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Thursday, Jan. 12, 2012 09:40 am

Quinn’s plan shows state can’t afford to let tax hike expire

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He didn’t come out and say it, but Gov. Pat Quinn has apparently abandoned his promise to allow the “temporary” income tax hikes to expire three years from now.

The governor submitted a three-year revenue and spending projection last week as he’s required to do by a new Illinois law. The bottom line of Quinn’s projection is that revenues are simply not high enough to match what Quinn wants to spend. According to the governor’s projections, the state will finish this fiscal year with a $507 million deficit, despite the recent tax hikes.

Overall, Quinn wants to reduce the state’s operating budget by 7 percent next fiscal year, but much of that “cut” is actually a $400 million decrease in the availability of what is known as “salvage” money, or unspent appropriations. Gov. Quinn then projects no more cuts or increases in the operating budget through 2015.

The governor also believes he can keep health care spending flat for the next three years. The Senate Republicans say those projections are way off the mark. Health care inflation is rampant. The Republicans say Medicaid spending alone will have to rise by $2-3 billion over the next few years to keep pace with current laws. The governor wants to change some laws, but that would mean reducing payouts to providers (doctors and hospitals have powerful lobbyists) and kicking people off coverage and making them pay more during worldwide economic hardships. Not easy, to say the least.

Quinn’s proposed cuts are outmatched by pension spending, which will continue to increase by leaps and bounds. Years of underfunding the systems and a 1990s-era law which delayed dealing with the problem have combined to squeeze the budget hard.

And then we arrive at Fiscal Year 2015, when the governor projects a budget deficit of $818 million. As the Senate Republicans point out with their health care spending projections, that figure could be way low.

It wasn’t in his report, but Quinn’s projected deficit will double the very next year because most of the income tax increase is set to expire in January of 2015, exactly halfway through the 2015 fiscal year.

The governor has promised to allow the tax hike to expire on schedule, most prominently during an appearance in Peoria with Caterpillar’s CEO Doug Oberhelman, who has repeatedly complained about Illinois’ poor business climate.

Yet there’s no way to get rid of all that income tax increase with the governor’s three-year road map. He simply hasn’t made the cuts (even imaginary ones) or produced the necessary revenues to keep the books in balance. By Quinn’s own reckoning, all or at least some of that tax increase will have to remain. And if the Senate Republicans are right about health care spending projections, that 2016 deficit will be close to $5 billion, which is pretty much right back where we started before the tax hike passed.

I talked the other day to a Democratic political operative who said he was trying to figure out a way to explain to voters the need for the tax hike and the reasons why the state still has to cut programs and can’t pay its bills. He said he’d put a lot of thought into this problem, but was having no luck and asked if I had any ideas.

My advice was simple politics: Change the subject and attack the other side for something else.

There’s just no way on God’s green earth you can win that argument, I said. You believe the tax hikes were necessary, but saying that mass misery would have resulted had the tax hike not passed isn’t exactly easy to do when most people firmly believe that simply cutting “waste and inefficiency” will solve all our problems. And you understand why the state can’t pay its bills. There was a long-term borrowing plan, but it failed to get enough support, and, besides, the public isn’t too keen on borrowing these days.

Illinoisans have been so inundated with media hype about businesses threatening to leave and state vendors suffering from horribly late payments that no amount of political spin can alter that negative perception.

And Gov. Quinn’s spending and revenue projections show we’re heading right back to the edge of the abyss in three years, either politically via what will surely be a hugely unpopular permanent tax hike, or governmentally if the tax hike expires and the state plunges back into the red. Either way, it won’t be pretty.  

Rich Miller publishes Capitol Fax, a daily political newsletter, and CapitolFax.com.
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