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Inside the Illinois Face-Off

Businessman Bruce Rauner, the first Illinois governor with no prior political experience, promised to "shake up Springfield." Now he and lawmakers are locked in the state's longest budget showdown -- with no end in sight.

Illinois Gov. Bruce Rauner
For a man in the throes of a bitter struggle that will define his nascent governorship and possibly change the course of Illinois history, Gov. Bruce Rauner looked remarkably relaxed. He was in a friendly crowd, a roomful of Chicago tech leaders at a cocktail party on a September evening. The 58-year-old Republican does not seem to crave attention the way politicians often do, but he’s confident in the spotlight. If he sticks out at all, it is for his height and his ostentatious displays of frugality. He wore a navy suit with gold-colored buttons that looked like something that could have been pulled from the back of the closet. As he walked in, the governor casually introduced himself to a few guests. Mostly, though, he stuck to small groups. He listened more than he talked, holding his hands behind his back. At six feet, eight inches tall, the governor towered over the crowd, but most people there didn’t even notice him enter.

When Rauner took the stage at dinner, however, the raucous audience of nearly 700 people greeted him with whoops and hollers. These were business leaders, after all, and Rauner was one of them. He ticked off his bona fides for the crowd, mentioning his 32 years investing in or starting 450 companies -- something most of those present already knew. Rauner didn’t elaborate much on his success, but that’s no secret either. His net worth, a spokesman once said, is “in the mid-nine figures,” or somewhere in the neighborhood of $500 million. Rauner himself told a reporter he wasn’t just in the top 1 percent of Americans financially, but in the top 1 percent of the 1 percent. Certainly he’s one of the richest people in Illinois. Now that he’s governor, Rauner accepts only a $1 salary and opted out of a pension. Given Illinois’ awful fiscal shape, that’s a positive symbol to many residents. “We have a lot of challenges with the state of Illinois. We’ve got a financial mess,” Rauner told the crowd. “We can’t just cut our way out of our problems. We can’t just tax our way out of our problems. The key to our success, to solve our problems in Illinois, is growth.”

Rauner is the first governor in Illinois history with no prior government experience. While most of the state’s chief executives spent decades climbing the political ladder, Rauner’s outlook is defined by his time in the upper echelons of business. He knows what it’s like to reshape organizations, and he’s used to winning. That background made him an attractive candidate last year, when he unseated an unpopular Democrat with a promise to “shake up Springfield.” But the turnaround that the governor wants hasn’t gotten off the ground. The political gamesmanship and financial mismanagement that are synonymous with Illinois state government have only increased since Rauner’s inauguration. And there’s no sign they’ll end anytime soon, either.

While Rauner’s top legislative priorities have stalled, his election has still had a profound effect on Illinois politics. The first Republican governor in a dozen years, Rauner meets regularly with the House and Senate Republican caucuses on strategy and policy. He has invited them over for beers at the governor’s mansion. That high-level attention has lifted the spirits of Republican lawmakers who have lived under Democrats’ one-party rule for more than a decade and don’t even have enough members to sustain vetoes on their own.

The governor has also raised an unprecedented amount of campaign money in the first year of his term. He and a few other wealthy Chicago businessmen anted up $34 million, or 10 times what Democrats have on hand, to spend on legislative races and other political activities as needed. Rauner used that money to give all the GOP lawmakers thousands of dollars for their campaigns and to launch TV ads against House Speaker Michael Madigan, one of his chief Democratic adversaries. He promised to keep sending checks to Republican legislators every six months so they could compete with campaign funds controlled by Madigan, the head of the state’s Democratic Party. “I’m the head of the Republican Party,” Rauner said in a radio interview. “I am supporting members of my caucus, members of my party.” Illinois Republicans may be short on numbers, but with an undisputed leader, they are much more unified, organized and upbeat than they have been in years.

And Rauner is a different kind of Republican governor from what Springfield is used to. Three Republicans occupied the governor’s mansion in the 26 years prior to 2003, and like Rauner, those Republicans had to cope with Madigan and Democratic majorities in the legislature. But those previous GOP executives wanted to reach a deal with legislators, one that they could tout to their supporters. Rauner, who declined interview requests for this article, seems more comfortable with a take-it-or-leave-it approach to negotiation. He hasn’t called a bipartisan meeting of all of the top legislative leaders -- normally the forum in which deals on high-priority legislation are hammered out -- since late spring.

That fact is even more startling because the state still does not have a budget for the fiscal year that started in July.

“We probably have a different approach,” says former Illinois Gov. Jim Edgar, a Republican. “I was a creature of state government. I worked my way up the ranks. I was very concerned about a budget because you have to have that to manage state government. He comes from the private sector where some of these business issues are a high priority to him. He’s entitled to his approach. But if I were governor right now, my priority would be to get a budget. These other things he might have to put off and wait to do another day.”

These “other things” Edgar is referring to are business-friendly measures. This year’s stand-off has stretched on for months because Rauner wants the legislature to pass these measures before he will sign off on the budget, which almost certainly will include some sort of tax increase. His proposals include restrictions on workers’ compensation, curbs on civil lawsuits, a freeze on local property taxes and limits on collective bargaining for government employees. The governor also wants the legislature to send voters a constitutional amendment to impose legislative term limits and another ballot measure to leave redistricting to a citizen panel, rather than keeping it in the hands of lawmakers.

Many of the ideas come straight from the playbook of the business community, which Todd Maisch, president and CEO of the Illinois Chamber of Commerce, says is no accident. “In my opinion,” Maisch says, “we consider Rauner part of the business community. There is very little daylight, if any, between the governor and us.” Maisch points out that no legislation the group has opposed has become law under Rauner. “The vast majority in the business community,” he says, “believe that, if there was a time for marked departure from the status quo, that time is now. Somebody from the outside is most likely to achieve that change.”

But Democrats have refused to budge. They see little reason to do so: Rauner’s proposals would hurt Democratic legislators and their key constituencies, especially organized labor. “It was almost as if he said, ‘Vote against your core principles, and for your reward, I’ll let you pass a tax increase,’” says Senate President John Cullerton, a Chicago Democrat. “Democrats like to spend money, but we don’t like to raise taxes any more than Republicans do. So this was dramatically backwards. This idea of holding the budget hostage didn’t work.”


Illinois Senate President John Cullerton (AP)

Republicans, of course, see things differently. Rep. Jim Durkin, the House Republican leader, says Democrats should have “learned their lesson” from passing a budget last year with a $1.5 billion deficit, which Rauner had to address as soon as he became governor. The revenue shortfall in this year’s budget has the same root cause, the expiration of a temporary income tax last January. But Democrats this year sent the governor a budget without major cuts or an increase in revenue. “They sent him a $4 billion unbalanced budget, and they’re trying to say it’s his fault. It’s absurd,” Durkin says. “Democrats are unwilling to negotiate. They’ve walked away from the negotiation table.”

The temporary tax increase Democrats passed four years ago did not help the state economy and did not address Illinois’ recurring budget problems, Durkin says, because the new revenue went entirely to cover steeply rising pension payments. “They sold a tax increase under false pretenses. Now they want a tax increase, no strings attached. Neither the public nor I are going to let that happen,” he says. “Our votes are not going to be taken for granted anymore.”

Rauner, though, seems more interested in curbing the power of labor unions than in passing a state budget. He has often tied budget and labor issues together. For example, the governor insisted that any freeze on local property taxes include restrictions on collective bargaining for local government employees. He threatened to veto a proposal by his personal friend, Mayor Rahm Emanuel of Chicago, that would have softened the blow of property tax increases there, because labor-related changes were not included.

The Republican governor’s fervent stance against unions has transformed labor rights into a partisan issue in a state where unions traditionally have had allies on both sides of the aisle. Unions still predominantly support Democratic candidates, but Republican areas downstate have considerable pockets of unionized teachers, university workers, prison guards and other state employees. In fact, Rauner nearly lost the Republican primary for governor last year to a candidate backed by unions.

“He’s obsessed with unions, absolutely obsessed,” says Cullerton. “He hates unions with a passion. He believes that unions are the cause of all problems in government, local and state. The fact of the matter is, one of the reasons we have higher salaries in Illinois is because of unions. We have a higher minimum wage, because we think the middle class should make some money.”

In his first state of the state address, Rauner called for letting local governments limit the topics their employees could address during collective bargaining; allowing localities to institute union-busting “right-to-work” zones for all employers; and barring unions from contributing to political campaigns. “Our agenda must be about empowerment, about empowering the people of Illinois to control their futures,” he said.

A few weeks later, Rauner went a step further. He issued an executive order barring state agencies from collecting agency fees -- the “fair-share” fees nonunion employees pay to unions to cover the cost of collective bargaining -- from state workers. That effort is now tied up in court, and Rauner is no longer a party to the case. But the move showed that the governor was eager to take on unions in a very direct way. He called the fees a “critical cog in the corrupt bargain that is crushing taxpayers,” saying they helped finance union-friendly wage and pension packages that contributed to the state’s massive debt. A ban on agency fees could cripple state employee labor unions. In the two years after Wisconsin enacted similar changes for teachers, membership in those unions dropped 30 percent.

The governor has also pushed forward with his idea for local “empowerment zones,” which would essentially allow sections of the state to enact their own right-to-work laws. After the Democratic attorney general said the empowerment zones would be illegal, Rauner exhorted local officials to pass resolutions encouraging state lawmakers to allow them. While a few localities adopted those resolutions, the move largely backfired.

At the same time, the Illinois chapter of the American Federation of State, County and Municipal Employees -- the union representing the largest share of Illinois state workers -- and their Democratic allies backed a bill that would give them the upperhand while negotiating a contract with Rauner. Under the bill, if the two sides could not reach a deal, an arbitrator would pick either the governor’s or the union’s last offer. Rauner vetoed the bill. The Senate overrode the veto, but, thanks to an absent Democrat, labor unions came up just shy of overriding it in the House and the bill died.

The fight consumed Springfield for weeks this summer, and Rauner walked away victorious with his veto sustained. Still, the whole affair did nothing to change state law or address the state’s most serious problems. While it was going on, lawmakers made no progress in developing a budget.

The current budget stalemate, the longest in Illinois history, has been an invisible crisis to most of the state’s residents. But it is starting to take its toll.

When Rauner addressed the tech crowd in September, he spoke about promoting the University of Illinois at Urbana-Champaign, especially its vaunted engineering and computer science programs, to bring tech jobs to Chicago. But the governor did not mention that the state was not currently making its promised payments to the university, or any of Illinois’ other public universities, because of the budget standoff. 

Passing a balanced budget on time has become an increasingly difficult feat in Springfield. The state’s finances have been in a tailspin, with a few short reprieves, for the last 15 years. During that time, Illinois has had to contend not only with the two recessions, but also with the decline and fall of now-imprisoned Gov. Rod Blagojevich; sharply escalating pension payments; a mountain of unpaid bills; and short-term taxing and borrowing schemes that always seemed to delay tough decisions until after the next election. Not surprisingly, Illinois has the worst bond ratings of any state in the country.

This year’s budget negotiations promised to be especially tricky, even before Rauner tied them to labor issues. The biggest new financial pressure comes from the expiration of the temporary tax hike in January, which dropped the rate on personal income from 5 percent to 3.75 percent. In his gubernatorial campaign last year, Rauner denounced the idea of extending the tax further. 

For their part, Democrats took no action and let the tax die, as scheduled, before Rauner took office. 

Neither the governor nor Democrats have laid out a balanced budget plan for this year. Rauner’s blueprint included up-front savings of $2 billion from pension reforms that were ultimately struck down by the Illinois Supreme Court. Democrats candidly admit their budget plan, which Rauner vetoed, did not make up for the lost revenues. The only thing the two sides did agree on was to increase education funding. So schools are getting more money, even though the state doesn’t have any new money to give them.

The budget crisis has not yet led to a full-scale government shutdown, the way it has in recent years in Michigan and Minnesota. In fact, 90 percent of state programs continue to be funded through a variety of legislative and court interventions. State employees are still receiving paychecks. Schools are getting their state aid. Bondholders are still receiving interest payments. 

But the 10 percent of state government that has no money flowing includes college scholarships, after-school programs, treatment for mental illness and support for homeless people. Those services, many of them provided by nonprofit contractors, are all in jeopardy as the providers decide whether to keep offering them and hope for state reimbursement later, or to stop providing the help. 

What’s more, the government on autopilot does not have enough fuel -- that is, tax revenue -- to make it to the end of the fiscal year. At its current pace, Illinois is on track to spend $4 billion more than it takes in by next summer, and that’s on top of the growing stack of unpaid bills the state already has, which, at press time, stood at $6.5 billion. Last month, Illinois announced it would have to delay a November payment of $560 million to pension funds, and may have to delay a similar payment in December if no deal is reached. Many in Springfield worry that, without a budget deal, the state won’t be able to keep enough cash on hand throughout the year to pay its employees, schools or bondholders.

Even seasoned political observers can’t predict when Rauner and the legislature will come to terms, or what might finally prompt them to do so. “I’m completely baffled,” says Edgar, the former governor. “I really thought in early June they would [compromise], declare a victory, get a budget and go home. It didn’t happen. Unfortunately, I think everybody dug in a little deeper.”

Whenever the standoff ends, the celebration will likely be muted, and attention will turn almost immediately to next year’s legislative elections. “The reality is there is going to be no parade and no reward for anyone with the state of Illinois who does what is necessary to stabilize their state finances,” says Laurence Msall, president of The Civic Federation in Chicago. “The reward is that the state of Illinois will continue to operate.”

Dan is Governing’s transportation and infrastructure reporter.
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