficult.'


Local events heading

  Today is Monday, Sept. 22, the 265th day of 2014. There are 100 days left in the year.

1864 -- 150 years ago: The board of education has granted Thursday as a holiday for the children, with the expectation that parents who desire to have their children attend the Scott County Fair will do so on that day and save irregularity the rest of the week.
1889 -- 125 years ago: The guard fence around the new cement walk at the Harper House has been removed. The blocks are diamond shape, alternating in black and white.
1914 -- 100 years ago: The Rev. R.B. Williams, former pastor of the First Methodist Church, Rock Island, was named superintendent of the Rock Island District.
1939 -- 75 years ago: Abnormally high temperatures and lack of rainfall in Illinois during the past week have speeded maturing of corn and soybean crops.
1964 -- 50 years ago: Installation of a new television system in St. Anthony's Hospital, which includes a closed circuit channel as well as the three regular Quad-Cities channels, has been completed and now is in operation.
1989 -- 25 years ago: When the new Moline High School was built in 1958, along with it were plans to construct a football field in the bowl near 34th Street on the campus. Wednesday afternoon, more than 30 years later, the Moline Board of Education Athletic Board sent the ball rolling toward the possible construction of that field by asking superintendent Richard Hennigan to take to the board of education a proposal to hire a consultant.

(More History)