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Tribune catches up on tax/bond story - Plus, an Illinois TABOR?

Tuesday, Dec 28, 2010

* I told subscribers about this general idea a week or so ago. But I don’t think that the one-year plan being reported today in the Trib is actually what’s going on

As the state’s stack of unpaid bills grows, Gov. Pat Quinn is floating the idea of borrowing roughly $15 billion to alleviate the pressure, though taxpayers would be saddled with loan payments for years.

The governor has approached several lawmakers with a plan he’s dubbed a “debt bond.” While the name is somewhat redundant, the thinking is the state can pay back what it owes and plug its big budget hole — if only for a year.

A one-year “solution” would be a genuinely stupid move if true. So I really don’t think it is true.

The state has to solve two problems here. The first is the structural deficit, which is about half of the $13-15 billion in red ink. For that, you need recurring revenues. A one-off loan won’t do anything about those recurring problems. The second task is the pile of past due bills, which is roughly about another half. That’s the part which can be taken care of with a bond. If you just borrowed $15 billion and didn’t raise revenues above and beyond the debt payments to wipe out the structural deficit (or use cuts in tandem to eliminate it), you’d be right back to square one in a year. Like I said, it would be stupid. And that’s why I don’t think this is a one-off plan. They may borrow $15 billion (last week, it was more like $9 billion, but things do change), but they also need to get rid of this structural deficit to prevent more past-due bills from piling up again.

Paying for any plan will require a tax hike…

The most conventional source of money to repay the loan — an income tax increase — is also the most controversial. House Speaker Michael Madigan has been polling his Democrats on a variety of tax-hike options to gauge which might have a chance of passing. The scenarios include theoretical tax increases that would be billed as temporary or permanent and range from 1 to 2 percentage points.

As subscribers know, Madigan recently moved in the direction of one of those tax hike plans. But, as I always warn, things do change, and nothing is final yet…

Publicly, Quinn is sticking by his proposed 1-percentage-point income tax increase, which he has dubbed a “surcharge for education.” Privately, the governor has discussed with lawmakers dividing the money generated from a tax increase between schools and the state’s general revenue fund. […]

For his part, Quinn said he continues to work on creating a “comprehensive revenue package.” Quinn supports raising taxes on cigarettes by up to $1 a pack and has indicated to some legislators that he could be coming around the idea of raising the gasoline tax — a move he previously has opposed.

* Meanwhile, my syndicated newspaper column looks at some of the changes ahead

Organized labor is engaged in a furious multifront legislative war in Illinois, and more skirmishes may be on the horizon.

Trade and industrial unions are hoping to mitigate major damage from proposed workers compensation reforms. Teacher unions are trying to fend off what they consider to be some egregious education reforms. And public employee unions are warily eyeing a potential new battle against a well-known foe that their counterparts in other states have had to face in the recent past. Looking at the battlefield right now, you’d probably never know that Illinois Democrats held onto power in last month’s elections.

The House appears to be taking the more radically conservative approach, but the Democratic Senate president is determined to pass some form of workers compensation reform before the current General Assembly wraps up business in early January. The same unions that pumped hundreds of thousands of dollars into Senate campaigns are now fighting the very people they helped re-elect just a few short weeks ago.

The teacher unions are preparing scorched earth tactics for the House’s education reform bill, which they say will all but take away their right to strike, severely limit their collective bargaining powers and impose new state standards for firing or laying off teachers.

The union focus lately has turned toward a proposed constitutional amendment in the House for a so-called “Taxpayers Bill of Rights,” or TABOR, as it’s more commonly known around the nation. The proposal was quietly introduced during the veto session by Rep. Keith Farnham (D-Elgin), who also is backing the education reforms.

The measure would limit state spending to the previous year’s levels plus the average percentage increase (or decrease) of per capita personal income over the previous five years. Any spending above that would require a declaration of a fiscal emergency by the governor and a three-fifths vote in both chambers of the General Assembly. Any “extra” money would be placed in a rainy day fund or given back to taxpayers.

While House Speaker Michael Madigan’s position is not officially known, the unions have convinced themselves that Madigan will push it next month when the lame duck session resumes. Colorado’s TABOR required voter approval before spending or taxes could rise and was twice watered down in referendum voting. Attempts at passing similar proposals have failed in other states. Illinois may be the only state where a TABOR has Democratic backing.

The assault on public employee unions and government spending is not confined to Illinois, of course. Several other states are considering legislation to undermine the unions. Wisconsin’s new Republican governor-elect wants to get rid of collective bargaining rights for public workers. And New York’s Democratic governor-elect, Andrew Cuomo, has demanded a wage freeze from state employee unions and hinted at major layoffs if he doesn’t get what he wants. Cuomo also wants pension reform, teacher wage cuts and a 2 percent local property tax cap.

The Illinois Senate has been far less receptive to the House’s education reforms and likely will not love the Taxpayers Bill of Rights if it arrives. But the unions point to the big majorities for pension givebacks this year in both chambers and the Senate’s push for business-backed workers compensation and Medicaid reforms, so they aren’t taking any chances.

Unlike New York, where Cuomo courted trade unions during the campaign and tended to ignore the public employee/teachers unions, Gov. Pat Quinn heavily courted all sectors of organized labor and received gigantic contributions from pretty much everybody. Quinn, the unions believe, could be the ultimate “stopper.”

But if these and potentially other reforms are used by legislative Democrats to pry loose Republican votes for a tax hike, Quinn may have no choice but to climb on board and bite the hands which fed him so well this year.

So far, the House Republicans appear to be a bit more receptive to Democratic outreach than they were even a few weeks ago. The odds are still stacked against it, but if the Democrats keep moving rightward, the Republicans might (emphasis on “might”) possibly release a few votes for a tax hike.

* Related…

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- Posted by Rich Miller        

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