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Wednesday, Nov. 25, 2009 10:07 am

The Illinois budget is broken

Embracing the simple at the expense of the wise

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The day after Veterans Day, we were reminded of another long-running war of attrition, in which clueless elected officials have been squandering resources in ways that threaten our security over the long term. No, not the fighting in Helmand Province, but in the General Assembly. On Nov. 12 the Pew Center on the States, a venerable public issues think tank, pronounced Illinois as one of the nation’s 10 most “financially troubled” state governments.

With $11.5 billion in debts, not enough cash on hand to pay the bills and massively underfunded pension funds, Illinois is financially troubled in the same sense that the Titanic was structurally troubled by icebergs. All our public sages agree that while the problem is big, the solution is simple — raise revenues and cut spending — but lawmakers should resist the temptation to embrace of the simple at the expense of wise.

The simplest way to raise revenue by far is to raise tax rates. That (apart from a prudent and necessary re-jigging of the public pension system) was at the heart of what Gov. Pat Quinn proposed in his budget address in March. But while Illinois’s income tax rate is low by U.S. standards, raising tax rates is not the only way to raise revenue. The best way would be to attend to the real revenue crisis in Illinois — a sclerotic economy that is 47th in job creation since 1977 and 44th in GDP growth over the past 10 years, and thus not robust enough to sustain a major state government.

Nor is raising the income tax rate the best way to raise revenue. The present tax system taxes the wrong things at the wrong rates, punishes the poor and small business and rewards the rich and large business corporations. The fact that it also fails to raise enough revenue seems almost trivial. Reforming the tax system would raise more revenue at the same time it remedied the worst of these faults, but people are always more eager to embrace a bad old idea than a good new one.

The commentariat judged Quinn’s talk of tax hikes to be politically nave. One can never go far wrong by calling Quinn nave, but his error was not in asking for a tax hike that people will not support. His error was failing to address the reasons why so few people support a tax hike.

Yes, Illinois’s general fund appropriation is some two-thirds higher today than it would have been if spending had only been increased to compensate for inflation since 1988. But it’s the way that Illinois spends public money that’s screwy, not the amounts. Missing equipment, malappropriated funds, outdated information and records systems, redundant or inept political appointees in key management posts, haphazard infrastructure investments — in return for massive outlays of public cash, Illinois still has mediocre schools, lousy roads, decaying water systems and crippled public transit in Chicago.

Health care for the poor, for instance, accounts for one dollar in every four in the state budget. Civic groups and think tanks point to managed care and other structural reforms that would help reduce perverse incentives in a system that now perversely rewards MDs and hospitals for conducting unnecessary tests, prescribing expensive drugs and treating people when they are sick rather than keeping them well.

The Civic Federation of Chicago and the Illinois Policy Institute have made recommendations for fundamental administrative reforms that would save billions. Mr. Quinn talked about belt tightening and fat trimming and waste cutting and the usual across-the-board cuts in department and agency budgets. If clichés were not such a glut on the market, the governor’s office could bring in some bucks by auctioning off his surplus.

If constitutionally authorized political authorities can’t or won’t put Illinois back on a sound fiscal footing, the solution is plainly to give the job to someone else. The General Assembly has authorized various bodies to take over public institutions when the people responsible for running them prove themselves unable to do so, as the Illinois State Board of Education did when it appointed a committee to run East St. Louis School District 189 in 1995.

We are nearing the point when the State of Illinois needs to be placed into this kind of receivership, with the courts overseeing a program of fiscal rehabilitation. To the complaint that it would be anti-democratic, one might note 1) that it is the democratic-ness of the present system that caused the mess in the first place and 2) what is less democratic than mortgaging the future of the state without the approval of today s five- and six-year-olds who will have to make good on the debt?

Contact James Krohe Jr. at peptobiz@mindspring.com.

Correction: Thanks to the sharp-eyed Thomas E. Davis of the Illinois attorney general’s office for reminding us that as a geographer, our Mr. Krohe is a fine newspaper columnist. The home of the young Robert Fitzgerald (“All is not well forever,” Nov. 19) stood on property now owned by the Illinois State Bar Association, not the state attorney general, as he reported.
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