PI Original Adam Doster Monday November 8th, 2010, 4:52pm

Can Quinn Convince Lawmakers To Fund Our Future?

Gov. Pat Quinn survived a bitter gubernatorial campaign, earning the privileged opportunity to serve Illinois for a full four-year term. But now, the hard work of governing really begins.

After nearly 18 months of campaigning, Illinois' gubernatorial race is finally over. With the help of progressive organizations in Chicagoland, Gov. Pat Quinn survived the bitter fight, earning the privileged opportunity to serve Illinois for a full four-year term. But now, the hard work of governing really begins.

At a budget briefing for reporters days before the election, the Center For Tax and Budget Accountability's (CTBA) Ralph Martire made an astute observation. "I don't think I have ever seen a subject as important as the state's budget and its ongoing deficits so ignored in a major campaign season," he said. Indeed, while Illinois' multi-billion dollar deficit (and the faltering economy that helped cause it) was one of the predominant issues on the minds of voters last Tuesday, neither major party candidate offered a comprehensive plan to pull the state out of its hole.

Quinn was far more honest about Illinois' finances than his GOP opponent, whose budget plan relied on deep spending cuts, tax reductions for the wealthy, and magic. Since the very beginning of his election run, Quinn pushed the General Assembly to raise the state's income tax, a stance few elected officials are willing to take. In an interview with the Tribune over the weekend, he said his slim victory provides him with a "mandate" to pursue the 1 percent "surcharge" for education that was a central component of his platform and would raise roughly $3 billion annually.

Plugging the hole in its entirety, though, would take more revenue than Quinn's plan produces. According to State Comptroller Dan Hynes' latest quarterly report (PDF), the General Assembly might confront a $15 billion deficit when it crafts its FY 2012 budget this spring. That includes the potential of $8 billion in back payments to schools, municipalities, and social service providers, who state lawmakers are treating as "involuntary lenders." Some are already revolting. One vendor refused to deliver foam food trays to Menard Correctional Center downstate because the contractor was owed $166,000.

To make matters worse, the State Senate left the capitol again last week without passing a $4 billion borrowing bill needed to pay the state pension systems this fiscal year. The two leaders of the caucus seem to be cooperating, which could set the stage for passage during the veto session that begins next week. But under the dome, you can never be too sure of anything. If an agreement can't be hashed out, the governor must find an additional $4 billion somewhere in the current budget to make the payment, which is a tall task to say the least.

The red ink is startling. Lawmakers already exhausted several one-time revenue sources last year that can't be tapped again. Martire guesses that without a tax increase of some sort, the state will run out of cash to fund public services sometime around February or March. "If that happens, what are they going to do?" he asked. "Just close down public schools and community colleges? Close down every senior center? Every agency that takes care of folks with mental health issues?"

His organization has a blueprint to keep the state operating. In late October, CTBA released an 88-page, peer-reviewed report (PDF) that attempts to illustrate the "consequences of poor tax policy," a theme with which Progress Illinois readers should be very familiar. "Funding Our Future" comes to several key conclusions. The first is that Illinois is a low-spending state. Despite registering the nation's fifth largest population and 13th largest Gross Domestic Product (GDP), Illinois ranked 43rd in state spending as a percentage of GDP in 2008, the last year for which funding was available. The state has also been cutting the size of its General Revenue Fund (GRF), which covers core services like education and health care, over time. When one adjusts for inflation, Gov. Pat Quinn's FY 2011 budget (after cuts) was actually 5 percent lower than what the General Assembly spent during former Governor Jim Edgar's administration:

Why, then, is the state so deep in debt? The Great Recession didn't help. Neither did heavy job losses over the past two decades, which have drained the state of both personal and corporate tax revenue. But Illinois' structural deficit is not new. Data from the Comptroller's office shows that Illinois has carried a deficit in its GRF every year since 1991. The think tank reasons that the state's most persistent problem is on the tax side of the ledger. As the report explains, we "assess our tax burden in an unfair fashion that impedes revenue collection, constrains economic growth, and worsens long-term income inequality."

This figure is particularly instructive. If Illinois would rejigger its state tax structure to resemble that of its Midwestern neighbors, we would have plenty of money to pay for the services the public demands. If the state used Iowa or Indiana's tax code, the GRF would be $11.6 billion richer annually. If we adopted Kentucky's system, lawmakers would have $16.48 billion more to utilize:

Comprehensive tax reform would also reduce the burden we place on the state's vulnerable. In FY 2007, Illinois' poorest 20 percent paid an average of 13 percent of their annual income in state and local taxes. The wealthiest 1 percent of earners paid just 4.1 percent. (Middle class families earning between $36,000 and $58,000 annually faced a 10.1 percent burden.) The regressive nature of the system is both morally repugnant and economically irrational. Low- and middle-income earners have a high marginal propensity to consume. When there's an additional dollar in their pockets, they are more likely to spend it in the local economy than stash it away. That increases the amount of customers that businesses of every size can reach. And jobs follow customers.

CTBA ends its paper by analyzing some of the prevailing tax proposals floating around Springfield. Gov. Quinn's education surcharge, they estimate, would avert additional spending cuts (which is needed) but is too small to have any real impact on the state's larger gap. HB 174, the tax reform proposal that passed the State Senate in May 2009, is progressive and would significantly reduce but not eliminate entirely the GRF deficit. (To do so, the measure's sales tax expansion would need to be broadened.) With some tweaks, though, the latter would certainly suffice.

Do either have any chance of getting through by the end of the year? Quinn is hopeful but has not promised anything. State Rep. Barbara Flynn Currie (D-Chicago), the House majority leader, said earlier this year that she could only wrangle 47 votes for a tax hike. A few Democrats who were defeated might be more willing to make a politically-difficult vote on the way out of office, but several others heading back to Springfield campaigned against tax increases explicitly this fall. (Procredurally, if the General Assembly passed a tax hike and wanted to implement the change before June 1, 2011, it would require a three-fifths supermajority vote.)

In January,  the Democratic majorities shrink. (The party will hold a 64-54 advantage in the lower chamber and a 35-24 edge in the upper chamber.) If the caucus stands unified, they still have enough votes to pass any type of tax reform bill out there. That means come January, Gov. Quinn will have to prove how strong that "mandate" of his really is.

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