Gov. Rod Blagojevich on Wednesday plans to call for a huge overhaul of Illinois government’s finances that counts on raising $32 billion in new revenue by adding business taxes, leasing the state lottery and selling bonds.
Seeking to convince skeptics in a legislature controlled by his own party, the Democratic governor will try to make the case for new revenues by touting plans to pump billions of dollars into public schools and expanded health-care coverage, according to budget documents obtained by the Tribune.
No Illinois governor has sought to generate so much new revenue in such a short time. Some of Blagojevich’s proposals were already stirring opposition from special interest groups and some lawmakers before Wednesday’s speech combining his annual budget plan and State of the State address.
Giving his first formal assessment of the state since winning a second term in November, Blagojevich is expected to promote four themes to lawmakers under the umbrella of “investing in Illinois’ families.” In addition to education, health care and pensions, Blagojevich contends that requiring more of businesses is a matter of “tax fairness” compared with the burden borne by individuals.
“This proposal brings fairness and equity to our tax system, ensuring that Illinois continues to strengthen its economy and has the necessary funds to provide services to the people,” Blagojevich wrote in the opening pages of his state budget book.
Though Senate President Emil Jones (D-Chicago) has already indicated support for new tax levies on business, House Speaker Michael Madigan (D-Chicago) has questioned the wisdom of leasing the lottery and has said little about the proposed business taxes.
“If there ever was a day to wait for the fine print, this is it,” Madigan spokesman Steve Brown said Tuesday.
Business interests vowed to contest the new gross receipts tax on their revenues as well as a new payroll tax on employers who don’t pay health insurance. The Illinois Manufacturers’ Association printed blue buttons asking, “What’s he thinking?” mocking Blagojevich’s attacks on his vanquished Republican opponent, Judy Baar Topinka, in the fall election.
Many of the governor’s plans could pass with just the votes of the Democratic majorities in the House and Senate, but that is no sure thing. Interest groups will try to make the case that new taxes could close businesses and cost jobs in lawmakers’ districts.
Republicans, already expected to side with business in opposing the new taxes, likely would play an even bigger role in Blagojevich’s initiative to sell more bonds to deal with the state’s pension liabilities and fund public works construction projects. Though in the minority politically, GOP lawmakers are needed to reach the three-fifths majority necessary to approve state bonding.
If Blagojevich fails to win on any of his big-ticket items, the roughly $1 billion in normal revenue growth projected for the state would allow for a status-quo budget for the fiscal year that begins July 1. But it would not address the government’s pressing problems.
Blagojevich is seeking more new revenue in a single year than any Illinois governor, and the most since he won authorization in 2003 to sell $10 billion in bonds to refinance state pension debt.
Most of the proposed new revenue would come from raising $16 billion in bonds to pay off pension debt and generating $10 billion by leasing the state lottery to a private company that would run it for up to 75 years.
But all the revenue from the bond sale and lottery lease would be poured into the state’s woefully underfunded public employee pension systems, bringing the liability down from more than $40 billion to $15 billion. That could ease pressure on future state budgets.
Blagojevich’s overall spending plan for the next fiscal year is roughly $60 billion, compared with last year’s roughly $56 billion budget approved by lawmakers.
At the same time, as Blagojevich proposes new ways to generate money to alleviate a brewing state fiscal crisis, his plans do not include any forms of tax relief. Education proponents have argued any tax plans for new school dollars should include a component to reduce local property taxes.
Blagojevich’s plan calls for spending $1.5 billion in new money for public schools in the next fiscal year and would add additional dollars to that amount when the gross receipts tax would be fully implemented. The administration contends such a move would provide local school districts with enough money to prevent an increase in property taxes, which are the predominant source of education funding, though critics complain real estate taxes are already too high.
Blagojevich also is proposing a school construction program of more than $500 million a year over three years.
During his first term, Blagojevich was unable to win the bipartisan support needed to float a bond-funded construction package, largely due to distrust over where the projects would be and what lawmakers would politically benefit.
The gross receipts tax would include a 0.5 percent levy on the transaction of goods and a 1.8 percent levy on service firms, to generate $3 billion in the next budget year and $6 billion yearly when fully operational. The tax would be imposed on revenues that business takes in, regardless of profitability, sources said.
Exempt from the tax would be food and drug items, small businesses with less than $1 million in revenues, exports from Illinois, and the gambling and insurance industries, which have their own specialized tax structure. Blagojevich also would impose a business tax equivalent to 3 percent of payroll for firms that don’t offer health insurance or who offer minimal coverage, which would generate between $500 million and $1 billion. Firms with 10 or fewer employees would be exempt.
Revenues from the gross receipts and payroll taxes would help fund Blagojevich’s recently unveiled Illinois Covered health-care plan, which is eventually aimed at helping 1.5 million uninsured and underinsured state residents get health-care coverage. The administration says the cost of that plan would be low in the next fiscal year. When fully implemented, the administration says the cost would be $2.1 billion a year, through critics contend the figure could go much higher.
Remaining revenues would be earmarked for education.
Of the $1.5 billion in new money Blagojevich is proposing for education, the biggest chunk would pay for a massive increase in basic per-pupil aid, the amount the state guarantees per student. The per-student figure would rise by $686 if approved. The increase would particularly benefit districts that don’t collect a lot of money from local property taxpayers for schools.
At the same time, the $6,020 per-student figure Blagojevich is proposing falls short of the $6,405 figure that state education finance advisers recommended two years ago.
Blagojevich also will propose about $70 million to expand preschool education, one of his signature initiatives. The money would open up 12,000 more slots for the state’s youngest children to attend school.
Another $100 million would go to help struggling students through after-school tutoring, longer school days and other programs, and $40 million would be used to give incentives to teachers to work in low-performing schools.
Other initiatives would help districts offer more full-day kindergarten programs, update textbooks and cover more of the costs of expensive special-education programs.
Along with elementary and high school construction programs, Blagojevich’s new capital appropriations for the 12-month budget beginning July 1 also proposes $2.3 billion for transportation, nearly $600 million for higher education and $500 million for environmental programs, including renewable energy and biofuels like ethanol.
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IN THE WEB EDITION: Watch Gov. Blagojevich’s address live at noon on CLTV and chicagotribune.com, where you will find more details on the proposal.
