That muffled "thud" we civic wonks discerned a few weeks ago was neither a sonic boom nor rooftop landing of reindeer on a practice run.
It was another crash landing of the so-called "tax swap"--the complicated proposal for state fiscal reform that has been the centerpiece of the liberal-progressive agenda hereabouts for more than a decade.
Not that the swap is dead dead. Like Mr. Dumpty, it could be reassembled and offered once again this spring to the Illinois General Assembly. In fact, civic types already are busy with the glue. They are practiced at repair, having kept the swap idea alive since its initial tumble in 1997, when then-Senate President James "Pate" Philip shoved it off the wall.
The nudge this time came from the Civic Committee of the Commercial Club of Chicago. These are the corporate chieftains who, nearly a century ago, commissioned Daniel Burnham's seminal Plan of Chicago. More recently they led the charge to expand O'Hare International Airport. They have clout.
So it was a blow to progressives earlier this month when the Civic Committee's Task Force on Illinois State Finance specifically excluded the tax swap from its list of what the state must do to avoid an onrushing fiscal disaster.
As a service to nonwonks, let us review some history and terms.
The tax swap is a sweeping proposal to reduce local property taxes and increase state aid to public schools by raising substantially the state income and/or sales tax.
There are several flavors, but the general idea is to lift state support of public education to the 50 percent level promised by our state constitution. As it is, despite steady annual increases in state subsidies, Springfield's overall share of the school load has drifted to about 36 percent. This has put a mighty strain on local property taxes, with more than two-thirds of a typical homeowner's bill now going to support elementary and secondary schools.
Trouble is, the state is in such miserable financial shape that a substantial income and/or sales tax increase is needed just to pay current bills and begin to pay down unfunded pension obligations. That's the gist of the Civic Committee report, a no-nonsense, highly readable description of a wealthy state that has undertaxed and overspent for so long that bankruptcy is just around the corner. That is, unless we raise taxes, curb our appetite for new programs and trim public retirement and medical benefits in line with the private sector.
"Illinois is headed toward financial implosion" the report begins, with liabilities and unfunded commitments exceeding assets by $100 billion, even as the state continues to spend "billions more than it takes in each year." The full report, titled "Facing Facts," is posted at www.civiccommittee.org. Yet, the study isn't all bad news for swappers. The business titans verify and echo a lot of what the progressives have been saying for years. Though belt-tightening is needed, "a significant tax increase appears inevitable" and would not disrupt Illinois' competitive posture relative to other states. Recommended is an increase in the state's personal income tax to 4 percent from 3 percent; an increase in the corporate tax to 6.4 percent from 4.8 percent; and expansion of the sales tax to entertainment and consumer services, from movie tickets to haircuts.
This proposal--remarkable on its face considering the source--would raise about $5 billion a year. That's enough to pay the state's overdue bills, fund its pension promises and, importantly, raise significantly the minimum level of state support for Illinois' poorest school districts. More state aid would, in theory, let property-poor districts ease back on their extremely high property-tax rates.
As for statewide property tax relief, it's not included. Property taxes are more reliable for schools than cycle-prone income or sales taxes, the CEOs argue, and real-estate taxes in Illinois aren't that high compared with other affluent states. Besides, they argue, more state funding for schools would mean less local control.
What the task force doesn't say, but what likely prompted Pate's Republicans to dump the swap in 1997, is that property taxes, being deductible from taxable income, are a relative bargain for those in the highest brackets. It's a back-door federal subsidy to wealthier school districts, and one reason there will be no property-tax revolt in Winnetka or Barrington Hills anytime soon.
So now the progressives have a decision to make. Should they hold out for the swap? Or accept half a loaf and march on Springfield with a powerful new ally?
Ralph Martire, a leading light of the proswap "A + Illinois" coalition, says progressives should endorse "four-fifths" of the Civic Committee report and keep pushing for the swap. Cook County Assessor James Houlihan, whose office gets hammered with property-tax complaints, says he'll keep crunching numbers to make the case for a swap.
Then again, the next muffled "thud" may be that of Gov. Rod "Spend-but-don't-tax" Blagojevich as he vetoes any tax increase, swap or no swap.
Happy New Year, Humpty Dumpty.
----------
John McCarron writes, teaches and consults on urban affairs.
