The ‘College Illinois’ debacle
Gov. J.B. Pritzker and many Democratic legislators want to impose a graduated-rate income tax on flat-rate Illinois. One goal is to extract more billions of dollars from the body politic. Another goal is “fair” taxation, with those billions coming exclusively from the very rich; the other 97 percent of us are told we would get a teensy tax break.
But if Pritzker’s dream becomes reality, the teensy tax breaks would only be a loss leader: Once a constitutional amendment lets lawmakers set different rates for different income cohorts, they can impose rates — as high as they wish — on middle-class households, too. Remember Goal One? This is about raising more billions to spend.
The 3-percenters wouldn’t produce nearly enough revenue to buy Illinois out of the financial disaster lawmakers have created. Those lawmakers will yearn to squeeze the middle class for the same reason robbers patronize banks: That’s where the money is.
No Republicans are likely to support Pritzker’s plan; they want to curb spending. Pritzker wants more spending. Which puts suburban Democratic legislators in the awkward position of telling taxpayers that Pritzker only has eyes for the wealthy: If you aren’t in the targeted 3 percent, what could possibly go wrong for you?
Note that the Democrats’ marketing pitch — We’ll only soak the swells — doesn’t confess, let alone guarantee, for how long. When do the rest of us get soaked? Year two? Year three? Years two, three and five?
Ask yourself, how has believing Illinois lawmakers’ assurances worked for you in the past? Today we’ll take the first of several looks at that sorry record: When taxpayers trust Springfield … here’s what happens.
Madigan’s pander to parents
Recall lawmakers’ glowing assurances two decades ago that their College Illinois prepaid tuition program would be self-sustaining — with no risk to taxpayers. Except the unfunded liability of this dead-bang loser is now a bracing $501 million. Letting Springfield gamble on tuition futures was madness. Now those supposedly risk-free taxpayers are likely to get gouged for the bailout.
College Illinois was all about lawmakers pandering to parents. Then-state Rep. Dan Burke, a Chicago Democrat, was a prime mover, and Gov. Jim Edgar, a Republican, signed it into law. But meaningful mojo came from House Speaker Michael Madigan. A February 1997 Tribune story explained that Edgar previously had vetoed a similar proposal floated by then-Treasurer Pat Quinn. This time, though, Madigan’s commitment was crucial to passing prepaid tuition: “It is a legitimate purpose of the state to help people go to college,” Madigan proclaimed.
To which Madigan might have added: No matter how recklessly we go about it, or what surprise mega-debts we impose on taxpayers.
College Illinois isn’t Springfield’s biggest financial debacle. But it’s an example of what can happen when Illinois taxpayers trust their lawmakers’ soothing assurances.
All hail Judy Baar Topinka
This is the deal College Illinois offered: A family would pay a lump sum or installments, with earnings exempt from state and federal taxes. If you bought a contract, College Illinois eventually would pay your child’s tuition at an Illinois state university. Or the investment could help cover tuition at private or out-of-state public schools.
The calculus was that government could shrewdly estimate future tuition costs, as well as the program’s return on investments. Families then would buy contracts priced high enough to make that long-term math work. In other words, lots of variables for state officials to get wrong.
College Illinois has sold more than 73,000 contracts, and for many students, the program has performed well. But nearly half of those contracts, some 35,000, are still outstanding — and College Illinois isn’t on track to pay all the tuition money it will owe.
From the get-go, many Illinoisans believed what they were told: The program would be self-sustaining. ThenTreasurer Judy Baar Topinka was skeptical. Tuition costs were rising fast. Topinka warned that keeping up with that growth might tempt money managers toward risky, potentially high-growth investments — only to have the investments flop. Topinka worried that taxpayers would be stuck making College Illinois whole.
Sure enough, Illinois priced its contracts too low. Illinois didn’t achieve the overly ambitious market returns it expected. Illinois turned to riskier investments. Each of those mistakes played out because lawmakers hadn’t built sufficient guardrails to keep the program safe from unexpected twists and turns.
This year, Illinois lawmakers are mulling whether to commit future legislatures to cover the very shortfall Topinka feared. Think about that: Lawmakers who support a constitutional amendment allowing a graduated-rate income tax may also hand Illinois taxpayers that $501 million unfunded liability. Surprise.
Anybody paying attention? Anybody?
Springfield’s chronic tendency to let its debacles get worse rather than demand midcourse corrections is especially troubling. In this case, lawmakers didn’t properly monitor the misleading sales pitches from the Illinois Student Assistance Commission, which runs College Illinois.
In April 2011 we watched a College Illinois marketing team hand out slick brochures that didn’t mention a state auditor general’s report on the program the previous week — a report headlined “Sound Business Practices Not Followed.” Instead, College Illinois invited families to “lock in future college tuition and fee costs.” Rest assured, the program claimed, “The cost of college will be limited to a single, reliable and consistent number.” Those purchasing prepaid contracts, it said, would obtain “the peace of mind that comes with knowing that tuition inflation is no longer a problem.”
In truth, the state didn’t guarantee that these contracts would cover the full cost of college. The investment fund backing them had fallen far short of the amount needed to make good on contracts already sold. And anyone buying new contracts would be charged an inflated price to help pay down the obligations to others who had invested at a discount in prior years.
The bottom line here: Illinois lawmakers created a program to help families survive rising tuition costs. Yet the program they designed couldn’t do that one job — absorb rising tuition costs. Then, as College Illinois slipped underwater, Springfield didn’t engineer fixes. The unfunded liability mushroomed. Guess who’s likely to pay for these years of statehouse incompetence.
So, taxpayers, do you trust Illinois lawmakers to deploy a graduated-rate income tax only against those other people, the rich ones?
Or before you can say, “Fool me once,” would Springfield come for you, too?