* Greg Hinz…
The Chicago Democrat said he’s also “looking seriously” at an idea from the Center for Tax & Budget Accountability to issue a large pension obligation bond issue and use it to pay down billions of dollars of pension debt more quickly than the state now is scheduled to do, hopefully saving money in the long run by paring interest costs.
Pritzker said many details will be resolved by his transition financial team, which includes former Illinois Comptroller Dan Hynes, Civic Federation President Laurence Msall, former Senate GOP Leader Christine Radogno and CTBA chief Ralph Martire.
Other early priorities will include raising the minimum wage to $15 an hour after a transition period, “lowering the cost of health care”—Pritzker has proposed allowing anyone to buy into the [Medicaid] system—and expanded aid for college students. Pritzker said the minimum-wage hike would include a feature designed to “relieve the burden on small business.”
Also on the list for “early in our administration”: a big capital program for roads, bridges, transit and related work. The new governor is under some pressure to raise gasoline taxes to pay for such work, but did not indicate where he would end up.
Pritzker floated the CTBA’s idea during the campaign, then backed away from it and is now floating it again. The CTBA’s plan proposes borrowing $11.2 billion over eight years. I guesstimated the average annual cost of that plan at $1.7 billion, but that can be altered to ease the first-year cost.
Raising the minimum wage over time will also drive up state government costs to pay for caregivers, university student workers, etc. It’ll be interesting to see how he intends to shield small businesses.
And, of course, a capital plan pretty much requires a new revenue source. Pritzker has talked about using marijuana tax money to pay for that, but he told Greg that, with the “artificial progressive income tax” off the table, pot money would likely be used to help balance the overall state budget. I figure a gas tax hike is probably the better bet for funding a capital plan, but one never knows.
…Adding… Our resident pension expert RNUG explains the CTBA proposal in comments…
Think a number of you are misunderstanding the plan. Here’s a homeowner example to put it in perspective.
Right now, we have an adjustable mortgage with steadily increasing payments and some balloon payments at the end. Because it started as a teaser rate, we aren’t even paying the full principal and interest payment; heck, we aren’t even covering the full interest payment.
What is being proposed is switching to a standard flat mortgage payment schedule. That will stop the debt from growing, which means the needed payments will stop increasing every year. But, and it is a BIG but, we need to start paying a lot more right now. So, to minimize the impact of the higher immediate payments, what is being proposed is to borrow the difference between the current payments and the new payments. This makes it possible to shift to the flat mortgage payment without a huge tax increase. You will still need a bit of money to switch, but that will be repaying the bonds over 20 (or whatever) years.
In the long run, it will save the State money. In the short term, it frees up NO existing money; all it does is stop future pension payments from taking cash away from other programs.
It’s not a bad thing, but all it really is is the first step on a 20 year journey.