Blagojevich mixing cuts, higher fees and tax increases

SPRINGFIELD, Ill. -- Gov. Rod Blagojevich urged lawmakers Wednesday to balance Illinois' next budget largely with administrative belt-tightening and new revenue sources, keeping a pledge to spread the pain of solving a massive deficit.

In delivering his much-anticipated first budget address to lawmakers, the Chicago Democrat tried to walk a fine political line.

His proposal closes the state's $5 billion budget gap without making large cuts in state services and programs or proposing general tax increases -- both of which were campaign promises.

Instead, he proposes making millions of dollars worth of administrative cuts, increasing some fees, borrowing money, halting construction projects and using a number of short-term fixes to keep state government in the black next year.

But Republicans say he didn't offer enough details to persuade them that his budget ideas will work and may only be pushing off the major financial problems for another year.

"He's clearly betting on a rosy future and putting off a lot of tough decisions until next year," said Sen. Kirk Dillard, R-Hinsdale.

Blagojevich, the state's first Democratic governor in 26 years, postponed his budget address by two months while facing what he calls the state's largest-ever deficit.

He warned lawmakers that he would veto any budget that raises income or sales taxes, or cuts spending on elementary and secondary education, health care or public safety.

"I see this budget as an opportunity," Blagojevich said. "An opportunity to bring about the fundamental changes that the people of Illinois demanded last November. An opportunity to shake up a system in desperate need of reform."

The lengthy 93-minute speech was Blagojevich's second to legislators in a month, but his first opportunity to spell out his spending priorities. It included more lighthearted banter than his State of the State address last month, but his points drew only Democratic applause most of the time.

Blagojevich's $52.4 billion spending plan is about $345 million smaller than last year's budget, after the fruitful financial years under former Republican Gov. George Ryan.

He proposes giving public schools a 3.1 percent increase in state aid, including $250 more to spend on each student. Health insurance programs for the poor would expand, and a shuttered prison would reopen as a drug treatment center.

Conversely, Blagojevich wants to halt spending on three prisons and dramatically scale back construction projects. He also would forgo pay raises for thousands of state employees and keep vacant thousands more job openings left by early retirement.

But many at the Capitol are criticizing his moneymaking initiatives.

The biggest chunk of his deficit-reduction plan -- $2 billion -- involves a one-time savings created by borrowing at low interest rates to pay the state's high-interest pension obligations.

He also wants to sell the James R. Thompson Center, the state's headquarters in Chicago, and lease back space for state offices to bring in $200 million.

"This, to me, is like burning your furniture to keep warm," Treasurer Judy Baar Topinka said. "What do you do for your next act?"

He proposes receiving $350 million from the sale of the state's 10th riverboat casino license and wants to significantly raise taxes on gambling operators.

"We should nurture the (gaming) industry, not be punitive to it," said Sen. Denny Jacobs, D-East Moline.

Asked whether he would agree to let casinos expand as a way to recover that money, Blagojevich appeared to soften his previous opposition to all gambling expansion.

"I'm not in a position to embrace those ideas now. I would hope that we can balance the budget without going in that direction," he said at a news conference.

Businesses would pay about $350 million more in higher fees, everything from liquor licenses to filing annual reports with the state. They're also targeted through ending several sales tax exemptions, including on out-of-state natural gas and airplanes.

"The governor needs to take a closer look," said Doug Whitley, president of the state Chamber of Commerce. "Whether we eliminate tax incentives or raise business fees, we are -- plain and simple -- raising the cost of doing business in Illinois."

Fees to register watercraft and get personalized licensed plates also would go up. Officials also want to auction off low-digit license plates to raise $15 million.

Republicans say they worry Blagojevich is filling the budget gap largely with infusions of cash that will only last one year. And there is no guarantee some of the ideas will actually work, they argue.

"We're just going to be mortgaging the future based on solving the problem today, and I don't think that's what people want," said Senate Minority Leader Frank Watson, R-Greenville.

The governor's office says many of the temporary solutions are for temporary costs. And Blagojevich's allies say it is a good blueprint for lawmakers to follow over the coming months.

"There are a lot of one-time fixes here, but if we didn't take advantage of them now when were we going to take advantage of them?" said Sen. Donne Trotter, D-Chicago. "He is filling this hole we have ... It is the appropriate thing to do right now."