Monday, May 12, 2008

Throw it into reverse

The Civic Federation lacks confidence in state leaders to rake in new cash and spend it wisely, which is partially why it withdrew its support of an income tax increase proposed last year.

The federation is a nonpartisan research body consisting of powerful corporate leaders in the Chicago area. It released a report today, reversing its position on a state income tax increase to generate new money to help pay down old and compounding debt.

“Last year, we supported a reasonable income tax increase if, and only if, it was tied to reform,” said Laurence Msall, president of the Civic Federation. He also serves on the Illinois Issues Advisory Board. “And some of those reforms would be very similar to what the Illinois General Assembly and the governor demanded of the Chicago Transit Authority, in terms of what they had to do before the state was support additional funding for them.”

Part of the Chicago Transit Authority deal negotiated in January included saving taxpayer dollars by increasing employee contribution rates, increasing the retirement age to 65 and shaving down health care benefits for future employees.

Last year, Msall said, the committee offered a modest income tax increase as an alternative to the Gov. Rod Blagojevich’s failed gross receipts tax on businesses. The recommendations started with momentum at the beginning of the year but deflated under a whole host of budget issues lasting throughout the year. And the legislature and the governor haven't shown signs of banding together behind reform any time soon.

“We have seen no evidence that there has been any serious effort, unlike three years ago when the governor stood up in a state budget address and said: ‘We have a big problem. We’re going to have to reform our pension benefit system,’” Msall said. “The General Assembly adopted only the most modest of those recommendations and then proceeded to take pension holidays, making the problem even worse.”

FYI: A special panel created by statute issued recommendations in 2005. You can read them here. Read more about the legislature’s pension holidays in Illinois Issues magazine here and in a state report here.

The Civic Federation's report says the governor’s proposed budget fails again to make “reasonable” payments to the pension system for public employees. As a result, the state’s compounding debt includes $44 billion in unfunded pension liabilities and another $24 billion in health care liabilities for retired state employees. Fun fact: That's about half of the state's entire budget.

The group also said it can’t support the governor’s proposed infrastructure program, which depends on privatizing the Illinois Lottery for an immediate influx of cash. The Civic Federation report said the proposal lacks a detailed plan for spending the money.

“There is no comprehensive improvement plan. There is a series of projects and lists,” Msall said. “You owe it to the public — and the General Assembly should demand — that they know what priorities are before they approve the extraordinary borrowing against the future revenue stream, which is what the lottery is.”

The governor’s budget office says the Illinois Board of Higher Education is responsible for evaluating and prioritizing its capital projects that would be included in a statewide infrastructure plan, and the state depends on a statutory formula for distributing capital funds for school construction projects. The Illinois Department of Transportation also has an extensive list of roads and bridges in need of repair, as well as a list for new roads and projects.

The Civic Federation’s overall message from last year still applies, however. The state should reduce, not increase, operating costs and new spending, which is why the group supports the governor’s proposals to cut most state agency budgets by 3 percent and to consolidate state agency functions to reduce administrative costs.

See “Shaky Business” in Illinois Issues, May 2007, to read about the business community’s support for a state income tax increase last year.

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