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Illinois: The state that<br /> doesn't work

Chicago may be “the city that works,” but it resides in a state that is clearly not working politically. The spring session of Illinois General Assembly failed to address any of the major economic issues facing the state before the May 31 adjournment deadline: (1) the passage of the state budget for fiscal year 2008, (2) the residential electric rate controversy and (3) the continuation of the Cook County property tax assessment caps. In addition, funding for mass transit in Chicago was not addressed.

The General Assembly, however, did agree to grant themselves a substantial pay raise that was hidden in a bill providing benefits for families of deceased veterans and other social service programs.

While these outstanding issues will ultimately be dealt with or at least papered over, the prospects for a constructive resolution of the broader issues appear dim. This inaction and ineffectiveness are puzzling given the fact that Democrats now have a lock on state government in Illinois. All the state constitutional offices (governor, lieutenant governor, attorney general, treasurer and comptroller) as well as the speaker of the House and president of the Senate are Democrats from the city of Chicago. The Democrats hold substantial majorities in both Houses of the General Assembly including a veto-proof majority in the Senate.

This political dominance has not brought an “Era of Good Feelings” to Illinois similar to the early 19th Century in the United States during the Madison and Monroe presidencies when there was one-party rule. In fact, bitterness and ill will among the Democrats in Illinois are more intense than inter-party conflicts of the past.

Why is it so hard to get anything done? Surprisingly, politics in Latin America may shed some light on this. The situation in Illinois is similar to the old Peronist Party in Argentina and the old PRI in Mexico. When these parties had almost total control of their respective governments, political disputes did not disappear. Instead, they took place within the parties, often with considerable rancor. A large part of politics involves dividing up political spoils and dispensing other benefits. These issues do not go away with one-party rule. In a state like Illinois, these distributional struggles are now taking place within the Democratic Party.

There are also issues of personality. Although he was re-elected overwhelmingly, Gov. Rod Blagojevich seems to have few supporters within his own party who will stand with him on policy issues. In the past, he has attempted to blame the General Assembly for the state's fiscal problems, most notably referring to members as “drunken sailors” on a “spending orgy.” Scoring points this way in the short-run has come back to haunt him. The governor and the General Assembly now are engaging in a petty feud over who is working harder. The governor has criticized the legislators for not being in session every day during the overtime period. Democratic members have responded by suggesting not only that the governor does not come to Springfield regularly, but that he does not even go to his Chicago office, instead of staying home or jogging in his neighborhood.

The relationship between House Speaker Michael Madigan and the governor appears especially prickly. Over the years, Madigan has been a consistent critic of the governor's fiscal schemes and this year orchestrated the embarrassing 117 to 0 rebuff in the House of the governor's gross receipts tax proposal. There may also be suspicion on the governor's part that Madigan is attempting to make him look bad to further the prospects of his daughter Attorney General Lisa Madigan, who is presumed to be a candidate for governor in some future election. Blagojevich may not have been concerned about this in the past when his attention was focused on an eventual run for national office. But now, however, with his own problems and with the emergence of Barack Obama, national office appears to be an elusive dream. He may have to focus on a “governor for life” political career similar to former Gov. Jim Thompson. In this scenario, Lisa Madigan is much more of a threat.

Madigan and Senate President Emil Jones have often been at odds over both policy issues and questions of leadership. Some observers believe Jones has chafed at being considered by the press as a junior partner to Madigan in the General Assembly. However, since the last election, Jones commands a veto-majority in the Senate while Madigan's forces have fallen short of this in the House. Jones has been more assertive in the current term.

The fiscal problems of Illinois go well beyond the failure to act in a timely way on the current budget and related issues. At a recent meeting, Melanie Shaker of Fitch Ratings, a major bond rating house, discussed the fiscal situation of the 50 states. While the fiscal conditions in most states have improved dramatically, she concluded there are two states experiencing particularly severe problems: Illinois and Michigan. Michigan's plight can be explained by the precipitous decline of the domestic automobile industry and its impact on revenues. But Shaker concluded that Illinois has lacked the discipline to address its problems even though the state has the capacity to do so.

Illinois has consistently chosen to spend more on its programs than it is willing to collect from taxes and other revenues. The government lacks the will to raise taxes to pay for its activities but is unwilling to rein in spending. It will take leadership to meet this problem—leadership that has been sorely lacking in recent years.

J. Fred Giertz is a professor of economics within the University of Illinois' Institute of Government and Public Affairs. He can be reached at 217-244-4822 or jgiertz@ad.uiuc.edu.

AMERICA'S ECONOMY STILL ENVY OF WORLD

Morris Beschloss

Morris R. Beschloss
CIBM Contributor

With the U.S. economy getting off to a relatively slow start in the first quarter, I'm frequently asked whether my optimistic outlook for 2007 is warranted.

Despite new stock market records and continued low unemployment, there is increasing concern about the economy's ability to sustain its dynamics.

Such concerns are abetted by fear of a falling dollar and the continued burden of the budget and trade deficits; and most of all, pessimism about the overhang of the unresolved war in Iraq. Many of those to whom I have spoken believe the debt incurred in the Iraq imbroglio is probably much higher than the amount to which the government admits, with no end in sight.

What concerns the questioners most immediately is the accelerating slowdown of residential construction and existing home resales. They feel the combined retrograde of the housing sector and the fall-off in automotive production could lead to a recession similar to the high-tech bubble implosion of 2002-03.

What is even more worrisome is the creeping inflation in everyday consumer goods, not to mention record prices at the gasoline pump.

There is almost no confidence that an alternative energy policy is in the wings. Few, except those with vested interests, believe ethanol is the solution; but believe it has instead added to the cost of gasoline and other distillates.

This is translated into further skepticism regarding reprieve from energy shortages and high prices. A drive toward coal liquefaction is being met head-on by environmentalists.

The good news is that, barring a major world geopolitical crisis, the following strong points will secure America's positive economic outcome for 2007:

Consumer spending continues to maintain a remarkably strong pace. This reflects an exceptionally low unemployment rate (4.6 percent), while wage increases put more money into the spenders' pockets. The 3.8 percent improvement in first quarter spending over 2006 is double the gross domestic product growth generated over the year's first three months.

Despite the 17 percent drop in res idential construction, commercial, industrial and infrastructural expenditures are providing a major offset to the housing downdraft. The industrial sector as a whole is staging a comeback powered by all aspects of energy development, such as electric power, oil production, refining expansion and maintenance, and the transmission of oil and gas. Also, the aircraft and railroad transportation sector, shipbuilding and pulp and paper are doing their part. With lead times lengthened, domestic manufactured products are in increasing demand.

Although capital spending got off to a slow start as major corporations assessed the lay of the land, this trend is starting to reverse as inventories are rapidly declining. Exports are exceeding expectations due to a devaluated dollar and a vigorous demand for America's airplanes, construction machinery, industrial products and armaments by the world's emerging nations, which are pouring record financial liquidity into the globe's economic arteries.

U.S. corporate profits continue to set new records as many of America's leading multinationals generate increasing revenues abroad. Domestic profit growth is rebounding, after a temporary slump at the end of last year.

In a nutshell, America's 300-million-strong population and its economy are still the envy of the world.

Editor's Note: This article was previously published in the The Desert Sun in Palm Springs, Calif.

—Morris R. Beschloss graduated from the University of Illinois' College of Communications in 1952. He is a columnist for the Desert Sun and publishes two newsletters for the pipe, valve and fittings industry. He can be reached at flem6609@bellsouth.net or 760-324-8166.

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