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Governor’s Turnaround Agenda, Democrats’ poison pill, prevent fiscal resolution

    Gov. Bruce Rauner wants the Democrat-controlled legislature to pass some or all of his Turnaround Agenda before he’ll acquiesce to additional taxes to balance the state budget. But the agenda — central to his administration since he began in January 2015 — contains items that are just simply nonstarters for Democrats.
    “Like getting rid of collective bargaining, busting the unions and Right To Work laws,” said state Sen. Bill Haine, D-Alton. “Those are nonstarters, and I think term limits are frankly silly.”
    The agenda includes: worker’s compensation revisions; tort reform; repeal of the Illinois Prevailing Wage Act; prohibition of Project Labor Agreements; limiting rights of public employee unions; enacting term limits; and banning the collection of fair share dues for those who elect not to join the union. Rauner has said he’ll agree to a tax increase if the legislature enacts his agenda.      
    Frank Martire, executive director of the Center for Tax and Budget Accountability, which bills itself as a bipartisan, nonprofit research, and advocacy think tank that works across ideological lines to promote social and economic justice, has closely watched the standoff of the past year.
    “The answer is actually pretty simple from a policy standpoint, but it’s complex from a political standpoint,” he said.
    Martire said Illinois has a spending problem, not a revenue problem. He points out that Illinois is the fifth-largest state in population and from an economic standpoint.
    However, it ranks in the bottom third to bottom fifth on spending on each of the four core services: education, health care, social services and public safety that make up $9 out of every $10 spent from the general fund.
    Illinois is a very low spending state and has been cutting spending in nominal dollars since 2009. he said, adding spending has been cut on the four core services by close to $3 billion.
    “The bottom line is, we just don’t have the revenue to fund our current level of services and our current level of services don’t meet needs and we sure don’t have the revenue to fund our current amount of debt,” he said.
    Martire said that all of the major ratings agencies: Fitch, Moody’s and Standard & Poors have been calling for the state of Illinois to increase its taxes to meet its needs since 2005. He recommends raising the personal state income tax rate — which is now the lowest in the nation among all of the states with an income tax — to 5 or 5.5 percent from the current 3.75 percent.
    “The reason we have to go even that high is because of waiting so long to solve the problem,” Martire said. “Frankly, the best thing the state decision makers could do for us as taxpayers, is to raise taxes sooner rather than later. The longer they wait, the more expensive the problem gets.”    
    While raising the personal income tax rate, Martire said he would also recommend providing targeted tax relief for low and middle income families through an expansion of the earned income tax credit. Corporate rates could remain at their current 5.25 percent level.
    Other easy fixes include rescinding some of the corporate tax policies that Martire says are senseless.
    “For instance, because Illinois’ corporate tax law is piggybacked on federal law, every time the federal government changes its corporate tax policy, ours changes, too,” he said. “Well, the federal government passed a tax incentive program for manufacturing development in any state. In Illinois, companies under Illinois law get the tax credit against Illinois taxes even if they’re expanding their facility in Iowa or Wisconsin or California. Why are we providing an Illinois tax break for businesses to expand in other states? There are $400 million of these really silly, nonsensical tax expenditures and they just need to be taken off the books.”
    He also advocates expanding the state sales tax base to include consumer services. Of the 45 states that have sales taxes, he said, Illinois has the most narrowly based and it’s out of step with the modern economy.
    “Our sales tax applies mostly to the sale of goods — physical things that you can touch — rather than the sale of services,” Martire said. “Goods only make up 17 percent of economic activity right now in Illinois; services are over 72 percent. You just can’t leave the largest and fastest-growing segment of our economy virtually out of your tax base and expect your revenue growth to be sufficient to support the level of services demanded by your population. This is just a modernization thing. It wouldn’t make us a high tax state.”
    The problem with the Governor’s Turnaround Agenda is it’s not evidenced-based,” said Martire. “I’m sure the governor actually believes in his heart of hearts that if he got prevailing wage changes or his collective bargaining changes that it would stimulate economic growth. He believes that. He believes that his Right to Work policy would stimulate economic growth. He’s not being hypocritical. He’s not being phony. He believes it. The problem is there is no evidence to support it and, in fact, there is evidence to the contrary.”
    He said the Democrats have come forward on some workers compensation changes they would be willing to make but most of the rest of the agenda is non-negotiable.
    “In the House you have a really interesting political problem,” Martire said. “Some Democrats will not vote for a tax increase which takes away the party’s super majority, so you clearly need Republicans to vote for the tax increase. Madigan can’t get a veto-proof majority so, without an agreement to a package on tax increases between the general assembly on the one hand and the governor on the other, you can’t get it done.”
    Haine points to the fact that in December 2014 Illinois had a balanced budget. The state was paying its bills on time and that was because of the 5 percent state income tax that has since expired, he said.
    “I do agree with the governor that there is room for changes in the workers’ comp system,” said Haine, “but again that takes negotiation. The school funding formula takes negotiation. And, negotiation means you sit down with people and say: Here’s what I will do; what will you do? Can we work together to obtain a common result? It means give and take. That’s how negotiations work. Press conferences, fly-arounds and denunciations of people as crooks, scalawags or whatever doesn’t work in the process of negotiation.”
    State Sen. Kyle McCarter, R-Lebanon, called the recent standoff  “unnecessary drama and needless trauma.”
    “When Gov. Rauner took office in January of 2015 he was faced with fixing the previous out-of-balance state budget with a budget hole of $1.6 billion,” he said. “Since that time, the disagreement between the administration and the majority party in control of the Legislature widened. It’s obvious the disagreement is ideological. While politics rages on, the people of Illinois become the victims of collateral damage.”

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