The State of the State By DIANE ROSS

Interest groups take sides on taxes

ON FEBRUARY 25th in Chicago, the Taxpayers' Federation of Illinois hosted what it hopes will become an annual conference on the fiscal future of the State of Illinois. The conference, "Illinois at the Brink: Where Do We Go from Here," slated two panel discussions, "State of the State — Today and Tomorrow" and "Tug of War — Who Gets the Pot?"

But everybody who had come to that chandeliered meeting room at the Palmer House wanted to take a more narrow view. They agreed that revenue no longer supports spending for the services to which taxpayers have become accustomed. They accepted the underlying premise that state government should continue to deliver those services. But they only wanted to talk about one thing: Gov. James R. Thompson's three-week-old proposal that the General Assembly raise the state income tax.

The exception was David H. Padden. One of the city's leading municipal bond specialists (Padden & Company, Inc. of Chicago), Padden got right to his point: "I'm supposed to talk about the topic of 'Who Gets the Pot?' but I really refuse to do so because I consider even a discussion of it a gross immorality. . . ."

Padden was speaking to the conference's larger question: "Where do we go from here?" His answer: back to the drawing board. Start over. Redefine government services and the delivery of government services. He couldn't have been more out of step if he'd suggested the legislature put the governor's proposal to the people via a binding statewide referendum.

Ray Scheppach, the executive director of the National Governors Association, opened the conference and discussed state-federal relationships, focusing on the unemployment insurance debt the states owe the feds. And Michael McManus, the nationally syndicated newspaper columnist, said the Illinois Congressional delegation has abdicated regional interests for party interests. He went on to suggest that the national economy would prosper once again if American business treated American labor according to the precepts of the biblical Golden Rule.

The first panel, which represented state government, covered the fiscal situation. The speakers were Bill Foster, the deputy state comptroller; Sen. Dawn Clark Netsch (D-4, Chicago), who chairs the legislature's Economic and Fiscal Commission and the Senate Revenue Committee; and Richard Kolhauser, the deputy director of the governor's Bureau of the Budget. They essentially gave reports on faulty revenue projections, deferred spending obligations and Thompson's tax proposal — from their own perspectives.

Netsch and Kolhauser appeared to put one part of the state's fiscal picture into clear focus for the conferees. Any economic recovery in the early 1980s will be a false recovery, they said, because the prosperity of the late 1970s was a false prosperity. State government made what amounted to a windfall in profits in the 1970s because of inflation. The annual increases in tax revenue ran as much as 10 percent. But even if the Illinois economy recovers in full in the 1980s, the annual increases in tax revenue will run no more than 5 percent. And, Kolhauser said, even if the General Assembly passes Thompson's proposal to generate an additional $1.6 billion a year in tax revenue, the so-called "new" or discretionary money would amount to no more than a paltry $80 million a year.

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The speakers of the second panel, which represented some of the public and private sector concerns which have the most to gain or lose from the governor's tax proposal, went on the record as for the proposal or against it. Their positions were predictable with the exception of Padden and John Conrad, president of the S & C Electric Company of Chicago. Conrad said he favors the proposal because he believes the business tax burden in Illinois is too light. All the panelists, except Padden, appeared to be for a tax increase. They were Richard Wagner, executive director of the Illinois Board of Higher Education; Hank Scheff, director of public relations for the American Federation of State, County and Municipal Employees (AFSCME); Richard Peterson, senior vice president and chief economist at Chicago's Continental Bank; and James Mann, member of the board of directors for the United Way of Illinois.

Included in the conference materials was a gem of comparative tax data, 1982 Illinois Tax Climate, an update of the federation's 1980 report. According to the report, the tax burden in Illinois in 1981, as a percentage of personal income paid for state and local taxes, was 11.05 percent — lower than the 11.31 percent average of all states, lower than the 11.09 percent average of industrial states, but higher than the 10.61 percent average of the Great Lake states.

The federation could not have brought together a better mix of representatives of business, labor, government, education and the charities. But meeting only three weeks after the tax proposal announcement, they were sounding each other out. The governor's position was known. He is threatening to cut services below the level to which the state has become accustomed, unless the legislature votes to raise taxes.

The conference signaled the start of the protracted negotiating process to settle the tax increase question.

Postscript. The federation's board of directors stayed on in Chicago to meet with the governor and hear him defend his proposal. On Monday, February 28, the federation announced it had rejected the governor's proposal to permanently raise the state income tax, as unjustified, and it called on the legislature to pass a temporary surtax instead. □

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