There has been widespread concern about state budget deficits. Many wonder if states lack the resolve or political will to make the necessary decisions to get their financial houses in order. This week brought encouraging news. Some debt-challenged states announced significant progress towards improving their books.
Illinois lawmakers passed a 67 percent income-tax increase, the largest in the state’s history, to help close a $13 billion budget deficit. They raised the tax rate to 5 percent from 3 percent and was approved by both chambers in the waning hours of the legislative term. Governor Pat Quinn, a Democrat, has supported an increase. A new Legislature will be sworn in later today. The increase, intended to last through 2014, is aimed at fixing Illinois’s worst fiscal crisis, including a backlog of more than $6 billion in unpaid bills and almost $4 billion in missed payments to underfunded state pensions.
California Governor Jerry Brown proposed a budget that cuts $12.5bn from proposed state spending. The proposal includes 5 years of extending the higher level of current taxes and reducing employee compensation.
Governor Christie in New Jersey delivered his State of the State message. Among the topics discussed, pension reform was prominent. Extending the retirement age, reducing or eliminating COLA’s, and requiring more employee contributions were all highlighted.
These announcements were not unexpected but are welcome. While these are just the first steps down a long road towards improved financial stability, the news is certainly positive. We believe tough decisions must and will continue to be made.
This post was originally published in the Washington Business Journal’s WBJBizBeat Blog. Read more: States Taking First Steps Towards Financial Stability | Washington Business Journal