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The big gamble that failed

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Illinois

* My weekly syndicated newspaper column…

“What if” games are never quite accurate, but I don’t think it’s a stretch to say that Gov. J.B. Pritzker had the opportunity, and most probably the votes, to balance the state budget with an income tax hike during 2019, his “honeymoon” year with the General Assembly.

Instead, the governor came into office and proposed what was essentially a pension payment holiday and other magic budgetary solutions.

I was told in early 2019 by a high-level administration figure with influence over the budget that the Pritzker administration would not take the “easy” route of raising taxes and wanted to instead focus on the “hard” choices.

But hiking the flat tax to balance the budget ahead of a hoped-for 2020 change to the state Constitution to allow for a graduated income tax would not have been the “easy” route. A pension holiday was the easiest route he could’ve possibly taken. There was nothing “hard” about that, except for convincing legislators that shorting the pension funds was the right thing to do.

Pritzker’s budget was eventually saved by an unexpected tax receipt boost in the spring which eliminated the immediate need for a pension holiday, budget cuts or a new revenue infusion.

And then came 2020, the mother of all lousy years.

The international pandemic has punched all states and local governments in the fiscal gut. But the lack of preparedness hit Illinois even harder.

The state’s current revenue situation isn’t that bad in comparison to last fiscal year, partly because the state income tax filing deadline was moved from April to July, which is in the current fiscal year.

But because the governor’s Fair Tax failed, and because the current fiscal year’s budget depended upon those new revenues plus a nearly $5 billion federal bailout from the federal government, the state budget office last month projected a $3.9 billion deficit for the current fiscal year, which is now almost half over.

The immediate deficit projection has been lowered by $2 billion because the state is borrowing that money from the Federal Reserve, less than half the $5 billion it was eligible to receive.

That borrowing leaves the state with a $1.9 billion or so hole to fill by June 30, and Pritzker outlined $711 million in unilateral cuts last week.

$75 million of those reductions relies on an agreement with AFSCME, and the union appeared to reject the notion out of hand. Bruce Rauner’s attempt to wipe AFSCME out of existence backfired so badly that the union has been strengthened to the point where even asking for minor concessions is beyond difficult.

The governor pointed to the failure of his Fair Tax proposal as a big reason for the need to make cuts, and AFSCME countered by saying it was also all-in on the graduated income tax. But while Democratic presidential candidate Joe Biden lost Sangamon County to President Donald Trump by just 4.3 percentage points (way down from Trump’s 9-point winning margin in 2016), the Fair Tax lost AFSCME’s home-base county by a whopping 26 points.

Heckuva job.

We can’t go back and change history and it’s often maddening to engage in the exercise. But, if the governor had just done the responsible thing in 2019 and used a flat tax hike to balance the budget when he could’ve drawn on an almost infinitely deep well of goodwill among his super-majority legislature, we wouldn’t be in nearly this mess right now. And he could’ve then painted the 2020 constitutional amendment vote as a very real and substantial income tax cut for 97% of the populace instead of the few dollars he ended up promising.

I’m only writing this now because when I laid out this very scenario in an early 2019 meeting with that high-level Pritzker person who has significant budget influence, I was laughed at and waved off with “We’re not taking the easy way out with a tax increase, Rich.”

Also, the governor said that he’ll need the General Assembly’s cooperation to make more cuts than the $711 million he outlined. That’s not totally true. Under Rauner, the vast majority of the state’s budget was put on auto-pilot, either by statute or by judges. A big chunk of that money falls under various consent decrees entered into by the state. The administration could attempt to change those consent decrees without any help from the legislature.

But doing so would bring enormous heat on the governor because those consent decrees involve things like minimum funding and staffing levels for the state’s care of children.

posted by Rich Miller
Monday, Dec 21, 20 @ 9:14 am

Comments

your gop is showing

Comment by sal-says Monday, Dec 21, 20 @ 9:23 am
Why do you think Madigan would have agreed to a tax increase then with FT on horizon? Why do you think a flat increase would have INCREASED the odds of FairTax passing? I think it craters it from the beginning.

Comment by Rob Jones Monday, Dec 21, 20 @ 9:32 am
Spot on. Should have raised taxes to fill the hole and THEN credibly argue that 97% of the state will see their taxes reduced with a graduated tax system.

Comment by BeenThereDoneThat Monday, Dec 21, 20 @ 9:39 am
AFSCME siding with the governor on the graduated tax does not suddenly make them immune from paying the price for its failure. There are some hard choices and cuts ahead. Almost all the supporters of the graduated tax are going to feel it.

Comment by Bothanspy Monday, Dec 21, 20 @ 9:40 am
If the unions won’t take furloughs- can’t JB just issue layoffs instead? What would the drawback be? Lose union support and they back another candidate? Wouldn’t that make them look like the bad guy in eyes of the people? They can’t work with Rauner and they can’t work with JB- maybe they are the problem? It’s an easy spin.

Comment by Alice Monday, Dec 21, 20 @ 9:40 am
The only way out of the budget hole is to raise the income tax rate in 2021. There are no easy choices left.

Comment by Chicagonk Monday, Dec 21, 20 @ 9:43 am
Evidently collecting sales taxes on “on-line” purchases hasn’t generated all that much new revenue?

Comment by Siualum Monday, Dec 21, 20 @ 9:44 am
Rich. Well written.
There are no magic pills left.

Comment by Blue Dog Dem Monday, Dec 21, 20 @ 9:47 am
== Evidently collecting sales taxes on “on-line” purchases hasn’t generated all that much new revenue? ==

The State was kinda, sorta getting that money already if people properly filled out the Use Tax line almost at the end of their IL-1040.

Comment by RNUG Monday, Dec 21, 20 @ 9:49 am
Said it before, say it again.

Pritzker will decimate the state employee industry in southern Illinois with closures.
Didn’t have their support in 2018, didn’t have their support for the Fair Tax.
With very little to lose, those GOP state employees are about to find out what “running government like a business” truly means.

Comment by Flyin' Elvis'-Utah Chapter Monday, Dec 21, 20 @ 9:51 am
Gov Pritzker may have a financial challenge in 2021, but he also has a once-a-lifetime opportunity, in a State at war with a plague, with a post-war world beckoning whose attitudes will be vastly changed (and which no amt of “dark money” or billionaire money can stop). Think the 1910s, when the Gilded Age was weakened by trust-busting, then sunk with the Titanic, and blasted away with WWI, culminating with the Federal income tax.

Comment by Ares Monday, Dec 21, 20 @ 9:57 am
More pension holidays, more borrowing, more cuts, and a significantly higher income tax are all coming soon.

If they choose to get all the needed revenue from just the income tax, look for it to be raised to between 7% and 7.5% with a standard deduction of maybe $25,000 to offset the tax increase on the lower incomes.

Comment by RNUG Monday, Dec 21, 20 @ 9:58 am
Lost in all the chatter about why the “Fair Tax” failed is the clear fact that a clear majority of “Ignorants” as described on this venue voted to say we don’t want to continue the insanity of tax increases that will solve the state’s problems….never do….. as increased spending eats up the new revenues…..then it’s time for another round of fees and tax increases.

If the assumption is that state spending as of today is always the starting point then plan on a tax increase every 5 or 6 years till there are no taxpayers left to participate

Comment by Mad Hatter Monday, Dec 21, 20 @ 10:00 am
Great read, Rich.

To the post,

The Fair Tax Flop, getting owned on messaging, sitting on $50+ million from July 3rd on, even waiting from the passage to July 3rd before the dump of the $50+ million…

For me, I never fully understood how you gamble on this Fair Tax, and then give up every single advantage they had (time, money, message, open playing field) and the flat out gamble it was backing on this to pass… while doing very little or nothing for weeks and weeks and weeks.

This is the very same Pritzker Crew that spent $300,000… a day… every day… for 430+ days.

It’s like a football team built to run the football deciding that’s not “who they are” and have a game plan philosophically against what makes them successful.

I dwell on this; they parked the $50 million plus, only to run out of time to tool a message to counter the $48+ million the anti-fair tax folks used brilliantly to “educate” an electorate not fully engaged with the message for the fair tax.

This is all being done… while this Fair Tax Flop would mean severe pain, a reassessment of the next two years of this term, and the re-election now will be based on the severe pain and cuts needed by not leaving it all in the field for the gamble of this constitutional amendment.

The pain, however, and must me now, should be downstate, the tax eaters, the folks that are going to be so unwilling to help in the legislature to make pointed, exacting, piercingly specific cuts to cause the least pain.

The governor has the levers to force a rethinking to help the state which means helping their region. It would be foolish, at this point after so many missteps and poor choices to not decide to make the specific point to pain towards downstate.

The governor needs to face the reality of this Fair Tax Flop now dictates some, not all, political and partisan leverage to the pain, as Rauner ironically did and tried with “no budget” fir a whole General Assembly, two years.

I know where money can be gotten, not because of astute budgetary knowledge, but as Rich pointed out, we all learned what is protected and required to be paid in a budget, and where (like higher ed) you can decide to flat out not pay it at all… and legislators are good with higher ed not being fully funded, as an example, I have the receipts.

Use those real governing levers, governor, with that partisan and political bend, and maybe you can leverage some votes… it didn’t work for Rauner, but you can cobble 60 and 30 from legislators that won’t feel the necessary pain at levels other will… remind them of that… often.

Comment by Oswego Willy Monday, Dec 21, 20 @ 10:02 am
===If the unions won’t take furloughs- can’t JB just issue layoffs instead?===

A previous contract stipulated that contractors/consultants filling staff positions would be let go (contracts cancelled) before layoffs happen. Not sure if that language is in the current contract.

Comment by From DaZoo Monday, Dec 21, 20 @ 10:05 am
I really think they need to come up with some sort of revenue and spending structure that reflects the realities both of the vote and of our situation. This would involve means-testing revenue-sharing with local government, which would reduce assistance to very wealthy pockets of the Chicago metro that voted against the tax and give them the spending cuts they asked for, along with rebalancing formula-based spending to a much more strictly population-based formula, which would provide rural areas that opposed it with what they voted for–namely, more spending cuts.

Comment by Angry Chicagoan Monday, Dec 21, 20 @ 10:08 am
===… a clear majority of “Ignorants” as described on this venue voted to say we don’t want to continue the insanity of tax increases that will solve the state’s problems…===

Aw.

You’re ignoring the misinformation, like the Frerichs Tax, taxing retirement income, which wasn’t on the ballot, or how taxes are voted in and raised…

You know that, but you ignore that.

The governor, with time and money lost all advantages, got schooled on the messaging, and ran out of time to saturate and message trey felt the may have needed.

If you’re gonna leave the state too, leave already.

Comment by Oswego Willy Monday, Dec 21, 20 @ 10:10 am
==there are no magic pills left==

I’d argue there never were any, and the reliance on magical solutions by both parties and both branches (exec and leg) in the past has resulted in an illness whose symptoms include inability to complete basic math problems.

I don’t totally agree with the premise that a flat tax increase would have been an “easy” path in year one, though both Rich and the person in the administration seem to think it was. Given who it most impacts (poor people) it is jarring to see a flat tax increase referred to as the easy way out. While it’s possible that would have paved the way for a successful fair tax campaign, it might also have sucked all the good will and gumption out of the chamber leaving nothing left for the minimum wage increase, cannabis, and capital.

It’s also not totally fair, in my opinion, to say the executive branch can attempt to change consent decrees as a way to manage costs. The consent decrees require certain costs to be maintained because the basic rights of people depend on it. One of the Rauner administration’s big things was “getting out from under consent decrees.” They meant they didn’t want to pay for them anymore. But getting out from under consent decrees actually means spending the money on and then providing the services without being compelled to do so by a court. That doesn’t cost less, and if you get out of the consent decrees and then spend less you’re going to find yourself right back in court.

But regardless, here we are. Math is and always has been math no matter who is in charge. I’ll be looking to both parties and both chambers of the legislature to lay out the cuts they are looking to make and the new revenue sources they are hoping to tap into. After all, they do the appropriating. They’ve had many years to consider this, so I’m sure those lists will be out shortly.

Comment by Who else Monday, Dec 21, 20 @ 10:11 am
AFSCME supported a plan that would have cut taxes on the vast majority and brought in more revenue to offset some or all cuts. State workers should not have to pay for its failure and have no incentive to accept cuts.

Some lessons need to be learned, particularly to not believe non-rich people shilling for tax-hating right wing billionaires, like those in the Vote No commercials. You passed up an opportunity to give less of your money to Springfield because you believed a graduated income tax would cause you to pay more money to Springfield, and now guess what, you’re still gonna give more money to Springfield, and maybe even more than that, with a flat tax hike. Elections have consequences.

Comment by Grandson of Man Monday, Dec 21, 20 @ 10:12 am
==$75 million of those reductions relies on an agreement with AFSCME, and the union appeared to reject the notion out of hand. Bruce Rauner’s attempt to wipe AFSCME out of existence backfired so badly that the union has been strengthened to the point where even asking for minor concessions is beyond difficult.== Do not forget that the union tried to help back when Quinn came to them for pay increase deferrals during his financial crisis. After convincing the membership to vote for these contract revisions, Quinn refused to allow the agreed upon raises to go through for certain agencies at the agreed upon time. This more than anything has made AFSCME extremely hesitant to trust any accord with any administration.

Comment by Gracchus Monday, Dec 21, 20 @ 10:15 am
==balance the state budget with an income tax hike during 2019==

What was the proposed rate hike in 2019? The projected revenue shortfall back then was $1.5 billion, which would’ve meant a little over a quarter of one percent increase rate hike was needed to cover the deficit, or a resulting 5.3% rate. I suppose every bit helps, but I’m not sure that would’ve moved the needle much on the Fair Tax.

Comment by City Zen Monday, Dec 21, 20 @ 10:28 am
@- RNUG - Monday, Dec 21, 20 @ 9:49 am:

== Evidently collecting sales taxes on “on-line” purchases hasn’t generated all that much new revenue? ==

===The State was kinda, sorta getting that money already if people properly filled out the Use Tax line almost at the end of their IL-1040.===

I used to pay the use tax, before Amazon started collecting sales tax. I pay sales tax on everything now, so I no longer owe or pay the use tax. The result for me is about the same total paid to the state.

Comment by DuPage Monday, Dec 21, 20 @ 10:39 am
I like terming it ‘The Fair Tax Flop’. The messaging was horrible, yet to my knowledge- no one has lost their job as a result of doing that job so poorly. You can’t raise taxes during a pandemic, unless you are surrendering your political future.

Comment by Lincoln Lad Monday, Dec 21, 20 @ 10:44 am
The people who vote for less revenue and cuts should be the first to get cuts. Pritzker ought to honor the will of the people and cut the GOP parts of the state first.

Comment by Grandson of Man Monday, Dec 21, 20 @ 11:17 am
=the Fair Tax lost AFSCME’s home-base county by a whopping 26 points.=

Every single state employee I talked to about the fair tax was against it. They can’t even understand where their bread is buttered.

I generally understand what ASFCME is up to here. But I hope they are made to feel the pain. They should have been going through furlough already ready. Two weeks worth in 2020 and two more in 2021 should have been a starting point.

If you can’t share in the sacrifice then share in the pain.

Comment by Cool Papa Bell Monday, Dec 21, 20 @ 11:18 am
== but they might not get paid on time … ==

The IL SC was crystal clear in 1975 that pensions have to paid when due.

The only fudging allowed is letting the State avoid properly pre-funding the pensions by shorting the scheduled annual pension fund payments.

Comment by RNUG Monday, Dec 21, 20 @ 11:20 am
=The people who vote for less revenue and cuts should be the first to get cuts.=

Then the people who vote for higher taxes should have taxes raised first?

Comment by Anonymous Monday, Dec 21, 20 @ 11:29 am
“And he could’ve then painted the 2020 constitutional amendment vote as a very real and substantial income tax cut for 97% of the populace instead of the few dollars he ended up promising.”

This perhaps was the governor’s and GA’s biggest mistake. Lots of people lacked the foresight, just like they did when they let the 2011 income tax sunset. We are a Bruce Rauner away, again, from a major disaster, possibly worse than the last one.

Comment by Grandson of Man Monday, Dec 21, 20 @ 11:36 am
Re everyone saying “cut downstate”: explain to me how the state saves money by moving the state employees out of downstate? The prisons are downstate because it is far cheaper to run them there vs. Chicago. I would actually like to see pension caps tied to social security max benefits, and then toss the rest of any excess costs back to the locals. CTU wants teachers making 100k? Fine. The state will pick up the tab for the first 48k of salary, and you pay the rest in your own independent fund. New Trier wants to pay their principal over 200k a year? Great. State pays for the first 48k of retirement benefits, let the local Winnetka taxpayers pick up the bill for anything else. No more double dipping, no 2.2 bumps, etc.

Comment by Kate Monday, Dec 21, 20 @ 11:43 am
I believe the vast majority of voters in Illinois would have been in favor of the “Fair Tax” if it would have not only been messaged correctly but also paired with a meaningful commitment on spending reform such as earmarking the increase for pensions.

Comment by Swimdad13 Monday, Dec 21, 20 @ 11:46 am
=== The prisons ===

A closed prison cost nothing. It’s a savings

Close a DNR facility, or two.

Starve higher ed from state funding.

See: Rauner years.

Comment by Oswego Willy Monday, Dec 21, 20 @ 11:46 am
==could’ve then painted the 2020 constitutional amendment vote as a very real and substantial income tax cut for 97% of the populace instead of the few dollars he ended up promising.”==

In other words, lie?

Comment by Anonymous Monday, Dec 21, 20 @ 11:47 am
==Without reforms public pensioners might become just another creditor to the state of Illinois.==

To paraphrase Inigo Montoya, “You keep using that word (reforms). I do not think it means what you think it means.”

Comment by Jocko Monday, Dec 21, 20 @ 12:09 pm
Rich, we often disagree.

But this piece is outstanding and I only wish that everyone in the state would read it.

Comment by Unconventionalwisdom Monday, Dec 21, 20 @ 12:15 pm
“Never buy a fur coat with a credit card until you absolutely have the money to pay for it”

JB must have missed that episode of The Office

Comment by TaxTheMemes Monday, Dec 21, 20 @ 12:35 pm
Kate,
Google is your friend. CPS and CTU pensions have their own sets of rules. You want less taxes? Push push pensions onto local bodies, and you’ll see a rise in property taxes. Public employees, including educators, are part of a job market. Don’t pay the market price, then you have a workforce shortage. When will we realize we have been reaping the benefits of not paying the true cost of services for decades? The bill has come due. Time to pay. People claim to not like socialism until their schools aren’t funded, public safety isn’t funded, higher ed isn’t funded, public services are not funded and infrastructure is crumbling. Pick a lane.

Comment by P-Town Cynic Monday, Dec 21, 20 @ 12:39 pm
Pritzker wants to maintain Illinois IG rating BUT it looks like that will be removed in the near term 1 - 2 years regardless (negative outlook). If he is interested in re-election why not re-amortize the ramp? This seems like the “easy way” today. The funds are largely 35% - 40% funded and have stayed this way for the past 10 years. They ain’t going belly up tomorrow.

Comment by 1st Ward Monday, Dec 21, 20 @ 12:47 pm
In all fairness we can’t cut downstate areas who vote against “socialism” while raising the flat tax on everyone. So we have to coexist and find ways together. What we can’t do is tax the rich more and do unconstitutional pension reform. Now that we have those boundaries, we know where we have to focus.

Comment by Grandson of Man Monday, Dec 21, 20 @ 1:10 pm
I read that new federal government low interest loans to states will not be available after Dec. 31, 2020. I think the governor should consider getting the low interest money and pay off some of the higher interest debt.

Comment by DuPage Monday, Dec 21, 20 @ 1:25 pm
Who are JB’s advisors?

Who are the folks not on his payroll that he can call for honest advice?

Does he talk to Rahm or his sister? Does he still talk to Lang, Franks or Kotowski? Has he checked in with Carrigan lately?

The problem with being a relative political newcomer is there’s no cadre of folks you have been through tough times with before that you can turn to for advice when you are in a spot.

Comment by Thomas Paine Monday, Dec 21, 20 @ 2:03 pm
Let’s not forget the $350 million for Evidence Based Funding for education that was dropped from this year’s budget already. EBF offered the best hope for finally breaking the connection between zip code and a child’s chance to get a high quality education, where Illinois is still the worst in the nation. So add $350 million to the Gov’s $711 million for a tally of cuts.

Comment by Pro Bono Monday, Dec 21, 20 @ 2:39 pm
===Push push pensions onto local bodies…===

I’m afraid that the state may not be able to solve its problems without pushing some of them to the local level and making property taxes worse. That isn’t always the worst solution.

Comment by Jibba Monday, Dec 21, 20 @ 3:38 pm
==So add $350 million to the Gov’s $711 million for a tally of cuts.==

Technically, it’s $300 million as $50 million is reallocated back to the school districts in the form of property tax relief grants. But after three years, the state has already upped its share by $1 billion. We can hit the pause button for one year.

Comment by City Zen Monday, Dec 21, 20 @ 3:46 pm