Top News

CBS 2's Mike Flannery and Kristyn Hartman, and the Associated Press, contributed to this report.
CHICAGO (CBS) ― It looks like Gov. Rod Blagojevich could be facing a long budget battle. Blagojevich went back to school Thursday morning to lay out a budget plan aimed at improving education funding. Later in the day he defended his proposed business tax, calling companies who oppose his plan selfish whiners.

As CBS 2 Political Editor Mike Flannery reports, some say Blagojevich's proposal for a gross receipts tax is bad for business.

The governor was once again portraying business owners as selfish tax dodgers Thursday. But, as CBS 2 learned, that's not always the case, especially when dealing with small businesses.

Five employees now work where, just a few years ago, 35 once assembled lamps for the Art Specialty division of Ace Industries.

Factory owner Mike Holewinski says low cost competition from China has been so devastating that, in an effort to conserve cash, in some recent years, he's taken no salary at all. He fears that the governor's proposed gross receipts tax on business -- payable whether a company is profitable or not -- could cost Ace Industries more than $30,000 a year, money it would be hard to find.

"At the end of the year, even if we've lost money because we've invested trying to turn a company in the right direction, we'll still have to pay a humongous tax," Holewinski said.

While Holewinski and other factory owners insist that the reality of their lives is far different than the governor describes it, Blagojevich insisted Thursday that business owners who oppose his tax proposal are the epitome of selfishness.

"When these big corporate fat cats whine about the fact that they have to pay property taxes, so leave us alone, we don't have to pay our fair share of income tax, I mean, it's an interesting dynamic. People can pay it, but they don't have to?" Blagojevich said.

"When you're in a small business like this, you're the last guy to get paid, not the first guy to get paid," Holewinski said.

After campaigning for his proposal with Chicago Public School officials Thursday, city schools would get about $2 billion more over the next four years, the governor will take his message downstate tomorrow to Southern Illinois and the East St. Louis area.

Blagojevich's plan to increase funding to Illinois schools proved far less contentious. The governor's office says the funding increase for schools is three times more than any increase in the state's history.

But, the money would come from the proposed gross receipts tax on business that make more than $1 million per year, and it would be based on total sales figures – regardless of whether the companies make profits.

As CBS 2's Kristyn Hartman reports, Blagojevich says his Helping Kids Learn plan will invest $10 billion in schools over the next four years.

He first outlined the proposal to pump an additional $1.5 billion into schools each year in the State of the State speech on Wednesday, along with the first installment of a three-year, $1.5 billion construction plan.

More than half of the new education money -- $800 million -- would go into the guaranteed minimum spent on each student in the budget year that begins July 1.

On Thursday, he pushed for the plan at the Louis Nettelhorst School, at 3252 N. Broadway in the city's East Lakeview neighborhood.

Many teachers at the school, who spend their workday shaping the mind of the state's future thinkers, are strong backers of Blagojevich's proposed budget.

"It sure would help to have a little more money coming from the state," said Nettelhorst teacher Mary Ridley. "Way to go, Governor Blagojevich."

Reaction on Wednesday showed the plan is not popular in some circles.

"You're going to hear the usual old refrain from the guardian of the status quo who want to keep the tax system the way it is," Blagojevich said while presenting the budget in Springfield on Wednesday, "keep it where they pay less and you pay more."

But some opponents agree that the funding formula for schools needs to be changed – but they say Blagojevich's method is the wrong way.

Those opponents have been demanding more than just additional money. They want to overhaul the way Illinois pays for education, so that schools don't depend so heavily on local property taxes.

Momentum has been gathering in recent years for a decades-old idea to pay for schools by raising income taxes while lowering local property taxes.

Advocates say that would be a fairer process than the current system and its reliance on local property values. But Blagojevich opposes anything that involves an income tax increase.

Opponents are already outraged.

"It's a terrible plan unless you like to pay taxes," said Ron Gidwitz.

"We've got to defeat this," said Republican senator Bill Brady of Bloomington. "In fact, we've started a Web site – stoprod.org."

Illinois House GOP Leader Tom Cross said the size of the tax increase was the problem.

"I think it's fair to him that we listen to what he has to say, but it's such a huge, huge tax increase, and I think it has a detrimental effect," Cross said.

But to combat such points of view, Blagojevich is pushing his proposal at the community level. That is the reason he was visiting Nettelhorst and other schools, where he received backing from parents and the Chicago Public Schools.

"What's going to happen if we don't put the money into our children?" Ridley asked in her classroom.

Blagojevich's office says the budget would channel or provide more than $395 million in new dollars for the capital improvements and other projects at the Chicago Public Schools, through 2008.

Blagojevich's also pledged $209 million to increase the rate at which schools are reimbursed for special education teachers and aides -- the first adjustment since 1985. And to completely meet the state's obligation for reimbursing other "categorical" costs such as bus transportation, the governor pledges an additional $150 million.

Blagojevich's budget proposal also includes a plan for health care assistance for all those who are uninsured. He is also proposing to sell the rights to the Illinois lottery for up to 75 years, to build new schools and roads as part of a massive new capital program.

(© MMVII, CBS Broadcasting Inc. All Rights Reserved.)