This article was published by The McAlvany Intelligence Advisor on Friday, June 23, 2017:
When politicians call for unity, they usually mean “what’s mine is mine and what’s yours is negotiable.” In the case of Illinois, Governor Bruce Rauner (shown)’s Tuesday night closed door compromise offer to intransigent Democrats to get them to agree to a budget before the June 30 deadline was called a capitulation by The Wall Street Journal:
On Tuesday evening the Governor with the worst job in America explained why he and his fellow Republicans have offered to raise taxes for the sake of ending a multiyear budget impasse with Democrats. He said he’ll accept a four-year increase in the flat state income tax to 4.95% from the current 3.75%, expand the sales tax, and implement a cable and satellite TV tax.
This is a political defeat by any definition since Mr. Rauner campaigned on lowering the income tax to 3%, not on restoring the rate close to what it was under the last Democratic Governor. The “temporary” 5% rate partially sunset in December 2014. Democrats who run the legislature refused to negotiate over a budget unless Mr. Rauner agreed to a tax increase, and now they’re refusing to make notable spending or economic reforms in return.
That’s the problem Rauner has faced ever since he took office in January 2015. He ran on a platform that included decreasing personal and corporate income taxes, term limits for politicians cemented into place through years of union influence and corruption, pension plan reform to rein in the $130 billion funding shortfall, right-to-work laws allowed in any Illinois city, and prohibitions against buying politicians with union contributions.
But none of that appeared in Rauner’s hat-in-hand offer to the Democrat-controlled legislature last week. Said the Journal:
The bigger problem is that his proposed deal includes almost none of the reforms Illinois desperately needs to compete with neighboring states and repair its fiscals. It includes nothing on right-to-work and little workers’ compensation reform. It doesn’t give local governments the collective-bargaining reforms they need and it fails to solve the state’s $130 billion or so in unfunded pension liabilities.
The protagonists in the political brinkmanship are House Speaker Michael Madigan, a Democrat with close ties to the state’s unions, and Governor Bruce Rauner, the first Republican in years to occupy the statehouse. Funding his campaign with personal funds gained as a successful hedge fund manager, and aided by another Hedge Fund manager, Ken Griffin, Rauner made clear his intentions in 2014. Griffin spoke for Rauner when he said that Illinois needed to “cut spending and overhaul the state’s pension system, impose term limits, and weaken public employee unions.”
Rauner thinks local governments should be allowed to pass right-to-work laws that would weaken union influence. He expanded on that by holding that the state should ban union political contributions, saying “government unions should not be allowed to influence the public officials they are lobbying, and sitting across the bargaining table from, through campaign donations and expenditures.”
Rauner wanted to reduce the state’s minimum wage, claiming in January 2014 at the start of his campaign for governor that “we could have a lower minimum wage or no minimum wage as part of increasing Illinois’ competitiveness.”
Rauner also called for the state’s personal income tax rate to be reduced from 5% to 3.75% while reducing the state’s corporate income tax rate from 7% to 5.25%. He called for a cap on local property tax rates and for term limits (pledging himself to serving just eight years if reelected).
Michael Madigan, on the other hand, is one of those Democrats who have sold out to the state’s unions and who is now firmly cemented into place. Madigan first showed up in 1971 working diligently to become the speaker of the House and along the way earning the well-deserved title of “the Velvet Hammer – aka the Real Governor of Illinois” from Chicago Magazine in 2014. Rich Miller, editor of Capitol Fax, wrote “the pile of political corpses outside Madigan’s Statehouse door of those who tried to beat him one way or another is a mile high and a mile wide.”
Madigan has successfully stalled Rauner at nearly every turn. When Rauner got a bill passed to modify some of the state’s pension plans, the state Supreme Court ruled against it, saying that it was a constitutionally inviolable contract that could not be breached. When Rauner presented budgets, Madigan either ignored them or offered his own with outrageous increases in taxes that were unacceptable to Rauner.
For three years, the state has been operating without a budget and unless an agreement is reached by June 30 it will be four years without a budget.
Rauner, speaking briefly to a closed session at the state house on Tuesday night, urged “unity” in solving the state’s staggering and rapidly accelerating financial problems. Those present reported afterwards that the governor said that, “Failure to act [on his budget proposal] is not an option. Failure to act may cause permanent damage to our state that will take years to overcome.”
The state has already suffered massive damage. The quality of the state’s bonded indebtedness has been downgraded 21 times since 2009, and now sits just one notch above junk. With the last downgrade, S&P Global analyst Gabriel Petek threatened that his agency would reduce the state’s credit rating to junk status unless a budget was passed by the end of June: “If lawmakers fail to reach agreement on a budget … it’s likely we will again lower our ratings [to junk].”
On June 9, Moody’s Investors Service downgraded seven of the state’s universities’ credit ratings, with five of them now rated as junk. Last week, contractors working on the state’s roads received notice to stop work on all projects because “appropriate funding is not available after June 30.”
Illinois Democrats are turning the state into a banana republic, and yet, Rauner is running for reelection. Why he would subject himself to such brain damage is an open question. If he wins he’ll see Madigan across the table from him. If he loses to a Democrat, then Madigan will have his way: increasing taxes once again, protecting the union pensions, putting off the day of financial reckoning a little further, and assuring his constituents that the present danger of being forced to behave as responsible adults in the face of mathematical disaster is past.
The Wall Street Journal: The Illinois Capitulation
The Journal Star: Bruce Rauner calls for unity ahead of special session