The governor's "moral imperative"

Gov. Rod Blagojevich proposed levying new taxes and floating bonds pay for his spending plans, particularly “universal health care,” education and pension obligations. Here’s the breakdown. Reaction from legislators and groups from around the state will come in the next blog.

Taxes
Governor: “This will ease the burden on the middle class and force big corporations to start paying their fair share.”

Businesses aren’t so excited about the new taxes, one of which — the gross receipts tax — would tax every Illinois-based business input as it goes through the distribution chain. Think of it in terms of two key factors — how many steps are in the supply chain and how many of those steps happen in Illinois — says Tom Johnson, president of the Taxpayers’ Federation of Illinois. (See his highlights of the budget here.) While the governor says five other states tax business’ gross receipts, Johnson says the governor’s plan as it would be applied could make Illinois unique and, therefore, at risk of losing a competitive edge.

The governor’s tax idea, expected to net of $6 billion a year, would eliminate the corporate income tax and phase in a tax on business’ gross receipts. That’s an alternative to expanding the state sales tax to such services as haircuts and car repairs. Some lawmakers and education groups prefer the sales tax expansion as a way to reform education funding and to relieve the burden on property taxpayers.

John Filan, the former budget director and current chief executive officer for the state, said Tuesday night that a gross receipts tax would be “less onerous” than an expanded sales tax because it’s broad-based and low-rate. However, Johnson says the gross receipts tax is not as low-rate as it seems on the surface, and there’s a risk that businesses would move part of their supply chains out of state to avoid the tax. “Companies that don’t make a profit would have a liability they didn’t have before,” he said last week at a Statehouse press briefing.

The other tax that’s likely to raise opposition, particularly among small businesses, is a 3 percent tax if employers don’t offer comprehensive health benefits to employees. The so-called payroll tax is expected to generate $1 billion a year, which the governor would use to help fund his new $2.1 billion health care program.

Health care
Governor: “First, we will cover the 1.4 million uninsured adults in Illinois. Second, we will help provide assistance to middle-class families so they can get, keep and afford the health care they need. Third, we will help small businesses pay for health insurance for their workers.”

Illinois Covered offers three types of plans. One gives state subsidies to help people pay for their private insurance plans if they don’t get medical benefits through their employers. Another offers rebates to help individuals or families pay their monthly insurance premiums if they have employer-based plans. And a third expands the public aid program FamilyCare for single adults who have children or for families with incomes at 400 percent of the federal poverty level ($80,000 a year for a family of four).

And businesses that have more than 10 employees and that don’t pay for at least 70 percent of employees’ health benefits will be assessed a 3 percent tax on their total payroll.

Education
Governor: “Ten billion new dollars [over four years] will help relieve the pressure on local property taxes and finally bring an end to the savage inequality in how we fund our schools.”

For fiscal year 2008 that starts July 1, he proposes spending $1.5 billion on education. Some of that money would increase the state minimum spent per student by $686, bringing the minimum to $6,020. Students would have more options for after-school tutoring, and the school year and school day would be extended.

He also would increase the reimbursement rate for special education teachers for the first time in 20 years.

Early childhood education would get $70 million to expand state-sponsored preschool for children of low- and middle-income families and $10 million for all-day kindergarten.

Teachers would have access to statewide mentoring programs and have incentives to work in schools with limited resources and poor test scores. The governor proposes working with teachers’ unions to develop “merit-based pay,” which would reward teachers whose students meet federal testing standards.

But perhaps most important to hundreds of districts that have been on a waiting for state capital funds to build new schools or do maintenance projects, the governor proposes $1.5 billion over three years for school construction.

Pensions
Governor: “Our plan will free up an asset like the [Illinois] Lottery, lease it, generate $10 to $12 billion and put that toward our pension obligation. That, along with another pension bond refinancing, will put an infusion of $26 billion into the system and bring down our liability from $41 billion to $15 billion.”

He wants to float $16 billion in pension obligation bonds and rely on $10 billion from leasing the Illinois Lottery. Filan says paying down the pension debt from $41 billion to $15 billion would require less drastic increases in the state’s annual pension contributions. He says increased investment returns would help pay off the debt.

Ginger Ostro, the governor’s budget director, adds private operators could run the lottery more efficiently because they’re more nimble and can respond better to the market.

Watch list
What wasn’t on the governor’s list of revenue ideas was an expansion of gaming. Instead, his administration is proposing a new renewal fee on gaming licenses. Meanwhile, state Rep. Lou Lang, a Skokie Democrat, has sponsored legislation to create four new casinos in the Chicago area. See more reaction in the next blog.

Watch for legislation that would consolidate some of the state’s 621 special funds dedicated for such services as youth alcoholism and substance abuse and veterans’ rehabilitation. As with other governors, Blagojevich has swept some surpluses of the funds to pad the state’s main checkbook called the general revenue fund. Some of those funds could be merged into the general revenue fund to shore up the state’s “rainy day” fund.