Welcome to Details Matter a Newsletter about urban development, public finance, Transportation, and politics in Chicago and Illinois. You can subscribe/unsubscribe at (https://robertginsburg.substack.com/welcome). Get previous issues which mostly focus on dealing with the fiscal crisis at (https://robertginsburg.substack.com/archive). PLEASE FORWARD if interested
Sinking Slowly Is Never Acceptable for Long
The last year has been pretty momentous. The worst pandemic in a Century. The worst financial crisis in 90 years. The most important election in my lifetime. The broadest social protests in nearly 50 years. A new presidential administration that views FDR as a model. In that context I wanted to see how it would translate in the City, County and State budgets. I waited to write this weeks newsletter until the Governor’s budget address on Wednesday. . This was the budget to see the outlines of how Illinois would move forward. .
Instead, I saw an uninspiring, austerity budget. Rather than presenting a robust reinvention of how we fund and structure government as the mechanism to provide essential services and insure everyone and every business has an equal opportunity to succeed, we got a budget that continues to slip backward. Another “austerity” budget. Why is it an “austerity” budget? A forward looking budget would either address or lay out plans to address key problems limiting state growth especially:
1. How to expand health care and reduce public health inequities (beyond Covid 19)
2. How to reduce the shortage of affordable and energy efficient housing in Illinois
3. How to increase access to and use of public transit to end transit deserts and reduce CO2 emissions?
4. How to improve and expand affordable, quality public education and workforce training
5. How to move the State closer to universal access to free broadband/internet access
6. How to insure that everyone lives in a safe community.
Instead we have a budget that puts off all major decisions with more cuts, more borrowing, and more half-measures.
No single budget will solve these problems but every budget should make clear how it will contribute to their solution. Even in the midst of financial crises and a pandemic we must still look forward as much as possible. We can argue how big or small a step we can take and what is reasonable/affordable to do but not whether we need to make some progress every year. This budget does not make clear what steps it will take.
I both understand and appreciate the political realities and the pressures of the upcoming elections. I too felt the sting of the failure of the Graduated Income tax amendment. But this budget does not rise above those constraints. The budget, as proposed, holds off any big changes or decisions for another year or two while focusing on the immediate pandemic issues and avoiding other controversial issues before the next election. Thus any potential solutions will be put off till 2023. If the State continues to slip backward for three years, I am not sure what new options (political and otherwise) will be possible or even available then.
Instead, the proposed budget includes $1.1 Billion in cuts from 2019 budget levels in most departments with only minor increases in pandemic-driven funding for public health and IDES and hopes (not unrealistic) for a big influx in cash from the federal government. There is no illusion that cuts of that magnitude will not affect program delivery. It is not enough to say there will be no layoffs when there is clearly a hiring freeze. It is not enough to make the legislatively mandated pension payment when that is still well below the actuarial determined payment so that the pension hole will get larger.
The budget does propose rescinding a grabbag of corporate tax cuts from a couple of years ago. I support those small changes (despite the Republican bluster) but they are yet another ad hoc short term downpayment that does not provide a stable and sufficient funding base for essential public services. I and many others have argued that government in this country and state and city have a REVENUE problem NOT a SPENDING problem.
The State sill owes $2.5 Billion borrowed from the Municipal lending facility which will have to be repaid in a year or two. The 2021 increase in income tax revenues (in part dues to moving some 2020 payments to 2021) will not likely be sustained as the increase was in part due to shifting income tax payments from last fiscal year to this fiscal year. The “good news” about state revenue comes only from income tax revenues which account for 60% of state revenues. That provides headlines but little comfort.
The rest of the state revenue streams (and the ones that municipalities and counties rely on at the local level) are flat or with very modest increases. The chart below is based on actual revenue thru January 2021. There is little or no relief for municipalities and counties. There is some hope for a 2021-22 increase in sales tax revenues compared to 2020 but even that increase will still be only slightly above 2019 levels. The unavoidable local budget crunches will force more cuts or more onerous property tax and fee increases.
For example, Elgin currently has an $11 Million deficit which may result in reduced fire fighting coverage and other essential service cuts. Schools across the state will hope for any increase in funding if there is an increase this year in federal funds. An increase this year does not allow for planning for next year.
The budgets are set on a path to stall for three years (till 2023) and then hope there will be the political will to get out of the mess we are in. In reality 3 more years of slipping backward will only make our problems worse and feed the libertarian goal of delegitimizing government. Two more years of what are, functionally, austerity budgets will only exacerbate the problems with inequality, housing, transportation, education and health care. The state will become even more dependent on unreliable and unpredictable corporate philanthropy and federal government “stimulus.” The question becomes –when will we take advantage of the crisis created by the pandemic and fundamentally address the major structural and inequality issues laid bare by the pandemic? If not now, when?
Solving the City, County and State budget crises and each “structural” deficit will require bigger changes to funding and how we can equitably support ALL residents and businesses. A graduated income tax would have been the biggest and fairest piece of the funding puzzle. But there are other ways to redo our public financing system to make our tax system fairer and increase the opportunity for Illinois residents (and businesses) to succeed. It may not be easy but it only takes a bit of imagination. For example:
-A couple of weeks ago I suggested again that we cannot continue to look at pieces of the unfair and regressive public funding structure. A major reorganization of public financing is harder to politically but is the only way forward. Such a reorganization would include several pieces:
(1) a substantial income tax surcharge or an income tax increase combined with a series fo refundable tax credits like the EITC and increases in the child tax credit and the personal exemptions. The credits and exemptions would be designed so that IL households with less than $150,000 in income would not see an income tax increase,
(2) An increase in the sales tax to the same services taxed in surrounding states,
(3) Addressing the crisis in municipal and County budgets by doubling of the Local Government Distributive Fund to 12% (which would provide an extra $1.5Billion to local governments) and require municipal and County governments (and perhaps not school districts) to make a mandatory reduction of local property taxes (as the requirement to getting access the increased LGDF funding.) Vermont recently proposed a tax revamp that included a similar set of tradeoffs.( https://ljfo.vermont.gov/committees-and-studies/tax-structure-commission)
-The Center on Tax and Budget Accountability issued a white paper on February 16 discussing progressive ways to increase the flat income tax to raise additional funds and address the structural deficit.
( https://www.ctbaonline.org/reports/increasing-income-tax-rate)
-A Crain’s Chicago Business op-ed recently suggested extending the sales tax to the services taxed in surrounding states. (https://www.chicagobusiness.com/joe-cahill-business/loophole-pritzker-wont-close)