Wednesday, January 12, 2011

Legislators pass a tax increase in the final hours of session

By Jamey Dunn with Lauren Johnson contributing

Illinois lawmakers passed an income tax increase before adjourning their two-year legislative session but failed to approve other pieces of a budget plan intended to quickly pay down the state’s backlog of bills and funnel new funding to education.

Chicago Democratic Rep. Barbara Flynn Currie said the time to point fingers about the deficit has passed. “Illinois is in crisis — absolute financial crisis — and there is no way we can dig ourselves out of the crisis without enhanced revenues.”

Currie, sponsor of Senate Bill 2505 added: “This mess is a mess that is the responsibility of all of us. … It’s too late. It’s time for us to be adults, face the crisis and figure out together a solution.”

However, Rep. Roger Eddy, a Hutsonville Republican, said that GOP calls for spending cuts have been ignored for years. “The time to be adults was eight years ago, when we were expanding programs,” he said.

Currie said that without the tax increase, lawmakers would have to make “wholesale” cuts to state government.

Speaker Mike Madigan has vowed on multiple occasions that an income tax increase would not pass in the House without Republican support, but in the end, that is what happened. Senate Bill 2505 passed with the 60 required “yes” votes to 57 opposition votes.

“They're on the sidelines. They don't want to get on the field of play,” Madigan said about Republicans after the vote.

The personal income tax would increase from 3 percent to 5 percent, and the corporate tax would go from 4.8 percent to 7 percent. Under the legislation, both rates would drop after five years, to 3.75 percent for personal income tax and to 5.25 percent for the corporate income tax. The plan is expected to bring in roughly $6.5 billion in its first year.

Currie estimated that a family of four with an income of $40,000 would pay roughly $800 more a year under the initial increase.

The measure also includes spending caps for the next four fiscal years. The limits would be $36.8 billion in Fiscal Year 2012, $37.5 billion in FY 2013, $38.3 billion in FY 2014 and $39.1 billion in FY 2015. If the legislators spend more, the tax increases would be nullified. It would be up to the Illinois auditor general to determine if the state has overspent. House Democrats described that provision as the “hammer” that will keep future budgeting in line. Both legislative chambers changed their rules to require a three-fifths vote on legislation to approve the caps.

Democrats described those spending increases as lower than the rate of inflation. However, Republicans took issue with the Democrats' initial numbers, on which the structure is based.

Sen. Dale Righter, a Mattoon Republican, called the caps an “ill-fitting theater costume” used to dress up a tax increase to make it seem fiscally responsible.

House Minority Leader Tom Cross said he could not support locking in any increase to the future budget. He said Democrats should work with Republicans to find an appropriate spending level and stick to it while the state tries to make its way out of its budget hole. “Whatever that is, you need to stabilize that number — and that’s the point — instead of growing the number.”

Senate President John Cullerton said that without the tax increase, the future of Illinois and those waiting on state payments, such as human service providers, would be dire. “If we don’t do this … the people who would be waiting to be paid would wait for years to be paid, if they even continue to do business with us.”

Republican Sen. Matt Murphy of Palatine said legislators who voted for the tax increase could no longer claim that job creation is their top priority. “Your number one priority is supporting state spending at or above the current level. … because there is no question there will be job loss with this tax increase.”

However, Sen. Dan Kotowski, a Park Ridge Democrat, said failing to approve new revenue to properly fund the state budget would result in the loss of hundreds of thousands of jobs.

The Senate approved nearly $4 billion in borrowing — to be paid off over eight years — to cover the required payment to public employee pension systems for this fiscal year.

Righter questioned why Illinois needed to borrow after raising the income tax. Cullerton said borrowing was necessary so the state could afford to make the pension payment for this fiscal year. “The money that we raised with the income tax is going to start paying the pension payment for the next fiscal year.”

He added that the General Assembly also extended the emergency budget powers given to Gov. Pat Quinn as part of last spring’s budget bill. Those powers — originally granted for six months but now extended through June 30, the end of the current fiscal year — allowed Quinn to make cuts and allocate lump-sum appropriations the General Assembly sent him in lieu of a line-item budget.

“This bill effectively, for budget purposes, crowns the governor king,” Murphy said.

Currie removed from the bill a “property tax relief” provision that would have provided equal annual rebate checks to property tax payers across Illinois. Republicans complained that it was unfair to give someone who pays a higher level of property taxes the same amount of relief as someone who pays less. Cullerton estimated that the checks for next year would have been about $325.

Two other components to the overall proposed plan failed to clear the House.

Lawmakers in that chamber shot down a $1-a-pack cigarette tax that would have brought in an estimated $370 million for education. That caused a temporary hitch for the income tax increase in the Senate, where some Democrats were disappointed with the lack of new education funds.

Maywood Democratic Sen. Kimberly Lightford said those with concerns, including members of the Senate Black Caucus, we’re promised that the $250 million in revenues that will no longer be needed for property tax relief will go toward education.

She said after the potential revenue sources of the cigarette tax increase and a proposed gaming expansion failed to get support, “we felt like the commitment for education funding was not there.” Lightford said members of her caucus called on Democratic leadership and Gov. Pat Quinn to find money for schools. “You didn’t pass a cigarette tax; didn’t call gaming. You need to put that 250 to education,” she said.

Lightford said $250 million a year for the first four years of the tax increase would go into a fund that would specifically target underperforming schools. Quinn later said of the deal: “Many [of the Black Caucus members] are my friends, and we worked together in campaigns. We believe in working together on important things that help children.”

A plan to borrow $8.75 billion to pay down the state’s backlog of unpaid bills for this fiscal year also failed to get the 71 votes it needed to pass. The loan would have been repaid over 14 years. Spring Valley Democratic Rep. Frank Mautino, sponsor of SB 336, said if the measure had passed, the state could have started to send out checks to schools, providers and vendors in March.

Cross said he is still willing to negotiate with Democrats on a borrowing plan to pay off the bills but said it would have to be smaller and come in tandem with cuts and reforms, such as changes to workers’ compensation. The workers compensation efforts in the lame-duck legislative session fell short, but Cullerton called the issue a “top priority” for the new session, which begins later today.

Gaming expansion and medical marijuana measures that came up for votes in the waning days of the two-year session both died upon adjournment, along with the borrowing plan, workers’ compensation reform and the cigarette tax increase.


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