* Greg Hinz…

A top political operative with ties on both sides of the aisle is shopping a big-picture compromise plan to resolve Illinois’ budget war, and while it includes something to offend almost every interest group, its author says it’s received at least some positive feedback from Springfield powers.

The plan comes from Greg Goldner, a former campaign manager for ex-Mayor Richard M. Daley and then-Congressman Rahm Emanuel whom some in Springfield nonetheless consider a front for GOP Gov. Bruce Rauner, even though he now runs the well-funded Democratic group Illinoisans for Growth and Opportunity.

The proposal, quietly discussed with political leaders in recent days, calls for an increase in the state income tax, extension of the sales tax to cover more services and a tax on some form of retirement income. […]

I won’t be surprised if Madigan balks, particularly since the speaker has personally accused Goldner of preparing to field candidates against Democrats in the upcoming primary.

Goldner denies doing that, at least so far. “We have not recruited candidates—to date,” he put it.

It’s not a horrible plan (from what I can gather, the revenue stuff looks very much like a bipartisan proposal by mostly female legislators which went nowhere when the governor turned thumbs down), but it has the worst possible supporter considering the times. Despite what Goldner claims about his candidate recruitment, he might as well just let Ken Dunkin sponsor his bill. Sheesh.

* Most of the dot points…

INCREASE REVENUES, CUT SPENDING & LIMIT GROWTH […]

• Increase the Personal Income Tax. +$3.3B/YR Increasing the personal income tax rate to 4.75% from the current level of 3.75% would generate roughly $3.3 billion in additional net revenue per year. Assuming passage of a bill before the end of the taxable year, this tax should be applied retroactively from July 1, 2015, for FY 2016. While the Civic Federation recommends 4.25%, given the massive scale of the problems for FY 2016 due to the failure to pass a budget, this rate would be insufficient at this time. [Center for Tax and Budget Accountability, 9/09/15]

• Increase the Earned Income Tax Credit to Offset Broad Tax Increases. -$136M/YR To offset the regressive impact of higher income tax rates and a broader sales tax on low income residents, the state should gradually increase its Earned Income Tax Credit to 15% of the federal amount by FY 2018 from the current 10%. Using the estimated FY 2016 federal EITC of $2.7 billion, increasing the state EITC by five percentage points would cost approximately $136 million in addition to the current credit.

• Increase the Corporate Income Tax to 5.75%. +350M/YR Increasing the corporate tax from its current 5.25% to 5.75% would bring in an additional $350 million a year. The tax should be applied retroactively from July 1, 2015, for FY 2016.

• Maintain the Local Distributive Share Rate at 8% (Personal) and 9.14% (Corporate) After the Tax Increases. -$296M/YR Keep the portion of the state personal income tax for local governments at 8% and the corporate income tax at 9.14%, the current allocations through the Local Government Distributive Fund (LGDF), after the tax increases. In 2011, the local distributive share was held constant, despite the income tax increase. The City of Chicago estimated that it would have received more than $400 million in total additional revenues if local governments had not been excluded from sharing in increased income tax revenues from 2011 until 2015. Under a 4.75% tax rate, preserving this 8% and 9.14% shares for local governments would generate an additional $296 million for local governments beyond current levels.

• Eliminate Corporate Loopholes. +$400M/YR Limiting EDGE tax credits, eliminating tax breaks for companies investing out of state by decoupling Illinois’s exemption from the federal domestic production deduction, taxing income held offshore as domestic income, taxing companies in Illinois for offshore drilling, and closing accounting loopholes like requiring combined reporting would generate $400 million a year.

• Expand the Sales Tax to Consumer Services. +$2.1B/YR Illinois ranks last among the 45 states that levy a sales tax on services in the number of service industries it taxes. Expanding the sales tax base to include consumer services - while continuing to exclude professional and business-to-business services - would generate nearly $2.1 billion more. This would also increase funding to local governments by an additional $529 million, as 1.25% of the purchase price collected is distributed to local governments. B2B transactions are excluded because they encourage “tax pyramiding,” while only six of 45 states tax any professional services, as it is complicated and cumbersome to do so.

• Immediately Cut $1 Billion from Expenditures. -$1.7B While Moody’s recommends $1.7 billion of expenditure cuts for FY 2016, less than half the $3.7 billion of savings in the governor’s proposed budget that were not related to employee benefit reductions, $1 billion is more practical immediate goal. Cuts should hold harmless education funding and funding for human service providers, which was not funded through a mandatory appropriation or court order, and thus have already been subject to massive cuts, the failure to receive due payments, and uncertainty for FY 2016.

• Restrict Discretionary Spending Growth. +$260M/YR The state should restrict discretionary spending growth from the 2.7% level shown in its three-year projections to 2.0%, closer to the rate of inflation. This could reduce total state spending by $1.3 billion over five years. Funding for K-12 education should not be subject to mandatory cuts.

• License Chicago to Operate a Casino. +$200M/YR The state should license the City of Chicago to operate its own casino, with proceeds earmarked to pay for City pensions. The casino would also generate $200 million in gambling taxes for the state.

INVEST IN EDUCATION […]

• Increase State K-12 Education Funding With Revenues from a Retirement Tax and Commit to Reforms. Numerous studies have ranked Illinois last, or nearly last nationally in state education funding. According to statistics compiled by the National Education Association, in 2013-2014 the average portion received from the state to fund K-12 schools was 46.4%, whereas Illinois provided only 19.6% of total funding. The U.S. Census reports that on average, U.S. states provide $5,650 per student on education, while Illinois provides only $5,021. Increasing education funding from the state by $1.05 billion from a retirement tax would not even put Illinois as “middle of the pack,” but is a good start.

• Tax Some Retirement Income to Benefit K-12 Education. $1.05B/YR (revenue neutral) Illinois is one of only five states with an income tax that does not tax any retirement income. This tax base would also expand over time at a higher rate than regular income. Eliminating the full deduction for retirement income on a graduated basis for adjusted gross incomes over $50,000 would raise $1.05 billion in new revenue at a 4.75% income tax rate, while protecting low and fixed income seniors. The whole of this tax should go to education.

• Reform Education Funding to Make the System Fair. Illinois has the most unfair school funding system in the nation, with students living in poverty receiving nearly twenty percent less than more affluent students. A single, fair, and need-based funding formula should replace the current opaque and complex system, which has not updated since 1997. A bipartisan committee will study how best to develop a new system for school funding for two years, while at the end of those two years, the existing and outdated GSA formula would be abolished.

• Provide Relief for Chicago Public Schools and Create School District Mandate Parity. -$200M/YR over 2 YRS Require the state to pick up the $200 million annual “normal costs” of Chicago teachers’ pensions for two years, at which time the state-wide education funding reform process will consider the future treatment of Chicago Teacher’s Pension Fund. School districts comprise approximately 60 percent of an Illinois property tax bill. In addition to increasing public support for schools, all districts should be given the relief from mandates that the City of Chicago has been given, to achieve savings for taxpayers and improve outcomes for children. Repealing the statute that severely restricts third-party contracting and providing schools relief from other unfunded mandates will free up additional resources to invest in the classroom.

IMPROVE GOVERNMENT OPERATIONS AND INSTITUTE REFORMS […]

• Pass the Cullerton Pension Reform Plan. +$1B/YR State workers should choose between two options: keep the 3% annual compounded interest on cost-of-living adjustments (COLAs) and give up the ability to count pay raises toward pensions or continue counting salary increases toward pensions and take a decreased, non-compounded COLA. This will generate an estimated $1 billion in savings a year. [Chicago Tribune, 5/13/15]

• Study the Consolidation of Local Pension Funds. Because state law requires municipalities of 5,000+ residents to create employee pension funds, Illinois has more than 600 individual, locally-controlled pension funds for cops and firefighters outside the city of Chicago. Consolidating these funds across Illinois can save money on administrative costs, similar to the way municipal workers’ retirements are structured. [WBEZ, 5/12/14; CGFA Report, January 2013; Msall, Chicago Tribune, 9/17/15]

• Create a Realistic Repayment Timeline for the State’s Five Pension Funds. For years, state legislators borrowed against what was owed to the pension systems to subsidize operating expenses. This practice became law and established a “Pension Ramp” that provided for an “incredibly back loaded repayment schedule, which grew in unattainable, unaffordable annual increments.” The current repayment schedule, arbitrarily established by Springfield, is unsustainable and unaffordable. While borrowing and pension holidays in part created this mess and are not the answer, the state must create a new, realistic repayment timeline as it is obligated by the Constitution to pay for its pension commitment. There are excess revenues in this plan that should be devoted to appropriate legacy pension debt payment, as determined by legislative action. [Center for Tax and Budget Accountability, 9/09/15]

• Create a Realistic Repayment Timeline for Fire and Police Pension Funds Across Illinois. Locally controlled police and fire pension payment schedules were also arbitrarily dictated by the General Assembly, including the City of Chicago and Cook County. Legislators should reconsider these schedules, as in the bill passed by the General Assembly this session that deferred from 2040 to 2055 the date by which the police and fire funds must have at least 90 percent of the assets needed to pay promised retirement benefits.

• Increase the State’s Minimum Wage. Increase the state minimum wage to $11 an hour by 2019. The minimum wage would increase to $9 immediately, with the wage go up by 50 cents annually until it hits $11 in 2019.

• Reform Workers Compensation in a Bipartisan Manner. -$300M/YR The Illinois workers compensation system ranks the seventh most expensive in the country by the Oregon Department of Consumer and Business Services study, indicating the need for further reform. To control costs, the state should look at tighter causation definitions and applying the rates of reimbursement recommended by the AMA. Reform would save the state roughly $300 million per year on its own expenses. […]

• Reform the Collective Bargaining Scope for Public Employees. The state should reform our collective bargaining laws, allowing units of government to curb rising public employee costs by limiting collective bargaining for specific personnel issues, including health benefits and work rules.

Discuss.