DETAILS MATTER by Bob Ginsburg May 16, 2022
Campaign and budget season and the challenge in separating rhetoric from reality.
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Campaign and budget season and the challenge in separating rhetoric from reality.
I have been remiss in not writing for the last five months as the world crises (inflation, Covid, Ukraine, the imminent reversal of Roe v Wade by the Supreme Court, Libertarian glee in seeing their 50-year campaign to overturn Roe and the New Deal nearing success, etc.) made it difficult for me to focus on local issues. However it’s clearer to me now that what happens at the state and local level is and will become much more important as Congress settles into permanent gridlock.
So I went back to the recent and upcoming local budgets to look more closely at where we are after the Covid-19 stimulus bills and the federal infrastructure bill flooded the state and local budgets with lots of money for current programs and new initiatives. There was lots of agreement on paying old bills, covering existing programs, and even a batch of new programs addressing economic inequality, housing, public safety, health care, etc. Generally they all will have positive effects and impacts. However, after years of scarce public funding and few really new programs, the new initiatives will need time to succeed and thus need to be funded and worked through for a number of years. And that is where it gets murky because there is no clear path or strategy to fund them in the “out” years.
As we get further into budget and election season it gets even murkier – with claims of revenue surpluses one week (see Mayor Lightfoot talk at City Club) followed weeks later with the rush to make the casino decision (Bally’s) based on the immediate need for the revenue and jobs. Curiously, there was no mention of the small-print announcement in August 2021 (Budget) (and not “adjusted” in April of 2022) that the 2023 Chicago budget is facing a $867M deficit, rising to $848M in 2024. There is no agreement on what that means or what is involved or what programs will be affected. The slide down will not just be in one area but across every aspect of those new budget items. More dangerous is that there is not enough discussion about how to avoid “defunding” those initiatives or establishing priorities/funding “hierarchies” for the next budgets.
[A little digression after one legislator suggested to me that even with cuts next year we will have more funding: One of the advantages of dealing with numbers is that they are remarkably consistent. One of the most confusing ideas to my non-numerate friends is that if funding declines by 25% one year, the funding will have to increase by 34% to get back to where they were before the cut. It is true that the reverse situation is a slightly better deal but a 25% increase followed by a 25% budget cut the following year does not mean the program is back where it started. It will mean that in two years the budget line (with the new program) will be down by 6.25%. Thus after decades of disinvestment or, at best, underinvestment, maintaining new initiatives requires much more investment.]
CONUNDRUM #1 ; THE CHICAGO CASINO
For thirty years the idea of a casino was one of a long line of proposals to stabilize the financial base of the city. A short list includes a new airport in Lake Calumet, the Olympics, and the sale of assets (parking meters, parking garages, Skyway). Well, the dog has now caught the car and we need to look at the details of casinos.
My first question was whether casinos are stable revenue producers that grow over time to meet increasing costs. Do they grow with the economy? Do they put a burden on the economy or produce revenue like a tax? The two charts above look at admissions, revenue per admission, and taxes produced at Illinois casinos since 2010. The first table shows admissions declining every year since their peak in 2012. This makes sense since they primarily draw users from a 50-mile radius, and eventually usage declines. This doesn’t happen in Las Vegas as 85% of the admissions and resulting gambling, hotel and entertainment spending are from people out of state. The Illinois casinos, dependent on local patrons, compensated for declining admissions by squeezing more revenue per person each year. It is like an extra regional tax or fee on the people in the region around the casino. The second chart looks at tax revenue (the raison d’etre for the Chicago casino) and shows that state tax revenue declined by 20.6% since the 2012 peak and local revenue declined by 31.7%. Admissions declined by 52%. Revenue per admission increased by 28.4%.
While a casino may not be the budget winner some think, it is still a great generator of construction jobs (about 3,000) and about 3,000 above-average-paying casino and hotel worker jobs. Those two benefits may be enough to justify the casino even with other inevitable costs. In any event more budget transparency and projections on costs be borne by the City, the Casino and CTA is needed.
The City Council hearings should discuss needed transportation improvements. The casino will likely bring in more than 6 million visitors per year or nearly 20,000 visitors per day (if it just doubles the levels of the next biggest casino in Illinois, the Rivers Casino in Des Plaines). Three thousand casino and hotel workers will have to get there every day as well, since there is little housing in the area that is affordable enough for those workers. The problem is that affordable housing, public transit and roads/parking are not plentiful there now. Getting 23,000 people there every day could be a problem, and transportation improvements to serve the casino admissions and workers need to be discussed upfront as they would fill many (?new or existing?) buses and trains every day and the increased traffic burden and parking needs. What exactly will be covered by the casino’s commitment to cover infrastructure is unclear as such “commitments” usually only cover water and sewage and gas line costs. There has been no mention of transportation improvements. At this point any transportation improvements that could include new CTA or Metra stations or additional buses will likely be a significant cost borne by the city out of static casino tax revenues or TIF funds, or by not funding other projects in other areas of the city. How CTA will be involved in the planning has not been discussed
CONUNDRUM #2: THE 2022 STATE OF ILLINOIS TAX CUTS AND REBATES
I have been involved in politics and public policy debates long enough to understand the appeal of tax cuts and rebates. In 2022, the State budget granted taxpayers $1.83 billion in mostly one-year tax cuts while filling some debt and giving a bigger share of state income tax collections to municipalities through a one-time increase in the Local Government Distributive Fund (LGDF). Included in the temporary cuts are reductions in the sales tax on food and medicine for a year; a six-month suspension of a planned hike in the sales tax on gasoline; and a brief suspension of the sales tax on school-related items this fall as kids head back to the classroom. Combined, those three tax suspensions will save the average family about $250 over the next six to eight months. However, more than $1 billion of the tax cuts went to
two initiatives: a one-year doubling of the income tax credit for property taxes; and a new income tax rebate, in which individuals earning up to $200,000 and joint filers up to $400,000 will get checks up to $50 per individual and $100 per child, up to three children. Most of these cuts will benefit wealthier residents.
These are all good things, and even $250 over the next six months will help many families. But the implication of all these rebates is that the physical and institutional structure of the state doesn’t need those resources and that there are no critical unfilled needs in the state that will help families, increase opportunity and build long-term security. It does not take much to come up with a long list of such critical structural and institutional needs in the state.
- We should know that the public health Infrastructure needs investment. The Chicago Department of Public Health is facing steep cuts next year, according to Crain’s (CDPH).
- We have a dire need of more affordable housing – and not just for low-income families but for working and middle-income families.
- The Coronavirus Response Act funding showed how important and valuable funding for childcare is for many families across the income spectrum. State funding would provide significant resources to many families in dealing with inflation.
- Schools need additional funding beyond the Evidence Based Funding formula which provides the minimum but cannot provide the level of education and training needed to overcome years of disinvestment and neglect in many communities.
- Our public transit agencies are facing huge budget cuts when federal support runs out in a year or so because ridership is unlikely to return to pre-pandemic levels.
- Too many urban and rural communities have been decimated by years of disinvestment but we have $1 billion to return to the top 25% of residents.
Tax cuts have straightforward consequences on state funding. But they also have a less visible consequence: escalating pressure for state and local governments to secure revenue via other means, which in Illinois often means by regressive taxes and fees. So the 2023 and 2024 budgets should be interesting.
The graphic below (courtesy of Smart Growth America) seems to reflect where we are going now.