Thursday, August 11, 2005

Bonding time....and the veto of the Senate GOP

The feds have put down a lot of money. And now the State needs to come up with a 20% match? How do we do it?

Bonds.

So if we need to come up with $200 million a year, starting next year, we either have to raise taxes or cut spending by $200 million for the next five years (the federal transportation bill is a five year bill, as I recall), or we can get that billion by raising taxes by only $40 million over the next 25 years, and then borrow the billion dollars (which $40 million over 25 years would generate) by selling a bond to the general public and paying it back with the $40 million.

Illinois likes bonds.

The problem with bonds is that you have to pay more than $40 million over 25 years. You have to pay interest. And you have to pay the bond company to set up the paperwork to sell a billion dollars worth of loans to the public (fees are a percentage of the take and worth millions), which is where some of the shadiness comes into play. That's why clean government conservatives like Steve Rauschenberger are agahst that Bob Kjellander, probably the biggest GOP bigwig in Illinois and a close friend of Karl Rove, is in the bond-selling business as well. It smells like clout as a business model to them, and that's really behind much of the internal strife of the GOP -- much more than abortion rights, say.

I'm not so sure about bonds as a policy. It seems more honest to pay-as-you-go, meaning you raise the money you need in five years instead of raising the money over 40 years but spending it all this year. On the other hand, if the thing that you are buying lasts for 40 years (like a highway), then maybe it makes sense to pay for it over 40 years. But the temptation to move costs that are consumed this year only (like personnel) into the bond money (which is going to be paid in small increments over the next two generations) is very strong, and that's irresponsible. That's a fair critique of some moves of the Blagojevich Administration so far, and hopefully we can figure out a way that won't happen going forward.

Anyway, this issue is at the heart of why Dems would like to elect three more state senators. Right now, a unified state GOP caucus under the relatively ornery Frank Watson can block a bond, because you need 36 senate votes and the Dems only have 33 (with Independent James Meeks). Now that the northwest crescent of Republican senators have announced their retirements, there is a real opportunity for the Dems to flip these rapidly Latino-izing districts and build up 36 votes in the senate, giving us a chance to bond without the consent of Frank Watson.

Governor Blagojevich started to put pressure on the senate Republicans to get behind a bond in the veto session yesterday, as the Tribune puts it here:

As Blagojevich discussed the idea of diverting money from the Prairie Parkway, he also tried to use the project's most significant backer, Hastert, as leverage in urging Republicans to support road-construction bond legislation in Springfield.

"I think it's going to be awfully hard for some of the Republican leaders who have been holding up this legislation to stand in the way of building roads and putting people to work and fixing an infrastructure, including a Prairie Parkway that Speaker Hastert has fought so hard to try to see happen," Blagojevich said.

Because a supermajority vote of lawmakers is required for the state to issue bonds, Republican votes are needed despite Democratic control of the legislature.

But Republicans have balked at Democratic construction bond initiatives. They are distrustful that the Democratic governor would fund initiatives in GOP districts, and they contend he has used road-fund dollars for non-road construction purposes and argue that Blagojevich has resorted to borrowing in lieu of dealing with the state's fiscal woes.

Senate Republican leader Frank Watson of Greenville noted Democrats as well as GOP members have previously rejected Blagojevich's proposed funding sources for new bonds. And Watson said lawmakers in both parties don't trust Blagojevich when it comes to actually releasing money for projects.

"He's got a terrible track record of living up to commitments," said Watson.

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So that's the deal.

There is a really unfair critique that Watson and the GOP have of Blagojevich: first the GOP soundly rejects any tax increase like closing a software loophole or raising a cigarette tax (both of which I personally support as good policy) and then they say that Blagojevich won't deal with the state's deficit and instead relies on borrowing. Well, if the GOP won't raise any taxes at all, and they certainly aren't interested in cutting spending, and if the GOP has a veto over any bonding measures, then what else can the Administration do but borrow? The part that I think is unfair is that the GOP hasn't worked to support a revenue source for a bond, but then can complain that there isn't a bond to match the dollars. Maybe this is a premature critique of the senate GOP's action for veto session, since it isn't clear what they are going to do yet, but I do think since they do have a seat at the table on any bonding measures, they have some responsibility to support a revenue source. And if they don't and they veto a bond, then the editorial boards (especially the Trib) shouldn't wrap the GOPers up in a glow of fiscal respectability.

21 comments:

Anonymous said...

It's about time this governor agreed to fund his own priorities. If that means a tax hike, then so be it. If he won't find the money to pay for things along the way, then he ought to be ready to say why we can't do it.

cal skinner said...

Roads are not built to last 40 years in Illinois. The best are supposed to last 20 years. Asphault overlays last about 5 years. If memory serves me correctly Illinois FIRST bonds were 25 years. That meant my (at the time 3 -year-old) son would be paying them off when he was 28. The roads would, of course, have crumbled by then.

Anonymous said...

is there funding for research into building roads that last longer?

do private universities such as U of C or Northwestern have any resources devoted to state of Illinois concerns and policy?

Anonymous said...

cal's post points to another concern. simply maintaining infrastructure (existing or new) is expensive. building new infrastructure adds new up-front and ongoing maintenance.

people do not get as excited about "maintenance". it is not as glamorous.

Anonymous said...

11:04,

Both the unions and the bond companies would oppose longer-lasting roads.

Anonymous said...

"Both the unions and the bond companies would oppose longer-lasting roads."

this is kind of sad and times may require us to build better roads.

the population is growing. the amt of traveling per person may also be growing. thus, we may need more infrastructure. as we build more infrastructure, it becomes critical to minimize ongoing maintenance expense or we will crumble trying to pay for the roads.

there should be plenty of work for unions and bond companies in the future. cars did not exist 100 years ago. there will be stuff like cars 100 years from now that will require bonds.

productivity is a big idea. it fuels growth in the U.S. the govt should find productivity improvements - longer last roads would be a good start.

even if we have better roads, there will still be work for unions and financiers.

Anonymous said...

how big is govt payroll these days?

slow the rate of growth of government payrolls and use the $ to match.

develop better consumer education at undergrad level and people in illinois will be wealthier even though they have slightly lower salaries-

Lazerlou said...

How about we tax the rich. A progressive corporate income tax. And a state estate tax, especially if the freaks in washington abolish it. Oh yea, how about more sin taxes. On transfat, on processed sugar and on legalized drugs. My god think of the money the state would be rolling in.

Anonymous said...

Lou,

How about collecting the education portion of the property tax state-wide?

Anonymous said...

lazerlou

you have some good insight.

however, overdoing the soak the rich stuff may encourage "the rich" to move elsewhere.

Anonymous said...

"sin" taxes disproportionately hurt lower income people, and people of more modest means. higher prices do not necessarily curb consumption.

how about taxing personal income of people that work at tobacco and alcohol companies?

Anonymous said...

What is the state of the Philip Morris litigation in Illinois?

What kind of $s are involved in this? Where would the $s go?

What is your perspective on this situation?

respectful said...

Higher prices do reduce consumption. That's well established with both cigarettes and alcohol.

The GOP will vote for a bond plan only if they are involved in making it. Let me remind Dan that when Madigan was in the minority, Dems unanimously voted against all bonds the Edgar adminstration sought. You can't criticize Watson for doing what Madigan did unless you chastise him as well.

Anonymous said...

"Higher prices do reduce consumption. That's well established with both cigarettes and alcohol."

show me. demand for cigarettes and alcohol is not nearly as sensitive to price as for other goods.

Lazerlou said...

I have no problem if sin taxes disproportionately affect lower and middle class people. That's cause there are lots more of them. Whatever it takes to cut back on consumption of things that are killing us. Let's price them out of the market and make eating garbage a luxury and smoking cigarettes and smoking pot and drinking liquor.

And how about we join the rest of the modern world and tax gasoline. Let's start pricing more people into public transportation. Then it might get the funding it needs when snobs like me feel compelled to save gas and tolerate rubbing shoulders with the masses.

Lazerlou said...

Yes and your worry about pricing people out of Illinois (I'm now a Californian) is legitimate and is an unfortunate outcome of federalism and the race to the bottom of competition between states. We are allowing corporations that controll massive wealth and jobs and power to play states against each other. The race to the bottom is killing our country's environment and it ultimately is disadvantageous to regualr people in favor of those with power to influence government, i.e. large private corporate interests. Time to amend the constitution. A strong central government and efficient regulation are our only hope.

Dan Johnson-Weinberger said...

I wonder if we could build roads to last 25 years in our climate. Is it possible? Good idea to develop more financial literacy / consumer education. Any ideas how to do that? (Undergrad isn't so hot since only about 25% of the population goes to college). We kept our state estate tax, so that's good. But we don't have a progressive income tax (only a 3% tax on income with a $2000 personal exemption -- both very low). And yes: tax gasoline!

Anonymous said...

highway people are probably already working on productivity improvements for highways. however, it probably does not hurt to add a little bit more to research on this, and with a commercial tint also. i bet more productivity improvements exist - not just in making roads last longer. Maybe we could invent something at one of our fine engineering schools, trademark or patent it, and sell it to the rest of the world (this would generate jobs and tax revenue). There are also probably process innovations to maintenance and numerous other things.

The undergrad course could be internet based as well as instructor led. IL residents with computers could take the internet course for free. public libraries have the internet. we could put more internet kiosks in public areas. This would improve the productivity of profs at undergrad public universities - using the internet they can teach 000s.

cal skinner said...

I am told that roads are regularly built to a 40 year standard in Europe.

The company that is building (or has built) the new four-lane north south freeway in Arizona hired French engineers to tell them how to do it. I was told it is asphalt and the company building the road had to agree to maintain it for the specified time.

When I suggested that the Dan Ryan be built to a 40-year standard, I was told by a Democrat that was not a good idea because jobs were the goal.

Oh, well. HIgher taxes in the long run.

cal skinner said...

Forgot to add that the 40-year road costs 50% more than the 20-year road.

Jack Darin said...

One way to make roads last longer is to mix in old ground-up tires in with the asphalt. This makes it more elastic, so it responds better to our freeze-thaw cycle, and is also a great way to get rid of old car tires. (And a great alternative to just burning them in toxic-spewing incinerators in poor communities like Ford Heights.)

Unfortunately for a few, that would mean you sell less asphalt, so IDOT has never embraced the idea.