Revised at 4 pm on Thursday.
Dabrowski was critical of Gov. Rauner for including too many spending increases-- and leaving the door open to tax hikes-- which the Illinois Policy Institute seems to view like a plague of locusts that leads to famine.
Or, as Bill Clinton and Governor Rauner might say, “It’s political economy, stupid.”
Gov. Rauner(R-Winnetka and Springfield) appeared to thumb his nose yesterday at the Republican Party conservative base, led by John Tillman’s Illinois Policy Institute, the IL Chamber of Commerce and other key economic conservative groups around the State.
--Gov. Rauner tells his base he must be conciliatory
The Governor gave his third annual budget speech yesterday (with a $4.6 billion deficit; $37.3 billion in spending and $32. 7 billion in revenue) to the General Assembly with the omnipotent House Speaker Mike Madigan having his back, so to speak (Madigan saying "It's the Russians," when the Governor's teleprompter failed him).
Rauner essentially said to those people who supported his 2014 promise to shake-up Springfield: “Thanks for staying with me and I am sure you will understand that now I have to work on Independents and moderate Dems for my 2018 re-election campaign, and run to the center.”
In other words, the Governor said that he can’t really talk much about the Turnaround Agenda in the way his base would like. The moderate Kirkies and Mungerites have kind of taken over his office and his mind.
The Kirkies and Mungerites whose political track record is admittedly mixed, are unanimous in telling Rauner to be conciliatory and talk of working together with the Democrats on the Grand Bargain. In short, this is not the time to be strident with a strong, conservative economic message.
--Politics dictates Rauner govern in pale pastels, not bold colors
It is as if the billionaire Rauner said to his base, “Look, let’s be smart politically. I know you don’t think much of my proposed economic reforms, as currently constituted: The property tax freeze that passed the State House is a mess (too many exemptions) , the proposed Democratic Party workers comp. reforms are weak and ineffective and Cullerton’s pension reform bill will hardly save any money and would most likely be held unconstitutional.”
Rauner is surely arguing to his base, when they have a few private moments, “These reforms can’t justify anything like the 5 to 6 billion dollar income tax increase that the Democrats want, especially with virtually no spending cuts.”
Rauner would surely go on to argue, “But, the Speaker won’t even agree to the above reforms, let alone to the ones I really want, so, don’t worry, no Grand Bargain gets done and no 'Bad laws,' get made because no laws get passed."
--Rauner beats the Speaker at his own Chess game, winning in 2018
So, continues Gov. Rauner, “The state stays a mess through the 2018 election, but I blame the Speaker and the Dems for that, and the voters agree. The Democratic Candidate for Governor, whether it is Chris Kennedy or J.B. Pritzker, never will articulate any substantive positions on the budget (these guys don’t take risks; they were born with money, not with ideas), so they don’t come close to beating me.” Just let me keep reaching out to the voters in the middle.
Rauner no doubt concludes with something like this: “We pick up a truckload of House and Senate seats, the remaining Dems gets scared --------, we easily get our reforms, spending cuts and a balanced budget after the 2018 election-- and the State turns around the next year, with a massive influx of people, businesses and jobs.”
Trust me, says the Governor to his base, “I know what I am doing “
--Enter the Illinois Policy Institute, stage right
So, I called up Ted Dabrowski, long time VP of Policy at the Illinois Policy Institute, yesterday to see what he thought of the Governor’s speech. Well, yes, you will have to read between the lines of our conversation, below, a bit, but I think you can see my analysis is “Spot on,” using language that the Governor, the Kirkies, the Mungerites and even my good friend, Chicago Tribune liberal columnist Eric Zorn, can all agree on. Eric loves that phrase: “Spot on" but, being a card carrying liberal, Eric, like his fellow traveler libs, is not very attracted to term limits or low taxes and is skeptical of Rauner's new conciliatory tone and effort to work in good faith toward a compromise with Dems.
Ted, what do you think of the Governor’s comments re his Property Tax freeze?
--Permanent property tax freeze right thing to do
Ted Dabrowski [VP, Policy, IL Policy Institute]: Well, Jeff, the permanent property tax freeze is the right thing to do, but the legislation needs to include all local governments in that freeze, not exempt home rule jurisdictions, etc. And it shouldn’t make so many other exemptions [Ed. Note: Indeed, the House bill may exclude about half of the state’s property tax payers].
Dabrowski: And, Jeff, the state needs to cut state mandates on local governments. That is, restrictions on local governments like prevailing wage laws and project labor agreements [that force villages and municipalities to inflate their construction, maintenance and other costs by paying union, i.e., above market, wages] must be repealed by the State.
Berkowitz: Any other restrictions on local governments that should be lifted by the State?
Dabrowski: Yes, another very important mandate to remove is the restriction that doesn’t let municipalities and village governments curtail the scope of collective bargaining. Remove that state restriction and local municipalities and village governments could negotiate better contracts with public sector unions, [Ed. Note: this is especially true for suburban village school board agreements with teachers’ unions, as in the Governor’s home town of Winnetka, where K-12 public education costs often account for about 60 to 70% of a local property tax bill for an individual or business entity].
--Better to decrease property taxes
Ted Dabrowski, who comes out of the real world of business and the Harris School with a degree in Public Policy/economics, emphasized that a real estate property tax freeze is a good start, but it would be better public policy for the local governments around the state to decrease, not just freeze, property taxes. A freeze would maintain taxes at their improperly inflated levels. It is like a bulging tire. Why not put the proper level of air in the tire, by reducing, not freezing, the amount of air in the tire.
Finally, on the topic of a property tax freeze, Dabrowski emphasized that the local government collective bargaining agreements are so onerous because public sector unions have the power to go on strike.
Substituting professional, balanced arbitration boards to resolve bargaining disputes would be a good way to reduce the monopoly power of local public sector unions. [Ed. Note: This is especially true with respect to the monopoly teacher unions; parents can’t take their tax dollars and go a competing school, so the unions exert their monopoly power by threatening parents and the school board with a strike—which leaves parents with almost no place to send their kids when the parents go off to work—so the School boards cave, giving enormous salary and benefit increases to the teachers, and a gigantic bill to citizen payers of property taxes]
Berkowitz: What do you think of Rauner’s proposed service tax?
Dabrowski: We don’t know the details of the proposed service tax, but opening up another fountain of taxation is not a good idea-- unless the proposal is revenue neutral, i.e., another tax should be cut to offset the imposition of yet another increased burden of government on the taxpayer.
Berkowitz: What do you think of the Governor continuing to argue for term limits?
--Spending reforms are the most important objective
Dabrowski: Term limits are important but we need spending reforms more than anything else. If we do not have spending reforms, we will end up with tax hikes that are bad for the economy, causing businesses to close or exit from the state, job declines and outmigration of people [productive taxpayers]. IL needs tax relief to keep and attract more jobs-- more than it needs term limits.
Dabrowski didn’t say it, but I am sure he thinks Republican Rauner should be mindful of the wisdom of the late, great Chicago Sun-Times based and nationally syndicated columnist, Robert Novak, “God put Republicans on this earth to cut taxes [not to freeze or increase them].
Dabrowski declined to give Gov. Rauner a grade for yesterday’s budget speech, but he noted that the Governor attacked a lot of the right issues.
--Too many spending increases
However, Dabrowski was critical of Rauner for including too many spending increases-- and leaving the door open to tax hikes-- which the Illinois Policy Institute seems to view like a plague of locusts that biblically leads to famine [Although Dabrowski was careful to note that Rauner can still argue to his base—he has not raised taxes yet, and therefore caused no plague of locusts or famine- yet ].
So, without saying it explicitly, I think you can see that Dabrowski’s assessment of Rauner’s speech supports my analysis of the political situation.
Dabrowski and the Illinois Policy Institute would like it if Governor Rauner would come out for a more solid property tax freeze, or better yet a solid property tax cut. And as importantly, the Illinois Policy Institute’s VP for Policy would like new flexibility for local governments to reduce their public sector union employee costs.
Again, Dabrowski did not say it, but it’s clear the Policy Institute would like more solid workers comp. reform, especially one with an improved causation standard.
And, the Policy Institute has long made clear that it would like true pension reform that, among other things, takes control over state employee pensions away from politicians and gives it to the individual employees.
--Name of the game? Political economy
But, the most important takeaway, I think, from the Governor’s speech and Dabrowski’s analysis is that the name of the game is not economics. Nor is it politics.
No, there is a reason why for almost a hundred years, the best journal at the best Graduate School of Economics in the best country- that of the University of Chicago —has been called the Journal of Political Economy.
Or, as Bill Clinton and Governor Rauner might say, “It’s political economy, stupid.”
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Tags: Bill Clinton, Bob Novak, Eric Zorn, Gov. Rauner, Hotelling models, IL property tax freeze, IL service tax, IL term limits, IL workers" comp, Illinois Policy Institute, Jeff Berkowitz, Job growth, John Tillman, journal of political economy, middle voters, outflow of population from IL, political economy, Public Affairs, Rauner's IL FY2018 budget speech, reform, Ted Dabrowski