Progress Illinois

Take a look at this headline from today's Daily Herald:

Reading that, you might guess that the west suburban town of about 150,000 passed a referendum opposing an income tax increase in Illinois.  Or perhaps someone polled Naperville residents' on the various tax hike proposals being discussed at the state level.  Well, not exactly:

Naperville's business community on Thursday had a chance to voice its concerns about jobs, taxes and the economy directly to Gov. Pat Quinn. [...]

Some [Naperville Chamber of Commerce] members said Thursday an income tax increase would be detrimental to the business community.

John Schmitt, president and CEO of the chamber, said he was not prepared to comment specifically on Quinn's income tax proposal but that the chamber doesn't typically support tax increases. But he was glad the business community had a chance to share its concerns and called the visit productive.

Last we checked, the Naperville Chamber doesn't represent the entire town ...

After watching again and again as Illinois lawmakers relied on financial gimmicks to pay for core services, budget experts knew it was only a matter of time before Springfield would be forced to confront the state's ballooning structural deficit.

Last week, the Pew Center on the States confirmed that the moment of reckoning is near, ranking the Land of Lincoln among 10 states now on the brink of financial peril.  The Pew researchers recounted how Illinois lawmakers -- in order to avoid generating more revenue by modernizing the income and sales tax systems -- have resorted to short-sighted budget maneuvers, such as delaying bill payments and skimping on the state's annual pension contributions.

Now the nation is in a recession and those bills are coming due, leaving Illinois' an estimated $12.8 billion in the hole in FY 2011.

"It's like a balloon mortgage," University of Illinois at Chicago public policy professor Michael Pagano explained during a budget roundtable on WTTW's Chicago Tonight last Thursday. "At the end of the period you have to make a big payment for what you've been consuming. We've now been consuming a lot of state resources for the past eight years without paying for them." Watch it (full video here):

For some perspective consider this: On a per capita basis, Illinois is one of the lowest-spending states when it comes to core services.  Yet we still can't generate enough revenue to cover our obligations.  Why?  Because we are one of a mere mere seven states with flat income tax system.  Moreover, our 3 percent rate remains lower than the other six (Colorado: 4.63 percent, Michigan: 4.35 percent, Tennessee: 6 percent, New Hampshire: 5 percent, Pennsylvania: 3.07 percent, and Utah: 5 percent).

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Each fall, Cook County Clerk David Orr releases an annual tally of how much public money has been absorbed into Chicago's massive tax increment financing (TIF) system. Like clockwork, each new report reveals that hundreds of millions are whisked away from schools, parks, libraries, and other taxing bodies. The exact amount each taxpayers kicks into Mayor Daley's "glorified slush fund" has remained elusive, however, as now-Congressman Mike Quigley wrote in a Progress Illinois column last year:

The single worst aspect of the TIF system in Cook County is that taxpayers residing in the districts have no idea how much of their tax payments end up in TIF accounts. Indeed, while TIF is listed on every bill alongside the agencies receiving property taxes, the line always reads $0.00. This is due to a quirk in the way the County Clerk has historically calculated tax rates. But as a consequence, the taxpaying public is misinformed.

That changed yesterday, when Orr took a major step towards unlocking that part of the TIF mystery. Along with his tally for 2008, the Clerk's office has unveiled an online search engine that allows those who reside in TIF districts to find out (using their permanent index number) how much of their tax bill is being siphoned away.

For fun, we plugged in Mayor Daley's PIN number (17-22-109-027-0000) and found that a whopping 92 percent of his property taxes were redirected into the Near South TIF last year. By contrast, cash-strapped schools are getting a mere 3.9 percent of the Daley's property tax dollars. This goes to show how much strain the TIF system are putting on those local taxing bodies entrusted to deliver education and other public services.

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Two weeks ago, state lawmakers wrapped up the fall veto session and headed home with hopes that Illinois' financial crisis wouldn't follow them back to their own districts. So far, the bad budget news has trickled in slowly enough that many have been able to distance themselves from the severity of the state's financial situation. But they won't be able to dodge blame forever. For example, adding millions in school reimbursements to the growing pile of unpaid bills is weighing heavy on cash-strapped districts. And in places like the Central Illinois town of Pekin, the backlog -- coupled with other uncertainties and cutbacks -- is growing too big to sweep under the rug. The Pekin Daily Times explains:

The state has a multi-billion-dollar deficit. Inflation is down so far that school districts are limited in how much they can raise taxes to bring in new revenue. Corporate Personal Property Replacement Taxes and sales taxes are down.

General state aid funding for schools is running three months behind. Programs like special education and transportation will not be funded at the full levels. The state has not yet received an application for additional federal American Recovery and Reinvestment Act funding, which was used in lieu of state-generated general state aid payments.

Illinois State Board of Education Chair Jesse Ruiz summed it up best when warned that if the state doesn't generate new revenue for schools next year, "we fall off the cliff."

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If there's one thing observers of Illinois politics can agree on, it's that next year's state budget deficit is going to be extraordinary. Not only are billions in federal stimulus money scheduled to dry up, but state officials will soon have to pay out $3.5 billion in pension notes and cover $3.9 billion in unpaid obligations from the current fiscal year. Compounding the problem are tanking revenues and the need to pay back $205 million in short-term loans used to cover college aid.  Now the projected 2011 shortfall has hit a whopping $12.8 billion, according to the Voices for Illinois Children's (VFIC) latest policy memo.

VFIC puts the staggering deficit in perspective:

How much is $12.8 billion? This amount is equivalent to total state General Funds spending for the State Board of Education and the departments of Human Services, Children and Family Services, and Public Health. The entire General Funds budget — aside from mandatory spending for pension costs, debt service, and other statutory transfers — is about $26 billion. Closing a $12.8 billion gap without new revenue would require devastating spending cuts, on top of those enacted this year. If such reductions were applied across the board, they would slash 50 percent of funding from every state program; if not distributed equally, many specific cuts would run far deeper.

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This week property tax bills hit mailboxes across Cook County and many property owners were justifiably outraged by their skyrocketing rates. Elected officials all tried to dodge responsibility for their role, including Mayor Daley, who certainly deserves his fair share of criticism (after all, his extensive tax increment financing system deprived local taking bodies of $552 million last year alone.) The mayor tried unsuccessfully to pass the buck to Assessor Jim Houlihan. Houlihan, in turn, pointed to House Speaker Michael Madigan (D-Chicago) for opposing an extension of the 7 percent tax cap, which sunset this year. But it's the SouthownStar's Phil Kadner who hits the nail on the head, noting that the state's regressive tax policy is the real culprit:

All Daley has to do to lower property tax bills in Chicago is to tell the school board (which he controls) to cut the school system's levy in half. He's not going to do that, of course [...]

Why hasn't that happened?

Because new tax money would have to be generated to replace the lost money from the property tax. The Legislature would have to increase the income tax, the state sales tax and maybe both.

Some folks would say that makes for a fairer system because those taxes are based on income, the amount of money people earn and on how much they spend.

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Is Northwest Side Ald. Tom Allen (38th Ward) emerging as the Chicago City Council's leading tax increment financing (TIF) watchdog? Since Mayor Daley began to detail just how bad the city's finances have become, Allen has been one of the most vocal critics of the mayor's decision not to crack open his $1 billion "piggy bank" to ease the financial crisis. The Sun-Times' Fran Spielman caught his latest remarks during a budget hearing yesterday:

It was opening day of City Council budget hearings, and Chicago aldermen were loaded for bear [...]

They railed about the mayor’s plan to spend all but $730 million of the combined, $3 billion in Chicago Skyway and parking meter proceeds while allowing tax-increment-financing (TIF) districts to siphon $540 million-a-year away from the city’s property tax base.

“We should re-name it the ‘Over-tax fund’ — OTF. How can we with a straight face tell the citizens of Chicago that, ‘We have $1.1 billion of your money stuffed under our mattress, but don’t worry. We’re gonna give you $35 million in [property tax] relief?’ ’’ said Ald. Tom Allen (38th).

City officials have tried to quash the suggestion; for instance, CBS 2 reported their response this week that TIF funds are off limits and can't be tapped for general operating expenses. Perhaps if more local reporters understood how TIF districts operate, they wouldn't be so quick to take the bait.

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Back in July, we took note of an interesting development in Central Illinois' McLean County where a local school district used a new wind farm to generate desperately-needed education money. Encouragingly, other districts are following suit. Construction on a similar farm straddling neighboring Bureau and Lee counties is moving ahead and school officials already estimate that the 114-acre "Big Sky" project will bring in enough money to bail out a struggling local district. Ohio High School Supt. Sharon Flesher tells the News-Tribune that she estimates an additional $803,000 will flow into her district once the project is complete; another $735,000 will be freed up for local grade schools. That kind of money would double the high school's operating budget.  But Flesher noted that the district won't keep all of the money:

"One of the first things we want to do is reduce taxes in the community. The community has supported this school at a very high tax rate for a long time. This is the board’s way of being responsible and saying thank you,” Flesher explained.

The Big Sky project serves as a reminder of how wind development can provide crucial benefits to rural communities.

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Last week, we documented how the Reader's stellar investigation into Mayor Daley's $1 billion "shadow budget" had reinvigorated the public debate around tax increment financing (TIF) -- just in time for the city's budget talks with aldermen.  Over the weekend, FOX Chicago Sunday's Dane Placko picked up the ball, saying that "every Chicago taxpayer should read" the latest article by Ben Joravsky and Mick Dumke. With the city's financial problems coming to a head, Placko told viewers, "Imagine how this budget would look if we weren't dealing with this huge TIF problem." Considering that TIF siphoned $552 million off the tax rolls last year alone the possibilities are indeed vast.  He then touched on an issue that we've written about extensively, noting that "a lot of the money is going to corporations to remodel buildings and such." Watch it:

PLACKO: In this week's article, the Reader outlines how the city maintains what is essentially a second budget, which it refuses to release. Even aldermen only get to see TIF information for their own wards. Not the big picture. And this is significant because the mayor controls a pot of TIF money that has grown to $1 billion, one-sixth the size of the entire budget. With so much money going to TIF, property taxes in non-TIF district have to go up to cover the money that's not going to the general revenue fund. Imagine how this budget would look if we weren't dealing with this huge TIF problem -- and a lot of the money going to corporations to remodel buildings and such.

"People have been getting upset about TIF for years," co-host Jack Conaty added, "I think it's going to peak here shortly."

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Amidst a recession, it's so easy for candidates (and editorial boards) to demagogue against proposed income tax hikes.  Therefore, it's rare to see public arguments in favor of tax reform made with the subtlety and perspective that's required both to understand and address the Illinois' structural deficit. But in an editorial over the weekend that pivoted off of last week's Paul Simon Public Policy Institute poll on the state budget, the State Journal-Register delivered.

Hoping to educate Illinois voters, who "haven't the foggiest clue about the simple and cruel math of Illinois' state budget," the paper lays out in clear detail just how much would have to be cut from its general fund to balance the budget (nearly $1 out of every $3 spent). They also drive home a point that is too often lost in this debate: Illinois government is not overspending. From the piece:

But here’s the reality. This is an economic problem. There isn’t $12 billion in waste, inefficiency and corruption to trim. The amount of money our corrupt politicians and their cronies have pillaged is a rounding error in the millions, not billions. [...]

People hate to hear it, but the cumulative amount of taxes paid in Illinois, while overwhelmingly regressive and favorable to the rich, is low. Illinois’ state and local tax burden is 30th nationally. We have the lowest per-capita number of state employees in the nation. The average pensioner brings home $28,000 a year, not the outrageous six-figure pensions we’ve read about that are associated almost exclusively with politicians and creative, double-dipping bureaucrats.

Here’s what cutting our way out of this problem means: Laying off more state prison guards; releasing inmates early; laying off police officers, firefighters, teachers and state workers; cutting aid to the mentally ill, alcoholics, drug abusers and the disabled; and slashing aid to schools and local governments. Making those cuts will hurt people and send Illinois’ economy into a death spiral.

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