Down to the wire

By Jamey Dunn and Bethany Jaeger, with Hilary Russell contributing
Some of yesterday’s moving parts actually started revolving around each other late in the day Thursday. The Illinois Senate approved two major revenue enhancements, one a sizable tax hike and another a major gaming expansion. That immediately put the onus on the House, which was in the middle of trying to advance an “insurance budget” to fund agency programs at bare bones levels.



Income tax increases and education funding
The momentum started in the Senate. Democrats tweaked a bill that was intended to address education funding, which would include an income tax increase of 2 percentage points for individuals. It would increase from 3 percent to 5 percent. Different versions of the measure have long been presented by Sen. James Meeks, a Chicago Democrat, but never found the support to pass. However, a looming deadline and $7 billion budget deficit this fiscal year has created new possibilities for an old concept.

One difference this time around is that the plan would only raise the corporate income tax rate from 4.8 percent to 5 percent, a much smaller increase than previously sought. It also would expand the sales tax to include services.

Senate President John Cullerton said the tax restructuring would help solve some of the chronic budget woes, but the plan would still come up $2 billion short of what the state needs to fully fund pensions and to maintain current spending levels. A vote for the tax plan, he said, inherently would be a vote for $2 billion in budget cuts.

House Bill 174 (the "new 750"), would provide some targeted tax relief. It would raise the personal exemption and increase the earned income tax credit over two years to protect low-income residents. It also would provide property tax relief, which attracted Democratic Senators.

Over time, the tax plan would funnel more money into education and higher education, something Meeks wanted for years to address funding disparities between school districts throughout the state.

Republicans opposed the tax increase and sales tax expansion, describing it as a mistake during a recession. Sen. Matt Murphy, a Palatine Republican, said: “There’s a lot of different ways we can go at this if we go line-by-line through this budget, and I know because I’ve done it. This will cause more Illinoisans to lose their jobs, without a doubt.”

The bill passed with only Democratic votes. Sen. Dan Kotowski, a Park Ridge Democrat, gave an emotional speech about making his last-minute choice to vote for the bill. He said he had been praying about his decision and cast the vote that he knew would make his family proud. He said he had been telling leadership that he would vote “present,” but he changed his mind during floor debate. After the vote, Kotowski encouraged some House Republicans to follow suit.

Cullerton said that passing the bill in the Senate may help House Democrats feel safer about changing their minds. However, he said that the bill would need Republican support to pass. “When one chamber starts and passes a bill, they see that we’re still walking around — we’ve got a different version of what the governor has — that there’s a way to do this. So I think it’s a good start.”

But Gov. Pat Quinn is still backing the income tax proposal that has been introduced in the House. “I think the [temporary income tax] plan we have here in the House is probably the one we’ll have to go with. It’s straightforward. It’s pretty simple. It’s for two years. And the whole idea is for at least at this time to hold off dire catastrophes.”

Gaming
Momentum to consider alternative revenue sources continued with a Senate vote to expand gaming by adding four new facilities, including new gaming facilities in Chicago, Waukegan, Rockford and Danville. Existing gaming facilities, including horse tracks, also could start operating more slot machines. Senate Bill 744 would generate at least $150 million upon issuing the licenses, according to Sen. Terry Link, a Waukegan Democrat. Once the new facilities were up and running and the economy improved, he said the package could generate up to $1 billion a year.

Building new casinos and riverboats has been tried numerous times in the past few years, and similar proposals haven’t advanced in the House. But, Link said: “They need money and here’s a good way to give them money. So I think it's future is a lot better tonight.”

Rep. Bill Black, a Danville Republican who would receive a gaming facility in his district through Link’s bill, said the state may need an income tax increase. Then again, he said: “When you’re drowning and a life preserver floats by, your impulse is to grab it. When you have a community that’s so desperate for investment and jobs, you turn to things you normally wouldn’t even consider. I would support the riverboat. I don’t have the luxury to say I don’t.”

Bare bones budget
The so-called “insurance budget” advanced by House Democrats as a back-up plan would fund state agencies at about 80 percent of the level they were funded at last year, which would be about 50 percent of the governor’s proposed budget.

Majority Leader Barbara Flynn Currie tried early in the day to advance a temporary income tax increase. That wasn’t gaining enough votes. So late Saturday night, Currie tried to at least approve the “insurance budget” to keep the lights on, so to speak. Without it, agencies would be funded at 32 percent of Quinn’s proposed budget.

But after word spread that senators approved an income tax increase across the rotunda, several House Democrats started to peal off support for a bare bones budget. Rep. Sara Feigenholtz, a Chicago Democrat and vocal advocate of human services, urged fellow lawmakers to hold off on a bare bones budget to “continue to fight for more solutions.”

Currie said she would prefer either version of an income tax over a bare bones budget, but it was a way to ensure something landed on the governor’s desk just in case chaos ensued Sunday, the last day of the regularly scheduled session.

If all else fails, Currie said she would call the bare bones budget again before Sunday’s midnight deadline. Here’s what it would do:

On the revenue side:

• Sweep $356 million from dedicated funds four times throughout the year.
• Refinance debt to get a 4 percent interest rate and save $600 million next year, saving $237 million over the life of the bonds.
• Along with tapping into federal funds and starting other efficiencies, it would generate about $1 billion.

On the spending side:

• State agencies could receive lump sums at half the funding level proposed by the governor.
• The administration would have to figure out how to spread the money around and to cut certain grant programs.

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Zip, zero, zilch

By Deanese Williams-Harris
Not a single representative voted to support Gov. Rod Blagojevich’s proposed gross receipts tax, the crux of his spending plans for next year. Signs saying, “No means no, Governor,” were taped to the desks as the House voted on a nonbinding resolution asking whether members were for or against the tax plan. Zero voted in support, 107 voted against and seven voted present.

A silent observer was Sen. James Meeks, the Chicago Democrat co-sponsoring an alternative tax plan, HB 750, with Rep. David Miller, a Lynwood Democrat. It would swap higher income taxes and sales taxes for lower property taxes. Miller said the vote was a sign that members are willing to look at a different revenue source to fund education and to meet the state’s current obligations. “The GRT concept has been defeated today,” he said. “We need to look at an alternative plan, and I believe that plan is 750.”

As Blagojevich said Thursday, however, he would veto any increase in income or sales taxes as called for in 750. Miller didn’t seem too concerned because he said lawmakers could override the governor’s veto if they gained enough votes.

Before the House took the vote, Blagojevich issued a statement urging them to vote against the GRT resolution. “Considering that this meaningful dialogue was initiated just 24 hours ago, it would be premature to conclude the discussion today and ask members to make a decision before they have an opportunity to get answers to their questions and offer their ideas,” Blagojevich said. “So we are asking all members to vote ‘no’ to send a clear message that this issue is too important for a rush to judgment on a non-binding resolution.”

Abby Ottenhoff, a governor’s spokeswoman, said she wasn’t surprised by today’s outcome. “It isn’t a true reflection of what the long-term outcome will be,” she said. Regarding the questions House members asked during Wednesday’s special committee on the GRT, Ottenhoff said the governor’s office expects to have written answers ready in a few days.

Feds tag another kickback
By Bethany Carson
Former Chicago Ald. Edward Vrdolyak was indicted on federal fraud charges for allegedly scheming with one of Gov. Rod Blagojevich’s appointees, Chicago businessman Stuart Levine. The two allegedly worked in “behind-the-scenes manipulation” to pad their own pockets at the expense of the Chicago Medical School, according to a release from U.S. Attorney Patrick Fitzgerald’s office.

Levine already pleaded guilty last fall and is working with the feds in an ongoing investigation called “Operation Board Games.” The governor’s chief fund-raiser, Tony Rezko, also was indicted and pleaded not guilty in the same investigation. You can read more in my October 2006 blogs and about Operation Board Games here.

Vrdolyak’s indictment says he worked with Levine between 2002 and 2006 to steer a contract involving property owned by the Chicago Medical School, where Levine sat on the board of trustees. The alleged scheme was that Vrdolyak, an attorney, would solicit a certain Chicago real estate company, Smithfield Properties Development, to turn the medical school’s property into condominiums. And Levine would use his political influence on the medical school board to ensure the job was given to Smithfield. The deal would result in a $1.5 million payment to Vrdolyak once the condos were finished, and Vrdolyak would give a chunk to Levine. They never got their money, the prosecutor’s office says, because the condos aren’t finished and the investigation got in the way.

If convicted, Vrdolyak would face a maximum 20 years in prison for each count of mail fraud and wire fraud and another 10 years for one count of bribery. He was charged with four counts total. He’ll be arraigned in Chicago at a later date.

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Governor's Tax Relief, Education Spending Still Not Good Enough

Thanks to CapitolFax, we now know that the Governor's Gross Receipts Tax has been sugarcoated with $1 billion in property tax relief. I say sugarcoated because the Governor's proposal provides only a fraction of the tax relief included in House Bill 750. And while Blagojevich still hasn't made the details of how his property tax relief plan would work, my bet is that he will be following President Jones' edict that property tax relief only goes to low-income families.

A property tax relief plan that fails to recognize that skyrocketing property taxes have hurt middle class families and Illinois employers is a failure in my book.

The two plans compared:

Blagojevich Gross Receipts Tax:

$1 billion in property tax relief, targeted to low-income families

• Only 9.2 percent of Illinois families are below the poverty level, and an estimated 50% or more of them rent and would not receive property tax relief;
• No property tax relief for middle class families;
• No property tax relief for employers.

House Bill 750:

$2.7 billion in property tax relief to every homeowner and employer in Illinois

• Every homeowner and employer receives a 20% - 25% rebate on their property tax levy for local schools;
• Property tax relief is spread across the state:
• 15% of property tax relief goes to Chicago;
• 27% of property tax relief goes to suburban Cook County;
• 32% of property tax relief goes to Collar Counties;
• 24% of property tax relief goes to Downstate Illinois;

• Property tax relief offsets net increase in corporate income taxes, so that Illinois employers see a net decrease in direct taxes paid by $100 million.

$900 million in additional direct tax relief for bottom 60 percent of family taxpayers

• Expansion of Family Tax Credit is fully refundable;
• Ensures low-income renters enjoy tax relief;
• Guarantees that bottom 60% of all taxpayers will see no net increase in tax burden.
  

At the end of the day, the Governor's plan calls for $8.6 billion in new taxes, with only $1 billion in tax relief, for a net increase in taxes of $7.6 billion. Funding for K-12 classrooms will increase $1.5 billion the first year, bringing foundation level funding to schools 6% below recommended levels. Higher education will see a meager $50 million increase.

House Bill 750 generates $9.05 billion in new taxes, but provides $3.6 billion in tax relief, for a net tax increase of only $5.45 billion, or 30% less than the Governor's plan. House Bill 750 provides $3.9 billion for K-12 classroom instruction in the first year -- 260% more than the Governor's plan, bringing the foundation level funding for schools up to 100% of recommended levels. In addition, HB 750 provides $300 million more for higher education, 600% more than the Governor's plan.

In the final analysis, only 20% of the net new spending in the Governor's plan goes to education, while 72% of House Bill 750's net new spending goes to education. Granted, this doesn't include new spending on school construction, and I'll post comparisons of both school construction plans as soon as they are available.

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GRT gets headlines while Madigan plays with HB750

Phil Kadner at the Daily Southtown has the scoop that I haven't seen anywhere else.

The Illinois House of Representatives Committee on Appropriations -- Elementary and Secondary Education is expected to hold a public hearing today on House Bill 750.

This is a measure that would change the way public schools are funded by increasing the state income tax from 3 percent to 5 percent....

Lots of good stuff in his column. Last year Speaker Madigan didn't let this tax increase go anywhere even after a Senate committee approved it. Now he's apparently allowing a House committee vote on it, which should raise more than a few eyebrows. Blago's gross receipts tax and new 3% payroll tax are horrible, but HB750/SB750 is also bad.

Not that I think they are smart enough to pull it off, but it almost looks like Madigan and Blagojevich are working together to make sure some form of tax increase is passed this year. Blago proposing the awful gross receipts tax sure does make HB750/SB750 look a lot better in comparison and sets HB750/SB750 up to be a compromise. Watch your wallets and call your Reps.

If it's voted on in committee today I'm going to be very curious to see how Republican Reps. Eddy and Prtichard vote, both of whom have not ruled out support of an income tax increase.

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