Wednesday, February 20, 2008

Budget breakdown

Old contents, new package
Gov. Rod Blagojevich’s grandiose budget proposals of the past made this year’s speech — his sixth since taking office — seem tame, almost conciliatory after last year’s political turmoil and gridlock. His new proposals remain focused on benefiting the middle class, this time with a one-time tax credit for families and businesses to help stimulate the economy, in addition to expanded health care. But Blagojevich’s overall package faces widespread skepticism about whether the funding sources for those tax credits and health care, along with other revenue ideas for education, pensions and infrastructure could fly in the legislature — let alone be good for the state down the road.

House Republican Leader Tom Cross of Oswego said if someone in the audience were from Mars and visiting Illinois for the first time, it might seem appealing — tax credits, health care and road and school construction projects. “It sounded good, and there may be something to it, but as you dive into the details, you’re going to see one-time revenues, you’re going to see borrowing, you’re going to see maybe a pension bond deal, you’re going to see a tax increase, you’re going to see corporate loopholes. More of the same, but talk about the devil in the details, it won’t be good.”

Overall support
Few, if any, came out in support of the entire package, although some aspects did receive positive feedback. Cross, for one, said he and the House GOP Caucus appreciate the governor’s proposals to further streamline government and to cut costs, but Cross said that alone wouldn’t solve the deep-rooted budget problems. The governor also has support from the Campaign for Better Health Care for the concept of universal health care. The Champaign-based nonprofit group backed the governor’s similar plan last year and issued a statement today that blames the General Assembly for failing to enact affordable, quality health care for all. The Chicago-based Illinois Coalition for Immigrant and Refugee Rights also issued a statement in support of the governor’s plan to dedicate significant amounts of money to citizenship services, English programs and other immigration-related initiatives.

The main argument among critics, including Republicans and business groups, is that the one-time tax breaks for families and businesses would be counteracted by a laundry list of other tax credits that the governor wants to erase. A lot of businesses also would be subject to a so-called payroll tax to pay for expanded health care. The GOP and the Illinois Chamber of Commerce lump those together to say the governor proposes more than $1 billion in tax increases for businesses.

Chamber president and chief executive officer Doug Whitley summed it up this way: “I’m glad that he’s finally recognizing that he needs to pay a little bit of attention to business, but as far as I’m concerned, he can keep that business tax credit, which is a one-time proposal. While on the other hand, he’s trying to raise over $1 billion annually from employers. That doesn’t make a lot of sense to me.”

Many agreed, however, that the governor seemed to adjust his tone for this speech. He even made fun of his extremely unpopular idea last year to enact a gross receipts tax on businesses by saying he had a better appreciation of Hank Williams’ lyrics, “I’m so lonesome I could cry.” While seeming to blame the House for not sending him a capital construction plan that passed the Senate last year, Blagojevich repeatedly called for lawmakers and the Democratic leaders, in particular, to put side their differences and nix the “poison pills.”

“A Republican president and a Democrat-controlled congress put aside their differences and came together to act quickly,” he said relating to federal tax cuts. “If Washington can do it, we can do it.”

An amiable tone is necessary if there’s any chance to avoid last year’s legislative purgatory that stretched 12 months. But, as Cross pointed out, lawmakers’ frustration isn’t just directed at the governor. They feel “hand cuffed” and angered by Democratic infighting among House Speaker Michael Madigan and Senate President Emil Jones Jr. that entangled numerous legislative agendas.

Today could have set the stage for a potentially shorter and smoother session. Yet there’s a lot to work out, considering that the governor’s budget proposal lacked details and failed to define exactly how he would divvy up new revenue. Comptroller Dan Hynes pointed out that while the governor’s not quite proposing another bombshell like a gross-receipts-tax, he still wants a major health care expansion, a $1.2 billion tax relief plan and a $16 billion pension bond scheme that increases the state’s debt by the same amount. Hynes’ question: How do we fund all these programs when even the governor acknowledges revenues are slowing, the economy is teetering on recession and the state already suffers from a structural deficit?

4 top legislative leaders
  • House Speaker Michael Madigan: Wants to prevent the “prolonged, acrimonious encore of last year.” He intends to vet the budget process more with a series of regional hearings, but he also has potential to slow down legislative progress with a new rule that all legislation needs additional language to spell out how to implement the new laws. Jones said that’s blatantly unconstitutional and problematic for the passage of legislation in his chamber.
  • Senate President Emil Jones Jr.: Supports the governor’s general plans but says he’s open to an income tax increase or a gaming expansion if lawmakers shore up enough support. He said his priority, interestingly, was to keep his caucus together, a huge problem last year.
  • House Minority Leader Tom Cross: Likes the notion of considering ways to cut government spending. But he’s skeptical of the long-term effect of selling a portion of the state lottery and losing an estimated $700 million each year. He says all members want a capital bill, and some still support gaming expansion as a funding source.
  • Senate Minority Leader Frank Watson: The governor can’t have it both ways by offering tax cuts and then increasing spending related to health care and Medicaid. Watson points to a potential revenue source of selling the state’s 10th casino license as a way to fund a state capital program. He’s wary of any tax policies that would further damage the state’s business climate.
What’s still out there
  • Gaming: The typical advocates of gaming expansions are still pushing for last year’s proposal to build two new riverboats and one new casino in Chicago, but as Democratic Sen. John Cullerton of Chicago said, “Gambling is like a Christmas tree. You keep on putting ornaments on there, and finally, it just falls over. It’s just so complicated.”
  • Income tax increase: The idea to change the way Illinois funds public education by increasing the state’s income tax and decreasing local property taxes is still breathing. It has new life in Sen. James Meeks’ legislation that also would use some of that money to pay for a capital plan. But the governor repeats his pledge not to sign an income tax increase.

Budget basics
Details are slim, but here’s the skeleton of Blagojevich’s general proposals:
  • Child tax credits: $300 tax credit per child for Illinois taxpayers who qualify for the federal tax break. Funding source: “Securitization” of state assets, or selling an existing revenue source to investors for a one-time influx of cash. The only specific example provided by the administration: Get an up-front payment from investors who buy the state’s portion of national tobacco settlement funds. The justification is that those funds are likely to decrease because the state has fewer smokers and has a statewide smoking ban.
  • Business tax breaks: $300 million in tax breaks — amounting to a 20 percent break — for businesses that filed corporate income taxes in Illinois for 2007 and that maintained employment levels. Funding source: Partially be paid for by “securitization” of a dwindling revenue source.
  • Health care: $417 million “Illinois Covered” health care plan. Funding source: 3 percent payroll tax on businesses with more than 10 employees (this is very similar to his proposal last year).
  • Education: $300 million increase for education, but it would be up to the legislature to hash out where the money would go in the education system. Funding source: Selling 80 percent of the Illinois Lottery for $7 billion.
  • Infrastructure: $25 billion capital plan with money for schools, roads, bridges, mass transit, airports, railways, energy and technology, economic development and state buildings. Funding source: selling 80 percent of the Illinois Lottery and by issuing $3.8 billion in bonds. The debt service would come from annual transfers from the Road Fund.
  • Pensions: $16 billion pension obligations bonds (borrowing/refinancing debt) to pay down pensions and to save money from a lower interest rate. Funding source: Partially by selling the Illinois Lottery and by transferring $300 million each year from the Road Fund and other sources.
Other revenue proposals
  • Gaming tax: Increase gaming tax rates (on riverboats) on a sliding scale, generating $300 million
  • New casino/riverboat: Accept bids on the dormant 10th gaming license for an up-front $575 million; once online, the new casino also would generate money for the state each year.
  • Fund transfers: Take back excess money from special purpose funds and “charge” them for cost of administering those funds, generating $95 million.
  • Corporate “loopholes”: End a laundry list of tax breaks for businesses, generating $140 million.
  • State employee head count/streamline: Don’t replace employees who retire or quit, and continue to consolidate administrative functions.
  • Sell more state assets: Sell state buildings that are or will be vacant, generating $40 million.

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