DETAILS MATTER by Bob Ginsburg January 9, 2021
FRAMING, FINANCE, AND THE HISTORICAL MOMENT – SIZE MATTERS. HOW MUCH WE INTERCONNECT PROGRAMS AND FUNDING MATTERS.
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.
FRAMING, FINANCE, AND THE HISTORICAL MOMENT – SIZE MATTERS. HOW MUCH WE INTERCONNECT PROGRAMS AND FUNDING MATTERS.
I had thought about the issues facing the City and State a couple of days ago and how Illinois and Chicago could address the opportunities presented by the Senate race wins in Georgia. These wins were powered by an incredible grass roots and organizing effort to get Black, Latino, Asian and progressive voters out. It was not surprising, but it should mean that we begin to implement solutions to the underlying crises of income/wealth inequality, unequal development, and unequal opportunity to succeed. We owe those organizers and those communities that much.
That was before the storming of the Capitol incited by President Trump. There are many other sites where there are discussions on how to hold those people and their enablers accountable. I also think we need to look at the policy consequences of that tragedy. Too many people in this country do not believe they will have a fair opportunity to succeed. Some have bought the Trump and Republican snake oil pounded into their heads for the last 40 years that government is the problem and it uses its power to suppress them. Clearly the rioters and white nationalists have used that explanation to support their extremist goals no matter how far from reality it is. We have an opportunity in the next 6 months to a year (before Republicans and some others forget enough of the recent villainy) to create and implement new solutions that chart a different path but we cannot think too small or too traditionally. I would argue that we need to think bigger but also create programs that we know how to implement and will result in short and long term improvements and changes in underserved communities. We need results. The Republicans have used the existing levers of power and government to effectively take away services and resources or transfer them to the private sector. Now is the opportunity to use those levers in new ways to improve communities, improve opportunities and decrease unequal development. .
The election last November was routinely called the most important election in the last 50 years. While many of the pundits and politicians using that description may not have been active in politics and policy 50 years ago, it is still an important distinction. However, it goes far beyond just the elections. The issues we need to solve – climate change, income inequality, racial discrimination, and uneven and unequal development within cities, and regions and between different groups- are fundamental problems we have put off or chipped away at for decades.
Solving those problems will take substantial changes yet we are stuck arguing between small changes and big proposals. We still allow government to operate in funding and program silos with separate and, often, different goals. The $45 Billion Illinois Infrastructure Plan has housing, broadband and transit initiatives BUT they are not linked. Even among the strongest advocates the demands and goals vary from very broad but undefined proposals (“defund the police”) to very specific but highly achievable proposals (e.g. $15 minimum wage or perhaps such a minimum indexed to inflation.) The problem with highly specific proposals is that they are good political/electoral slogans but take years to implement and the specific “number” becomes outdated by the time they are finally in force. (For example, $15/hour minimum wage was close to a family supporting wage 10 years ago when it was first proposed but is not now. It is no longer “cutting edge.”) Broad proposals without clear details on how they will be financed, their impact and how they will be implemented face daunting struggles to pass and then are often implemented by opponents.
It is time we look at the policy proposals from more than a political (electoral) lens but from the perspective of how we want those changes implemented. It is clearest in the immediate challenge of funding the State, County and City Budgets. While the likelihood of substantial federal support is greater now, decades of underfunding government have left us with huge structural deficits. Even if the Feds dramatically step up in the next 6 months, the State’s budget deficit will shrink from $3.9Billion to maybe something on the order of $1-2 Billion. The City deficit would shrink next year from $1.5Billion to approximately $800Million. These are still historically large deficits.
The state cannot go into a shell after the failure of the Fair Tax We need to be clear that first we need to fix state and municipal funding crises with more revenue from wealthier residents and a move to help middle and working class residents. THEN we need to fully fund plan the $45 Billion State infrastructure plan and redirect the funding and spending to address the needs of underserved communities and those most impacted by the pandemic.
FUNDING
The Fair Tax was a good proposal but was proposed as a first step in addressing the structural deficit. We need a much more COMPREHENSIVE approach to funding government that reflects the economy, puts a greater burden on those that can afford it and reduces the burden on municipalities and those residents that earn the least. Even within the strictures of the Illinois Constitution we can create a more progressive revenue collection system (though it is more complicated than the Fair Tax):
1. We must start shifting from taxing middle and working class wealth (e.g. homes) to generating revenue based on higher income. We should institute an income tax surcharge of 5% AND create an “Earned Income Tax Surcharge Credit” to eliminate any additional tax liability for people with taxable income of less than $200,000. This would generate $7.2Billion per year (according to IRS statistics at https://www.irs.gov/statistics/soi-tax-stats-historic-table-2)
2. We need to expand the scope of our sales taxes to cover all the services taxed by the surrounding states especially financial services AND lower the state sales tax rate by 1% or 2% and/or eliminate the sales tax on food and medicines to ease the burden on middle and working class families. Taxing Services would begin to generate revenue from the bulk of the economy which now has Services generating 70% of the economic output ( income and sales tax on the growing parts of the economy (especially the financial sectors of the economy)
3. We need to ease the funding problems of Counties and Municipalities and their reliance on sales and property taxes. Once the state expands revenue from the income tax, it needs to increase the Legislative Government Distributive Fund (LGDF) to 20% of the State Income tax revenues. This would provide cash strapped municipalities with an additional $2Billion in funding.
4. Given the additional revenues generated from the expanded sales taxes and the LGDF, Counties and Municipalities would be required to reduce property taxes by 10%-20%. Currently our main wealth tax is property taxes on home ownership. Counties and Municipalities could opt out of the additional LGDF funding and not lower their property taxes but it is doubtful many would take that route..
DIRECTING FUNDING AND INVESTMENTS
The Pandemic made clear the problems of inequality and unequal development. We need a new, expanded definition of government’s responsibility that makes clear how new projects and investments will expand opportunities in all but especially undeserved communities. We need to end funding silos such as between transportation and housing. Projects in one area need to leverage and reinforce funding and programs and others and integrate climate change goals. There are many ways to establish a counter- narrative to “government is bad/inept and coercive” to government has a role to insure everyone has the freedom and opportunity to succeed. Too often we fall into proposing isolated, trophy projects without identifying the related investments that are or will be made and are needed to make the trophy projects successful. Unequal investments have left many communities without the key resources people need to succeed. When a new project or investment is announced it needs to be clearly stated what parallel investments will be made and when that will provide a comprehensive base of development. All projects should be described as part of a comprehensive plan to provide the 6 critical resources communities need to be stable and thriving: Sound/affordable housing, affordable health care, quality education and training, affordable good public transit to connect efficiently to jobs and commercial areas, broadband and good communication, and to live in a safe community. We create governments to insure people have access to those resources.
PRIORITIZE INVESTMENTS IN COMMUNITIES. The State Infrastructure plan and (hopefully) a soon to be passed Federal Transportation and Infrastructure plan represent the largest discretionary spending decisions the US Congress and the Illinois Legislature will make (after Defense and health care reimbursements). We should no longer leave those decisions without clear priorities and direction. Those programs will leverage a massive level of local and private investment that should rebuild our communities on an equal basis. The nation’s mix of government sector, private sector, and nonprofit sector responses will vary but we can combine leadership at the federal level with local initiatives and local administration. Our housing must become more energy-efficient, workers must have access to more training, and transportation systems must be transformed and weaned off their dependence on fossil fuels. We need to direct that funding to address affordable and energy efficient housing just as we can no longer afford to prioritize highways over public transit. We can no longer afford to fund housing, transportation, sustainability in separate silos as they are linked.