Responding to Illinois' Double-Headed Crisis

As the state’s health crisis stabilizes, its economic crisis is only beginning.

When the pandemic first hit, our state and federal governments focused on responding to the public health implications, taking such major steps as transforming Chicago’s McCormick Place Convention Center into an overflow hospital and executing a statewide stay-at-home order. But as the infection curve flattens and public health operations stabilize, the focus has pivoted to the magnitude of the economic crisis. While many of us have seen firsthand the enormity of the COVID-19 crisis, we are just beginning to glimpse the real economic challenges that lie ahead.

In my career, I have responded to natural disasters as an Air Force judge advocate and as an assistant to former Gov. Jim Edgar, and I have learned that imperfect circumstances result in imperfect solutions. Moving forward as trusted and strategic advisors to individuals and businesses, we must understand the State of Illinois is in a very imperfect situation, which will undoubtedly lead to solutions that are themselves far from perfect. By embracing that broader perspective, we can best serve and advise our clients in these difficult times and those that lie ahead.

Even before COVID-19 hit here, the major bond ratings firms were warning that Illinois was ill-prepared to withstand an economic downturn. Fitch, Moody’s, and Standard & Poor’s all stated that Illinois’ public finances had not rebounded from the 2008 economic recession or resolved its public pension debt. In mid-March, Gov. J.B. Pritzker and his budget office estimated that the state was looking at a combined $7.4 billion budget gap for fiscal years 2020 and 2021.

Prior to the COVID-19 outbreak, Pritzker’s “Fair Tax” amendment, moving Illinois from a flat tax rate to a graduated rate, was viewed as a philosophical panacea to cure Illinois’ economic woes. Now that COVID-19 has driven the loss of significant tax revenues, an economic downturn, and investment losses by public pension funds, Illinois’ economic environment is even more desperate. It’s clear now that additional tax revenue and any federal assistance money the state may receive will not do much to fill the budget gap.

While it can be argued that these economic circumstances lay the groundwork for the passage of the “Fair Tax” amendment this November, it will not be enough. The need to close the structural budget deficit, address our public pension system’s shortcomings, and fix the high rate of property taxes necessitates the need for the General Assembly to look for additional revenues.

What does all of this mean for the CPA profession? It means potential risk to our practice areas. Many think tanks and advocacy groups have proposed the need for Illinois to expand its tax base. When the Illinois General Assembly begins looking for new revenue lines, they will likely revisit the idea of taxing professional services. As recently as 2017, in the budget standoff between former Gov. Bruce Rauner and the Illinois House and Senate, the Senate passed a bill that taxed a number of consumer services. While that particular item did not pass the House then—instead, increased income tax rates for individuals and corporations were signed into law— a tax on services is likely to come up again now.

The services considered may be consumer services or professional services. Last summer, Chicago Mayor Lori Lightfoot talked about placing a value-added tax on large law firms and international accounting firms. In response, we established a coalition of stakeholders and pursued several strategic lines of effort to discourage any legislation to authorize a municipal professional services tax. We were successful—no such legislation was introduced. If such a proposal presents itself again, our advocacy processes are in place to represent the CPA profession.

My message is this: The extent of the damage that COVID-19 has inflicted on Illinois’ economy—and the nation’s—is yet unknown. Restarting the economy with the existing budget gap will present enormous challenges for all of us. The “Fair Tax” amendment is only the beginning of a long struggle to right the ship. Let us hope that the governor and the General Assembly will use this crisis to address the structural changes needed in state government with the delivery of services, public pension funding, and long-term budgeting processes.

COVID-19 has changed our lives, but during the worst of times, we see the best in people. We have learned to work remotely, using technology to do business and stay in touch. Healthcare professionals, at great risk to themselves, have worked tirelessly to provide care and compassion. Communities and neighbors have reached out to those in need, working with food banks, assisting their neighbors, and supporting local businesses. We are a resilient people. By working together, our state and country will emerge from the economic crisis. CPAs will play an important role, serving as essential strategic advisors to individuals, businesses, and the government, both in weathering COVID-19 and achieving long-term economic health.

But overcoming the current crisis and the long, tough road ahead depends on us continuing to work together and show our best selves. It reminds me of these words from General Dwight Eisenhower, issued upon the Allied victory in 1945: “[L]et us remind ourselves that our common problems of the immediate and distant future can best be solved in the same conceptions of cooperation and devotion to the cause....” Eisenhower’s call for cooperation in the wake of worldwide struggle is a reminder that together we can overcome the double-headed crisis before us.

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Author’s Note: This column includes my personal observations of the evolution of the legislative environment and are not necessarily the views of the Illinois CPA Society.