Progress Illinois

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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During Mayor Daley's budget address yesterday, we listened closely to see if he would make any mention of Chicago's other budget: the $1 billion in taxpayer dollars currently sitting in off-the-books tax increment financing (TIF) accounts. To no one's surprise, the mayor glossed over how this mayoral "piggy bank" -- which last year siphoned off $552 million from local taxing bodies like the schools and parks -- factored into his long-term thinking about the city's finances. That's because the mayor already has his own quiet plans for handing out the public funds, according to documents (PDF) obtained by the Reader's Ben Joravsky and Mick Dumke. They explain the significance in their new, must-read cover story:

[T]he money's supposed to be used to subsidize economic development in depressed communities that would otherwise receive no investment. But according to aldermen, and as the TIF documents we obtained show, the program is used to help clout-heavy developers and corporations, pay for basic infrastructure and services without the public oversight given the official budget, and strengthen the political position of the mayor. [...]

By moving more necessary expenditures into the secret budget that he ultimately controls, the mayor also wields even more power over every public entity, from the City Council to the public schools to the Park District. At various times at least half a dozen aldermen have told us that mayoral aides pressure them on key votes—such as the ordinances for funding the Olympics or moving the Children's Museum to Grant Park—by either promising to give their wards more TIF dollars or threatening to take TIF dollars away.

Bingo. While we have no way of tracking which TIF projects successfully deliver an economic boost and which don't, we do know this: The TIF system allows Mayor Daley to curry favor with Chicago's corporate elite while keeping the City Council in lock-step with his agenda.

In recent months, we've repeatedly highlighted how tens of millions of dollars from the downtown TIF accounts are regularly used to subsidize the renovations of swanky new corporate offices in the Loop.  It's infuriating to watch these giveaways (United Airlines secured $50 million from the city in just the past two years) at a time when Chicago faces a $520 million budget shortfall.  During an appearance on WFLD's Good Day Chicago this morning, the Better Government Association's Andy Shaw used our favored term for this ongoing practice: "corporate welfare." "We are subsidizing wealthy developers and all kinds of people who are friends and cronies of the administration when our taxes are sky-high," he said, holding up a copy of Joravsky and Dumke's article. "And this is wrong because we need transparency here." Watch it:

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As Mayor Daley unveiled his latest budget today, the big news surrounded his proposal to pull $370 million from the reserve fund created by Chicago's parking meter lease to help balance next year's $6.14 billion budget.  But as we listened to him address the City Council this morning, we wondered if he'd make mention of the city's other major reserve, the $1.4 billion that's squirreled away in off-the-books tax increment financing (TIF) accounts. After all, wouldn't this be the perfect opportunity for the mayor to make the case to skeptics -- Tribune columnists David Greising this week called the corporate TIF giveaways "a racket" -- that his economic development strategy is actually paying off?

Not surprisingly, Daley didn't deliver.

While he disclosed that $8 million in TIF funds will flow back into the general fund after two districts are retired, the mayor didn't make a single mention of how he plans to leverage the TIF system at large.  Listening to his speech, you'd never know that the TIF network is the single largest tool that the city has at its disposal to balance the budget and jumpstart the local economy.

So why the silence?

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The folks at the Paul Simon Public Policy Institute have had a busy week. After unveiling Monday an interesting statewide poll on campaign finance reform, the organization turned its attention today to their findings on the state budget. For proponents of tax reform, the public opinion results weren't terribly encouraging. A whopping 56.5 percent of respondents said that "budget problems can be solved by cutting waste and inefficiency" while only 27.3 percent think "a combination of budget cuts and revenue increases will be needed to solve the problem." And 65.5 percent opposed raising the income tax from 3 to 4.5 percent.

But when asked where government is bloated, the 800 registered voters surveyed couldn't provide any specifics. Eighty-seven percent opposed K-12 education cuts, 84 percent said cuts to state police and prisons should be avoided, and 80 percent said "programs for poor people" should be spared. In other words, voters across the state are collectively (and unknowingly) breaking the Civic Fed rule. Chris Leonard, the poll's supervisor, adds some of his own insight:

A huge underlying problem lawmakers face is the folk wisdom that the state government is so full of massive waste and fraud that, if we could only find the will to cut them, such a problem would make our fiscal problems disappear. While we could continue to find more things to trim, the size of the deficit looms well beyond what cutting waste alone can solve.

"Folk wisdom" is a good word to describe this misinformed perspective, which manifests itself in editorial boards and in gubernatorial ads.

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