CHICAGO — Midwestern voters next week go to the polls to decide the fate of $2.16 billion worth of borrowing requests, choose new governors, and decide spending and taxing measures.
Illinois leads among states with bonding referendums, seeking approval for $627 million of borrowing. Ohio follows with $433 million in requests. Wisconsin has $273 million on local ballots, Missouri has $237 million, Michigan has $190 million, Minnesota has $164 million, Indiana has $131 million, Nebraska has $93 million, and Iowa has just $12 million, according to Thomson Reuters.
Education accounts for $1.8 billion of the requests for new bonding. School districts represent $1.4 billion and colleges another $354 million.
In Illinois, the largest referendum comes from the DuPage County Community College District 502, which wants to sell $168 million for renovation and expansion projects. The college wants to extend its current taxing powers another 20 years to repay the issuance.
In Wisconsin, the largest referendum comes from the Madison Area Technical College District, which is seeking approval for $134 million of debt to finance the construction of a health education building and clinic, fire and police training facilities, and upgrades to existing buildings.
Kansas City wants to issue $100 million of general obligation debt to finance public safety improvements.
In Minnesota, the Duluth Independent School District 709 is asking voters to approve $128 million of bonds to finance construction of new elementary and middle schools.
In Ohio, the Groveport-Madison School District is seeking approval to issue $114 million for improvement projects.
In Indiana, the Hamilton Southeastern Schools proposed a $62 million bond measure.
The largest bond proposal in Michigan is for $73 million by the Bloomfield Hills School District.
Missouri voters face Proposition A — a referendum that will impact the future collection of the earnings tax currently imposed in Kansas City and St. Louis.
The measure asks voters to decide whether to amend state law to repeal the power to use earnings taxes to fund budgets; require voters in cities that have an earnings tax to approve it at the next general municipal election and then every five years thereafter, and require any current earnings tax that is not approved by the voters to be phased out over a period of 10 years. It also would prohibit any city from adding a new earnings tax to fund their budget.
Kansas City expects to collect $199 million from the tax in 2010, accounting for about 41% of its general fund revenues, and St. Louis will collect $141 million, about 31% of its general fund revenues. The two are the only local governments in Missouri to impose the tax. If the measure passes, local voters in April will decide whether to retain the tax and they will vote again every five years.
“Proposition A could have significant long-term implications for Kansas City and St. Louis,” Standard & Poor’s analyst Chris Morgan wrote in the agency’s review of ballot measures with potential credit impact published Monday.
“Although the measure does not, by itself, rescind the respective taxes in each city, we believe that the five-year vote requirement would subject each city to uncertainty regarding what we consider to be a significant revenue source for each city,” Morgan said.
St. Louis Comptroller Darlene Green has said passage of the referendum would lead to fiscal turmoil for the city that could hurt its bond ratings and damage its relationship with investors.
“The negative implications and potential for adverse investor reactions leaves the city at risk for so much more loss than its earnings tax revenues,” she said in a recent editorial.
Without a plan to replace the revenue stream, a 400% property tax increase or tripling of the city’s sales tax would be needed. Both would put businesses at risk and drive out residents, she said.
Illinois voters will choose between incumbent Democratic Gov. Pat Quinn and his challenger, Sen. Bill Brady, R-Bloomington, in a race that has centered on the state’s fiscal crisis. Illinois had a backlog of $5.5 billion in bills at the end of September and could face a $15 billion deficit going into fiscal 2011.
Brady believes the state can cut spending to balance its books while Quinn wants a mix of cuts and tax increases. Neither has provided much detail, however, on their plans to turn state finances around.
Illinois voters also will weigh in on a nonbinding referendum that asks whether lawmakers should take steps to implement meaningful pension reform. The state’s retirement systems had total unfunded liabilities of $62.4 billion at the end of fiscal 2009 for a funded ratio of just 50.6%.
In North Dakota, voters will weigh in on how to deal with the growing revenue stemming from the state’s current unprecedented oil boom. The proposed constitutional amendment would set aside 30% of oil tax collections in a new so-called legacy fund, a kind of permanent savings account. Legislators would be unable to dip into the account until 2017, and then would need two-thirds approval to tap up to 15% of the principal over a two-year budget period.
Current law dictates that only the first $71 million of oil revenue goes into the general fund. About 90% of the revenue is deposited into other funds, including a special projects fund, school funds, and a water fund. Officials estimate the fund could capture up to $600 million in new revenue over the next two years.
Headlining the Indiana ballot is a measure to make the state’s two-year old law capping property taxes part of its constitution.
The issue of property tax caps has taken on a higher profile recently, with Indiana, Minnesota, New Jersey, and Colorado all eying similar proposals.
Polls in Indiana show the measure is overwhelmingly popular. Gov. Mitch Daniels has led a statewide campaign urging voters to approve it.
“When local spending units want to raise more money, they have to get the people’s permission to do it,” Daniels said at a recent press conference. “It’s no longer the case that they can raise it at their own discretion, and that’s the way it should be.”
Some observers say the amendment could perpetuate a borrowing chill that has settled on local governments since the original tax cap law was enacted in 2008. At the heart of the 2008 overhaul are the property tax ceilings that cap a homeowner’s tax bill at 1% of the home’s assessed value, 2% for rental property bills, and 3% for commercial property bills.
The new law features a number of provisions restricting debt issuance, including a requirement that local governments win voter approval for all major capital projects.
The amendment, if passed, could spark a larger debate on how to finance local government, according to a Purdue University professor who follows property tax issues.
In Iowa, voters face Measure 1, which would amend the constitution to create a dedicated trust fund for protecting and enhancing water quality and natural areas, funded by an amount equal to what the state would receive under a 0.375% increase to its sales tax rate. The measure would generate about $150 million annually for the fund.
“We do not believe that the measure, if passed, would materially impair credit quality, since the potential tax increase is small,” Standard & Poor’s wrote. “However, it would represent a constraint on revenue flexibility in that the state would need to raise its sales tax above 0.375% to generate additional sales taxes for general purposes.”
Iowa voters also will decide between Democratic Gov. Chet Culver and Republican challenger Terry Branstad, a former governor. The top-rated state has fared better than many during the recession.
Michigan’s ballot will ask voters to consider whether to call a constitutional convention to revise the state constitution. The measure appears on the ballot every 16 years and voters rejected it the last two times.
Lansing, Mich., Mayor Virg Bernero faces Republican businessman Rick Snyder, who is favored in the polls, in the governor’s race. Both candidates have said they would radically restructure the state’s tax system, including eliminating the unpopular business tax.
The Legislature will see an influx of new members in January. The 38-member Senate will see at least 30 new members, the highest turnover in its history. The 110-member House got 46 new lawmakers in 2009. Another 55 House seats are open this year.
In Ohio, a neck-and-neck gubernatorial contest headlines the state ballot. Democrat incumbent Ted Strickland faces Republican challenger John Kasich. The winner will have to craft a new two-year budget — as well as an upcoming capital budget — in the face of a deficit that could be as high as $8 billion and the end of federal stimulus money.
Democratic Milwaukee Mayor Tom Barrett and Republican Milwaukee County executive Scott Walker are vying to replace retiring Wisconsin Gov. Jim Doyle, who decided against seeking a third term.
With the state facing a $3 billion deficit in the next two-year budget, the question of who would serve as a better shepherd of state finance has been a key campaign issue.
Walker backs tax and spending cuts to rein in state spending and create jobs. Barrett has said cuts are needed but has criticized Walker’s tax cut proposals.
In Minnesota, Republican Tom Emmer, a state representative, and Democrat Mark Dayton, a former senator, are vying to replace retiring Gov. Tim Pawlenty. The next governor will face a $5.8 billion deficit going into the next budget cycle that begins July 1.
