Looks good for capital, not so much for budget

By Bethany Jaeger
It’s taken a decade, but Gov. Pat Quinn said that come Monday, the state would have a major infrastructure program in place to help spur the economy and send people back to work.

Downstate legislators who met with the governor Thursday afternoon in the Executive Mansion expressed bittersweet sentiments: The governor would sign the long-awaited public works program to send laborers and others back to work, but thousands of other public employees and the people they serve are on the brink of losing their jobs and their access to critical aid. That's because the governor and the legislature still haven’t enacted a balanced operating budget, despite a new fiscal year that started July 1.

Rep. Brandon Phelps, a Harrisburg Democrat, for instance, is in a downstate area in need of economic development. However, he also has a prison in his district that could lose employees under Quinn's plan to cut spending by an additional $1 billion. Enacting the capital bill wouldn’t prevent layoffs of 1,000 Department of Correction employees, he said, adding that such significant layoffs might not save as much money as needed to cover the increased overtime costs.

The General Assembly is scheduled to return to the capital city Tuesday, about the same time the comptroller’s office needs to process checks so the first round of state employees would get paid on time. The governor, facing doubt about whether he can persuade more legislators to support an income tax increase to fill what he says is a $9.2 billion budget deficit, said he would consider Plan B, even if that includes a temporary spending plan.

“I’m open to anything that gets us moving in a positive direction, whatever it takes,” Quinn said. That could include a five-month budget so he could continue to lobby for an income tax increase.

But, asked Rep. Bill Black, a Danville Republican, at what level would the five-month budget be based? Would it be based on the $26 billion plan already approved by the legislature but partially vetoed by the governor? Or would it be the $28 billion originally proposed by Quinn?

In May, the legislature approved along partisan lines a budget that reduced funding for human services by half of what the governor proposed. Quinn then vetoed much of that spending plan and said that regardless of whether an income tax increase passes, he would still have to make about $1 billion in cuts. He recently announced a general plan that lacked specifics, although legislators said today they hope by Tuesday to receive more details.

Rep. Roger Eddy, a Hutsonville Republican, said a five-month budget is risky because it would assume that the legislature would approve an income tax increase before the end of the year. “Then you’ve spent for five months based on revenue you may or may not get. I think it’s very risky.” He added, however, that it might be the most politically palatable option for many legislators because by this fall, incumbents would know whether they faced a serious challenger in the next election.

Either way, Eddy said, Quinn faces a “triple negative” in trying to persuade lawmakers to vote for a tax hike because the new revenue would not prevent further budget cuts. “It would be nice to vote for a tax increase — if you have to — and go home and talk about all the new wonderful programs you’re going to start. This combination is: Vote for revenue, borrow $2.2 billion, make $1 billion in cuts above the cuts that have already been made. That’s a pretty tough sell.”

Rep. Mike Bost, a Murphysboro Republican, said he appreciates that Quinn is showing some direction in where he might cut, but he’s concerned that the governor is making broad statements to stir up local residents so they pressure their legislators to approve an income tax increase. The GOP has remained mostly united on opposing a tax hike without action on other cuts and what they see as reforms because they fear giving billions of new dollars to a group of leaders which he said “can’t control themselves.”

Legislators said they could be in session Tuesday through Thursday, although several expressed doubt about how they would solve the budget impasse by then. “I think it’s going to be a challenge for all the pieces to come together,” said Rep. Bob Flider, a Mount Zion Democrat.

CAPITAL

After the legislature in May overwhelmingly approved the first major infrastructure program in a decade, Quinn said he wouldn’t sign the package into law until he received a balanced operating budget on his desk. With little consensus on how to balance a severely out-of-whack budget, the capital program remained in limbo and jeopardized federal matching funds.

The governor said today he would sign the capital program into law on Monday. He previously said on May 31 that the lack of an operating budget would hurt the state’s bond rating, making it more expensive to borrow money.

Thursday afternoon, he said the state still needed both. “I think we need to have a good budget that is a balanced budget that’s fair and decent. Together with a good jobs program, we can get Illinois focused on economic recovery and budget stabilization.”

Shovels might not move dirt for weeks, maybe months. We’ll have more on that and other reaction soon.

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Everything in limbo

By Bethany Jaeger, with Jamey Dunn and Hilary Russell contributing
Illinois’ human service providers, as well as other state contractors, remain in limbo as to whether they’ll receive state funding after July 1. The General Assembly finished its special legislative session this afternoon without sending a spending plan to the governor. Lawmakers aren’t scheduled to return until Monday afternoon (the Senate won’t be back until Tuesday), which some providers said would be too late. Providers, many of whom rallied at the Capitol yesterday, anticipate having to close their doors or lay off employees without a state operating budget in place by then.



“What’s going on right now is cruel, it’s cynical and it doesn’t need to be happening. And it should have been addressed this week,” Senate Minority Leader Christine Radogno said after the legislature adjourned. She added: “There is a lack of clarity, a lack of leadership, in terms of what is going on. And in the meantime, people are dangling in the wind thinking that their lives are going to be inextricably altered.”

She proposed enacting a temporary budget to keep state services going, uninterrupted, and to give service providers more predictability.

Gov. Pat Quinn continues to publicly reject the idea of a temporary budget and said lawmakers still have time to enact a full-year balanced budget within six days. But he said balancing the budget, which he projects will carry a $9.2 billion deficit, will require a two-year income tax increase to generate $4.2 billion. (Comptroller Dan Hynes calculated the deficit at $7 billion.)

Legislative leaders of both political parties have cast doubt on the governor’s ability to gain enough votes in each chamber to approve a tax increase by July 1, although House Minority Leader Tom Cross said a few of his members are leaning toward a tax increase if they see action on other efficiencies and long-term spending reforms first.

Senate Democrats maintain that they approved a version of a permanent income tax increase in House Bill 174, which never got called for a vote in the House. According to Sen. James Meeks, the caucus doesn’t want to give up on the idea of offering property tax relief and increased education funding. Meeks said a temporary increase would result in a permanent increase in two years. “Temporary should scream out to everybody saying, ‘In two years, they’ll be back.’”

There could be more immediate support for a short-term borrowing scheme. A plan backed by Quinn would issue pension obligation notes rather than bonds, which typically are repaid over longer periods of time with higher interest costs. The House advanced the plan, Senate Bill 415, today. It would allow the state to make its full contribution into the public employee pension systems and free up $2.2 billion to help plug the deficit.

“If we get $2 billion to help close the deficit, that’s a good thing,” Quinn said after finishing a series of meetings with all four legislative caucuses. “We’re making progress, but we still have $7 billion to go.”

The governor and all four caucuses appear to agree one goal: to reduce spending by another $1 billion. But they might disagree on how to do that.

Quinn said his administration could save about $125 million by mandating 12 unpaid days off, or furlough days, for state employees, including unionized workers. Layoffs also could be considered, he said, although he added that he wouldn’t pursue layoffs until after he and the General Assembly settled on whether the state would generate new revenues first. “Under our contract, we can lay off employees if we don’t have the money to pay them,” he said.

Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees Council 31, said union leaders already met with the administration last week and determined that furlough days and layoffs wouldn’t save significant amounts of money. Henry Bayer, Council 31 executive director, said last week that even if every state employee worked the entire year unpaid, the state would only save about $3 billion. Lindall added this afternoon, “Any number of furlough days would be an insignificant savings to the state but a very real reduction in services.”

Cross said his caucus agrees with the need to look for $1 billion in cuts and recommends moratoriums on programs, furlough days and salary freezes, as well as reduced travel budgets.

Capital and recall
Two other items on hold include the $29 billion capital construction program and a provision that would allow voters to decide whether they wanted to change the state Constitution so they could recall the sitting governor.

Quinn said he will not sign the construction program without an operating budget in place. Democratic Sens. Martin Sandoval of Chicago and John Sullivan of Rushville said the capital plan and the operating budget have nothing to do with one another. In a Statehouse news conference, they joined organized labor groups to say Quinn has fallen through on his promise to immediately put people to work. "People are falling off the edge, losing their homes, having a very difficult time making ends meet, and he’s decided to hold the jobs bill as a political football until he gets his tax hike,” Sandoval said, citing the state’s 10.1 percent unemployment rate.

On the other hand, the Senate Democrats have held one of Quinn’s initiatives, House Joint Resolution Constitutional Amendment 31: a recall provision. Senate President John Cullerton said yesterday he would not call the provision for a vote until Quinn signed an ethics package that would limit the amount individuals, businesses and political organizations could donate to candidates. However, the Senate hasn’t even sent the measure, HB 7, to the governor’s desk.

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Quinn: Legislature should return next week

By Bethany Jaeger, Jamey Dunn and Hilary Russell
Gov. Pat Quinn’s administration is starting a full-court press to pressure state lawmakers into approving an income tax increase to help avoid catastrophic cuts, highlighting cuts to human services. The General Assembly approved a bare bones budget at the end of May that would only fund community services by half and, according to the governor’s office, would still carry a $9.2 billion deficit. But the same question remains that loomed May 31: How will Quinn recruit nearly 30 more representatives to support a tax increase when they rejected the idea two weeks ago?

All four top Democratic and Republican leaders are scheduled to meet with Quinn in Chicago tomorrow, when they could talk about whether the General Assembly will be called back to Springfield next week, as Quinn urged. That would leave about one week before the new fiscal year starts and when an operating budget would need to be in place.




Quinn still urges the need to enact a state income tax increase. However, his proposal to temporarily increase the state income tax fell 18 votes short in the House May 31. He now needs to gain 29 more votes to get up to the supermajority needed after May 31.

While enough Democrats in the Senate approved two versions of an income tax increase last month, House Democrats have said they need Republican support before they’d be able to approve new revenue sources. Republicans, however, continue to demand major reforms to the state’s public employee pension system, Medicaid program and other efficiencies before they’ll consider a tax increase.

House Minority Leader Tom Cross’s spokeswoman, Sara Wojcicki, said the GOP Caucus has a series of reform measures (about 31 bills), most of which have been bottled up by Democratic leadership. For instance, House Republicans would target the practice of rolling over the current year’s bills to the next fiscal year, allowing officials to claim the budget is balanced when it actually doesn’t cover expenses. House Bill 4095 would require the state to set new accounting benchmarks before an operating budget could be deemed “balanced.” House Bill 4097 would ban the state from rolling over payments to Medicaid providers and state employee and retiree health benefits.

Patty Schuh, spokeswoman for Senate Minority Leader Christine Radogno, says her caucus has proposed reforms during the past six years and hasn’t seen progress, including during the last few weeks of meetings between legislative leaders and the governor. “There have been long discussions. Other than that, we haven’t seen much.”

She adds that Radogno believes the cuts to human services highlighted by Quinn’s administration today would be “irresponsible” and that the budget should be looked at in its entirety, not just in one service delivery area.

The legislature has yet to send the so-called bare bones budget to the governor’s desk. But Quinn’s chief of staff, Jerry Stermer, said agencies and community service providers have to act as if the budget situation won’t change before July 1.

Stermer met with human service providers this morning in Chicago and said that the bare bones budget would still fall $9.2 billion short of normal spending levels. He said that would result in layoffs of more than 100,000 people working for community-based social services and up to 10,000 state workers.

State employee unions oppose the idea of laying off workers or asking them to take unpaid days off to help stave the severity of budget cuts. Henry Bayer, executive director of the American Federation of State, County and Municipal Employees Council 31, said in Springfield today: “There is nothing that would alleviate the threat of layoffs short of a tax increase. We don’t have a tax increase, there will be substantial layoffs.” He said even if every state employee worked the entire year unpaid, the state would only save $3 billion, far short of the $9 billion deficit projected by the governor’s office. “That may make some people feel good to think they’re inflicting pain on somebody, but that is not a solution to the problem,” Bayer said. “There is only one solution to the problem.” He referred to tax increases.

Other possible consequences of the bare bones budget laid out by Quinn’s office include:

• Giving foster parents half the money they currently receive to help care for foster children.
• Eliminating daycare for more than 5,250 children of low-income working parents.
• Tripling foster children case loads for Department of Children and Family Service workers.
• Closing 15 DCFS field offices.
• Ending addiction treatment for more than 20,800 clients.
• Closing six state-run psychiatric hospitals.
• Eliminating multiple preventative health care services such as vaccinations for children and cancer screening programs.
• Cutting financial aid to college students by $275 million.

Quinn’s office also said Illinois would lose $2 billion in federal matching funds and some stimulus money.

In Springfield, a local chapter of the Service Employees International Union rallied outside the state Capitol in protest. Gail Hamilton, a home health aide, said if the cuts in human services went through, as many as 80,000 parents would have no place to take their children while they worked. And about 40,000 senior citizens would lose access to home health services and, potentially, end up in more costly nursing home care.

The group staked out offices of representatives who voted “no” on raising the income tax last month. Today, it was two Republicans from the Springfield area, Reps. Raymond Poe and Rich Brauer. On Monday, they targeted two downstate Democrats, Reps. Brandon Phelps and John Bradley, as well as Chicago suburban Republican Rep. Beth Coulson. Last week’s focus was all northern Illinois Democrats: Reps. James Brosnahan, Jack Franks, Michael Zalewski and Kevin McCarthy.

Hamilton said conversations with legislators have been “infuriating.”

“They’ll admit to us that they know we need a tax increase, but when it comes down to it, they don’t have the guts to go through with it.”

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First cuts, then taxes

by Jamey Dunn
The top four legislative leaders and Gov. Pat Quinn agreed that they will have to cut spending from a budget that is severely out of whack before resorting to tax hikes to plug the deficit. But how soon those cuts could be made and when lawmakers will agree on a budget is far from clear.



Leaders of both political parties met again with Quinn in his Chicago office today to continue budget talks after failing to agree on a bare bones budget approved along party lines May 31.

Quinn is not backing off of the need to approve a state income tax increase. He said after the meeting that his office would send out notices this week to human service providers letting them know that their funding could be slashed in half if the budget that legislators passed were enacted.

The governor said he and leaders discussed about $1 billion in cuts and cost-saving ideas in today’s meeting. However, he said that even if those cuts were achieved, an income tax increase would still be necessary. “We have to do this. Otherwise, … we won’t recognize our state,” he said.

Republicans continued to demand cuts and reform before considering tax increases, and they said they now sense some cooperation from Democrats. “I am encouraged that there does seem a willingness to consider some real changes to the way we do business in Illinois,” Senate Minority Leader Christine Radogno said.

Quinn said he could support pension reform, including a two-tiered system that would offer lesser benefits to newly hired state employees and teachers, as well as switching to a managed-care style for Medicaid programs. (His proposal for a two-tiered pension system stalled in the legislature last month.)

House Speaker Michael Madigan said he agrees that pension and Medicaid reforms are necessary and that they should be addressed regardless of the need to approve a budget. But he would not indicate whether making budget cuts and cost-saving reforms this summer would improve the chances of his chamber approving a tax increase. He said he thought that voter opinion, especially opposition from unemployed or under-employed constituents, played a large hand in legislators' rejection of a temporary income tax increase at the end of May.

“I think that lawmakers that do not wish to vote for the income tax increase are reflecting people in their districts,” Madigan said. “Seldom do Americans welcome tax increases.”

While Quinn emphasized the need to produce a “balanced budget” before the new fiscal year starts July 1, House Minority Leader Tom Cross said he doesn't think there's enough time to make the level of changes he thinks are necessary before his caucus would consider a tax increase.

“I think the worst thing we do as a state is to just come along and say that we’re going to raise taxes in this economy,” Cross said, “ and hand it over to a system that’s going to put us in the same situation in another two or three or four or five years without fundamentally changing how we handle things.”

Cross said that Quinn’s staff will sit down with Democrats and Republicans of both chambers to go through the budget line by line to look for places to cut. In addition, Quinn said he will issue executive orders to create a Taxpayer Action Commission to implement the Tax Payer Action Board’s cost-cutting recommendations as quickly as possible, and he said he'd form an Economic Recovery Commission intended to stimulate job growth and economic development.

Senate President John Cullerton said that he thinks a tax increase ultimately will be needed but that cutting the budget is the first priority. “It’s inevitable, I believe, after we do this cutting, …eventually we’re going to have to have some new revenues to help avoid the draconian cuts that the governor was talking about. So, hopefully, we’ll do that. But, first, we have to focus on those cuts.”

The next leaders’ meeting is tentatively scheduled for next Tuesday.

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More than just the budget

By Bethany Jaeger
Less than 12 hours after the Illinois General Assembly left the Statehouse without knowing how state government services would be funded for the full fiscal year 2010, Gov. Pat Quinn said he would start sending notices to social service providers alerting them of the consequences if a budget isn’t enacted by July 1, the first day of the new fiscal year.




Late Sunday night, the legislature sent him a reduced budget that’s unlikely to fund services for 12 months. But Quinn said a “partially funded budget isn’t a budget” and would not say whether he would sign it or veto it. He still urges the need for a temporary income tax increase.

However, after a leaders meeting in the governor’s Statehouse office, House Speaker Michael Madigan indicated negotiations between the leaders and the governor are positioned to address how government operates, not just the cost of operating it.

House and Senate Republicans have said they were not invited to be part of the process until the 11th hour, and they would not put any votes in an income tax increase without reforms.

With or without Republican support, there’s a big gap between the number of votes needed to approve an income tax increase and the number gained last night. Just 42 House Democrats voted in support of a temporary income tax increase, falling short of the 60 votes necessary. Now that the spring session has gone into “overtime,” the threshold increases to 71 votes.

While there’s pressure to enact a budget by July 1, Madigan said, “I’m not going to put a timeline on this process.”

The next leaders’ meeting is in Chicago later this week, when they could discuss the final report of the governor’s appointed Taxpayers’ Action Board. We wrote about it earlier this spring (scroll down).

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May 31 deadline certainly leaves uncertainty

By Bethany Jaeger, with Hilary Russell and Jamey Dunn contributing
The General Assembly approved a bare bones budget that funds human services at 50 percent of Gov. Pat Quinn’s proposed levels, but the governor indicated Sunday night that he would not sign the minimal budget into law.

Not only do state agencies and community service providers not know if they’ll have enough to operate for 12 months of the new fiscal year, but the entire state government won’t know whether it’ll have a balanced operating budget before the fiscal year starts July 1.



Quinn would not say he would veto the bare bones spending plan, but he said he wouldn’t sign it. “A partially funded budget is not a budget,” he said about five hours before the midnight deadline to adjourn the spring session. “You’ve got to make sure you have a whole budget for 12 months of the fiscal year.”

He sent members of the General Assembly home after 1a.m., failing to meet the midnight deadline. But Quinn intends to meet with Democratic and Republican leaders in his Statehouse office Monday.

One more uncertainty from the lack of an agreed budget is when construction will begin for roads, bridges, schools and other infrastructure projects. Although the General Assembly approved a $26 billion construction program 10 days ago, with a second installment approved early Monday morning, Quinn said he wouldn’t sign it until lawmakers sent him a balanced budget.

He said bond-rating agencies and bond buyers wouldn’t buy bonds from a seller (the state) “as long as that seller has a gaping hole in its operating budget of billions of dollars. It’s just common sense.”

To get a balanced operating budget, Quinn said he still supports an income tax increase despite its trouble gaining enough support in the legislature. He deemed the tax as the fairest way to generate revenue because it’s based on ability to pay.

“We have to have a sufficient budget that’s balanced, and that is the only way to go. Our work is not done until that happens, until we have revenues matching expenditures.”

But Quinn had changed his message several times as various budget options gained support throughout the past week. He initially sought a permanent income tax increase of 1.5 percentage points, but he changed to supporting a temporary income tax when it was clear the permanent version wouldn’t acquire enough votes. He changed his stance again Saturday night when the Senate approved an income tax increase accompanied by a sales tax expansion and property tax relief, as well as education funding reforms.

By Sunday, Quinn would not exclusively support either plan. “I’m for any bill that can balance the budget. … If we also can reform an unfair property tax system, I think that’s good also.”

Quinn did urge House Speaker Michael Madigan to find the votes for HB 174, which has been proposed by Chicago Democrat Sen. James Meeks in various forms for the past seven years as a way to address funding disparities between public schools. “I’m counting on Mike Madigan to deliver votes. He’s very good at it. He does the best on the deadline.”

Madigan didn’t deliver the votes. His Democratic Caucus met behind closed doors to take an informal vote on the bill. Rep. David Miller, the sponsor, said it would have only gained 35 votes, far short of the 60 needed for approval.

So the House instead took a vote on Quinn’s temporary income tax. Again, the votes didn’t come. Only 45 members, all Democrats, supported it.

House Republicans remained united against an income tax increase of any kind. Minority Leader Tom Cross said his members were voting against the status quo. “We’re not voting no for the sake of voting no. We want change. We want Medicaid reform and pension reform and some restraint and some discipline.”

Earlier in the day, he said: “To just raise money and hand it over to the same group of people, we’re not going to support that.”

Bare bones budget
When House Democrats couldn’t gain enough votes to either raise the income tax or make massive budget cuts, they resorted to approving reduced levels of spending for state agencies and programs. But it would leave it up to the governor’s administration to decide how to spread the money as far as it would go and decide where to cut.

“It’s better than not having a budget,” said Rep. Jack Franks, a Woodstock Democrat who voted against the temporary income tax.

The plan would generate an additional $1 billion through sweeping unused money sitting in dedicated funds and refinancing state debt to take advantage of historically low interest rates. (SB 1197 is the budget bill; SB 1433 is the fund sweeps bill; SB 1609 is the debt refinancing bill.)

Rep. Dave Winters, a Shirland Republican, said his “no” vote was symbolic. The bare bones budget still would fund all state employee contracts without requiring unpaid days off or restricted travel budgets.

The General Assembly did approve a measure, SB 2090, which would require legislators to take four unpaid days off and would cancel their cost-of-living raises for next fiscal year.

In the Senate, GOP Sen. Matt Murphy of Palatine dubbed the bare bones budget as “the final piece of the failure-to-lead budget.” His fellow Republicans said it was irresponsible to refinance the debt but not pay the first two years of principle on the loan; however, Minority Leader Christine Radogno actually supported the “temporary holiday” from the stringent requirements the General Assembly placed on itself in the 1990s. She said because Republicans oppose tax increases, the refinancing plan would allow some flexibility in the current revenue shortfall and economic recession.

But, she added, “The result right now looks a little like the same old thing, and the fact is the Democrats failed to put together a budget that can take us through the year, despite the fact they have significant majority.”

Sen. Donne Trotter, budget negotiator for the Democrats in his chamber, described the bare bones budget as “the worst bill that we could have passed.” But, he added, it was necessary in the 11th hour — literally with 45 minutes before the midnight deadline — to prevent the government from shutting down operations when the new fiscal year starts July 1.

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Down to the wire

By Jamey Dunn and Bethany Jaeger, with Hilary Russell contributing
Some of yesterday’s moving parts actually started revolving around each other late in the day Thursday. The Illinois Senate approved two major revenue enhancements, one a sizable tax hike and another a major gaming expansion. That immediately put the onus on the House, which was in the middle of trying to advance an “insurance budget” to fund agency programs at bare bones levels.



Income tax increases and education funding
The momentum started in the Senate. Democrats tweaked a bill that was intended to address education funding, which would include an income tax increase of 2 percentage points for individuals. It would increase from 3 percent to 5 percent. Different versions of the measure have long been presented by Sen. James Meeks, a Chicago Democrat, but never found the support to pass. However, a looming deadline and $7 billion budget deficit this fiscal year has created new possibilities for an old concept.

One difference this time around is that the plan would only raise the corporate income tax rate from 4.8 percent to 5 percent, a much smaller increase than previously sought. It also would expand the sales tax to include services.

Senate President John Cullerton said the tax restructuring would help solve some of the chronic budget woes, but the plan would still come up $2 billion short of what the state needs to fully fund pensions and to maintain current spending levels. A vote for the tax plan, he said, inherently would be a vote for $2 billion in budget cuts.

House Bill 174 (the "new 750"), would provide some targeted tax relief. It would raise the personal exemption and increase the earned income tax credit over two years to protect low-income residents. It also would provide property tax relief, which attracted Democratic Senators.

Over time, the tax plan would funnel more money into education and higher education, something Meeks wanted for years to address funding disparities between school districts throughout the state.

Republicans opposed the tax increase and sales tax expansion, describing it as a mistake during a recession. Sen. Matt Murphy, a Palatine Republican, said: “There’s a lot of different ways we can go at this if we go line-by-line through this budget, and I know because I’ve done it. This will cause more Illinoisans to lose their jobs, without a doubt.”

The bill passed with only Democratic votes. Sen. Dan Kotowski, a Park Ridge Democrat, gave an emotional speech about making his last-minute choice to vote for the bill. He said he had been praying about his decision and cast the vote that he knew would make his family proud. He said he had been telling leadership that he would vote “present,” but he changed his mind during floor debate. After the vote, Kotowski encouraged some House Republicans to follow suit.

Cullerton said that passing the bill in the Senate may help House Democrats feel safer about changing their minds. However, he said that the bill would need Republican support to pass. “When one chamber starts and passes a bill, they see that we’re still walking around — we’ve got a different version of what the governor has — that there’s a way to do this. So I think it’s a good start.”

But Gov. Pat Quinn is still backing the income tax proposal that has been introduced in the House. “I think the [temporary income tax] plan we have here in the House is probably the one we’ll have to go with. It’s straightforward. It’s pretty simple. It’s for two years. And the whole idea is for at least at this time to hold off dire catastrophes.”

Gaming
Momentum to consider alternative revenue sources continued with a Senate vote to expand gaming by adding four new facilities, including new gaming facilities in Chicago, Waukegan, Rockford and Danville. Existing gaming facilities, including horse tracks, also could start operating more slot machines. Senate Bill 744 would generate at least $150 million upon issuing the licenses, according to Sen. Terry Link, a Waukegan Democrat. Once the new facilities were up and running and the economy improved, he said the package could generate up to $1 billion a year.

Building new casinos and riverboats has been tried numerous times in the past few years, and similar proposals haven’t advanced in the House. But, Link said: “They need money and here’s a good way to give them money. So I think it's future is a lot better tonight.”

Rep. Bill Black, a Danville Republican who would receive a gaming facility in his district through Link’s bill, said the state may need an income tax increase. Then again, he said: “When you’re drowning and a life preserver floats by, your impulse is to grab it. When you have a community that’s so desperate for investment and jobs, you turn to things you normally wouldn’t even consider. I would support the riverboat. I don’t have the luxury to say I don’t.”

Bare bones budget
The so-called “insurance budget” advanced by House Democrats as a back-up plan would fund state agencies at about 80 percent of the level they were funded at last year, which would be about 50 percent of the governor’s proposed budget.

Majority Leader Barbara Flynn Currie tried early in the day to advance a temporary income tax increase. That wasn’t gaining enough votes. So late Saturday night, Currie tried to at least approve the “insurance budget” to keep the lights on, so to speak. Without it, agencies would be funded at 32 percent of Quinn’s proposed budget.

But after word spread that senators approved an income tax increase across the rotunda, several House Democrats started to peal off support for a bare bones budget. Rep. Sara Feigenholtz, a Chicago Democrat and vocal advocate of human services, urged fellow lawmakers to hold off on a bare bones budget to “continue to fight for more solutions.”

Currie said she would prefer either version of an income tax over a bare bones budget, but it was a way to ensure something landed on the governor’s desk just in case chaos ensued Sunday, the last day of the regularly scheduled session.

If all else fails, Currie said she would call the bare bones budget again before Sunday’s midnight deadline. Here’s what it would do:

On the revenue side:

• Sweep $356 million from dedicated funds four times throughout the year.
• Refinance debt to get a 4 percent interest rate and save $600 million next year, saving $237 million over the life of the bonds.
• Along with tapping into federal funds and starting other efficiencies, it would generate about $1 billion.

On the spending side:

• State agencies could receive lump sums at half the funding level proposed by the governor.
• The administration would have to figure out how to spread the money around and to cut certain grant programs.

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House Dems paint picture without tax hike

By Bethany Jaeger, with Hilary Russell contributing
House Democrats maintain that without Republican votes, an income tax increase is likely to fail. And the back-up plan isn't pretty.

House Democrats did advance a two-year income tax increase and a phased-in earned income tax credit for low-income families this morning. Senate Bill 2252 would net about $4.5 billion for state coffers, House Majority Leader Barbara Flynn Currie said in committee. The personal tax rate would increase from 3 percent to 4.5 percent, while the corporate rate would increase from 4.8 percent to 7.2 percent, ending in 2011. The earned income tax credit would phase in from 5 percent to 7.5 percent the first year, followed by an increase to 10 percent the second year. It would be permanent after that.



Without new revenue, House Democrats could resort to sweeping money out of dedicated funds and refinancing debt as the only new revenue sources for a total of about $4.5 billion, according to Assistant Majority Leader Frank Mautino. That would result in state agencies getting about 80 percent of their annual budgets, and only about half of the grants for community services would get funded.

“So it’s not a partial budget,” Mautino said after committee. “That’s how much money is approved, and that’s how much they will get.”

Currie said during committee that the state is more than $7 billion out of whack today. And even if a temporary income tax increase generated $4.5 billion, the General Assembly would still have to curb spending.

“If anybody thinks this is a way to duck out of our responsibility to tighten our belts, the answer is, it doesn’t make it. But it will help prevent the kinds of disasters that real people face if we don’t do something to stem the tide.”

The lack of new revenue, she said, would result in a 68 percent cut across the board for state agencies. That would affect everything from childcare programs for low-income working parents to services for the developmentally disabled and mentally ill.

All Republicans in the committee voted against the tax increase and sided with business groups, which argued that the proposal would give Illinois the second highest tax rate in the country and further discourage businesses from investing in this state. Todd Maisch of the Illinois Chamber of Commerce added that the income tax increase would not address the deeper problem. “Between pensions and government-funded health care, if you don’t do anything to address those issues, you’re going to be back here in two years still needing another tax increase,” he said during committee. “The drivers of the costs are going to outrun the revenues you’re going to get from the tax increase.”

Rep. Mark Beaubien, a Barrington Hills Republican, said Illinois has gone down the road of a temporary tax increase before. “I think the citizens know where that’s going to go in the future.” The General Assembly levied temporary income tax increases twice in the 1980s. The 1989 increase was made permanent under then-Gov. Jim Edgar.

Meanwhile, the House committee also advanced a measure that would intend to soften the blow for retailers if the state increased the sales tax on cigarettes by a $1 over two years, as proposed in SB 44. Rep. John Bradley, a Marion Democrat, sponsored SB 415 in response to retailers' concerns, which we wrote about before. It would only take effect if the cigarette tax increase were approved.

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Too many moving parts

By Bethany Jaeger, with Jamey Dunn and Hilary Russell contributing
Plan A failed before it even got to the House floor for an official vote Friday.

Democrats said they don’t have enough support for a temporary income tax increase without Republican votes, so rank-and-file legislators were sent home early while leaders met to hammer out Plan B behind closed doors. Meanwhile, different plans to expand gaming and restructure state taxes to change the way the state funds education were floating around in the Senate. But that chamber went home early, too, leaving many legislators to see the May 31st adjournment date slipping away as no combination of revenue and spending options appear within reach.



House Democrats emerged from a closed-door meeting this afternoon with reports of competing priorities. Rep. Monique Davis of Chicago described it this way: “Some people want a tax increase. Other people don’t want a tax increase. Some people want a smaller tax increase. Others want it a little larger. Some don’t want to bypass the pension payment plan. Some people want to make the pension payment. So we’re absolutely all over the board.” She said House Speaker Michael Madigan is letting his members decide. “I think speaker’s doing what he does and that’s let everyone make up their own minds and their own decisions, but we’re going to have to realize what those decisions mean.”

House Minority Leader Tom Cross said Democrats don’t need GOP votes. They could do it on their own. “They’ve got 70 votes — 70 votes. Does anybody in this building think that if the speaker really wants to do this, he can’t do it? Everybody knows that if the speaker wants to get something done, he puts 60 votes on.”

Even if a majority of Democrats or Republicans agreed to raise the state income tax, the General Assembly would still have to cut spending, according to assistant Majority Leader Frank Mautino of Spring Valley.

But they can’t agree on where to scale back, either. That’s partially because Democrats say one of the only places left to cut is from the part of the budget that provides grants to community services, including everything from programs for AIDS patients to after-school clubs. But individual legislators don’t want to stop funding projects or programs in their districts.

“The state budget has become this mosaic of all these individual grant programs that even in times of crisis, we can’t move away from,” said Rep. Marlow Colvin, a Chicago Democrat, adding in frustration, “so it’s ridiculous.”

Mautino added: “There have been uncomfortable votes in the General Assembly, but never a hard vote. Any vote you make this year, someone gets hurt.”

House Democrats do agree that lawmakers can’t balance the state budget solely but cutting spending. “We don’t have enough money for a full year at the levels there at this year,” said spokesman Steve Brown.

Among the alternative plans being considered is minimizing the budget to reflect the level of revenue available. That would include approving lump sums of state funding to agencies, which would then have to decide how to spread the money around to keep the lights on and the doors open until the money ran out. It’s expected that they would have to return to the Capitol to ask for more money early next year.

“I see leaving Springfield with a budget that reflects exactly what we have and what we’re willing to vote for in revenue,” Mautino said, later adding, “We’re just all trying to find something that will keep services running and provide the least amount of pain possible because there’s going to be pain — no matter what we do.”

Across the rotunda, Sen. John Sullivan, a downstate Democrat, said as the day progressed, it appeared more likely that the legislature would resort to a budget based solely on revenues available. But he wasn’t happy about it. “If we go past the 31st without a full budget being passed, all we’ve done is put off the inevitable,” he said. “We’re going to have to come back at some time and face reality.”

Both chambers will resume business Saturday, potentially, with Plans B and beyond.

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House challenges idea to skim pensions

By Bethany Jaeger and Jamey Dunn
The General Assembly should fully fund the state’s contribution into the public employee pension systems, according to a measure approved by the House today. But the move contradicts Gov. Pat Quinn’s proposal to short the pension payment to free up some money that could help fill a $7.4 billion budget deficit next fiscal year.



Today’s floor debate over SB 1186, sponsored by House Speaker Michael Madigan, pitted the need to repay long-term debt against the immediate decline in state revenues. Gov. Pat Quinn proposed skipping about $2.3 billion in payments next fiscal year. Madigan today essentially took that option off the table — for now — saying he and the governor have a “legitimate difference of opinion.”

Next fiscal year, which starts July 1, is the last year of a so-called “ramp-up” payment that is part of a statutory schedule to force the state to gradually fund its share of the long-term pension obligations. Next year’s payment is supposed to exceed $4 billion. But the deficit is projected to reach at least $7.4 billion, according to Madigan.

The speaker said the bill to force full payment reflects that there was little support for a partial payment (102 members voted in support of full payment). But it also simply reinforces existing statute. The entire House GOP supported full payment. Fourteen Democrats, on the other hand, voted “present.” Several said that making a partial payment would free up more than $2.2 billion that could help fund safety net services during the economic recession.

Madigan laid out the revenue picture with and without a full pension contribution, which could bolster his argument that the state should increase the state income tax to balance the budget and pay its bills. Here’s Madigan’s break down:

• $16.9 billion – The amount already approved by the House to fund basic state operations and employee contracts. (It’s not yet approved by the Senate.)
• $3.5 billion – The amount left over to dole out to state services.
• $10 billion – The amount needed to fund the rest of Quinn’s proposed spending plan.
• $7 billion – The amount that would have to be cut to balance the budget without an income tax increase.

But even with an income tax increase of 1.5 percentage points, as proposed by Quinn, the state would only garner about $3.7 billion. Legislators would still have to cut nearly $3 billion more to achieve a balanced budget.

Sen. Don Harmon, an Oak Park Democrat, said that the cuts that would be needed without a tax increase could be more than most lawmakers want to consider. “I don’t know if any of us have come to grips fully with what cuts of that magnitude would mean to people who live in our districts,” he said. “We’ve got pages and pages and pages of potential cuts, and they will hurt real people. And we’re trying to balance that.”

Harmon added that the Senate Democratic Caucus sees the pension payments as part of the larger budget negotiations. “Obviously, we’d all like to make the full pension payment. It’s just a question of the competing needs and the limited revenue available. It’s within the context of the overall budget development, not a stand alone issue.”

Republican Sen. Matt Murphy of Palatine disagreed that Democrats are looking at the bigger budget picture, which he said could lead to a piecemeal approach and, ultimately, mistakes. “It’s almost like they’re doing these things in a vacuum,” he said. He suggested short-term borrowing as a way to fully fund pensions and avoid an income tax increase.

The legislature could always do what it did last year: approve an unbalanced budget and force the governor to cut programs over the summer. There are many ways this scenario could play out.

Meanwhile, Quinn’s effort to enact a two-tiered system that would provide less generous benefits to newly hired teachers and state employees has stalled but is still in negotiations behind closed doors.

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Prepare for revenue vs. spending showdown

By Bethany Jaeger
The General Assembly has five days until the constitutional deadline of May 31 to approve a state operating budget, and there are only three days until Senate President John Cullerton wanted to adjourn so everyone could go home by this weekend.

Things are still pretty fluid in the Capitol, with lots of options being discussed but few commitments being made to any of them.


“There’s Plan A, Plan B, Plan C, and, so far, we have not seen B nor C,” said Sen. Donne Trotter, budget negotiator for Senate Democrats.

Plan A includes funding basic portions of the budget to keep the lights on and to secure federal stimulus funds regardless of whether the legislature approves an income tax increase. And that plan, approved by the House last week, wouldn’t fulfill spending obligations for state programs and public employee pensions. House and Senate Democrats are circulating lists of programs that would not be funded under the core budget plan, forcing members to rank programs that could be cut or not.

Those lists are leading up to the plea for a state income tax increase, but for that to happen, Democrats need Republican support. Senate President John Cullerton said he doesn’t believe his caucus has 30 votes necessary to approve an income tax increase, leading him to turn to Republicans. The GOP, however, doesn’t want to approve an income tax increase unless the General Assembly first tries to trim spending and make existing programs more efficient, including instituting managed care policies and other Medicaid reforms.

Sen. Dale Righter, a deputy Republican leader from Mattoon, said, “To say that there isn’t any waste in state government is to say, ‘I agree with the last six years of Rod Blagojevich’s budgets,’ and I don’t think any of them want to say that.” He added that constituents want comprehensive reforms that affect every dollar the state spends, not just a percentage of it. He said enacting a half-year budget would unlikely include any reforms.

“Once you support that and put that into law, then you’ve locked that in place. And you’ve said, ‘OK, there’s nothing we can do about that spending.’ And I don’t think that’s the message we want to send.”

As Democrats and Republicans consider their options behind closed doors tonight, consider this breakdown of general revenue versus spending and the large gap between the two, according to Democrats.

Spending side

• Legislators are working with about $23.8 billion to dole out, including federal stimulus funds.
• The House last week approved $16.9 billion to keep the lights on and to secure federal stimulus funds, leaving about $6.9 billion to split among state programs.

Revenue side

• According to Senate Democrats, the state would need an additional $4 billion just to get to last year’s funding levels (a.k.a. a zero-based budget).
• And then it would need between $2 billion and $4 billion to pay the state’s full share into the public employee pension systems.
• That means, according to Trotter, that budget negotiators anticipate needing up to an additional $8 billion to get up to last year’s funding levels and to fully fund the pensions.
• Shorting the pension payments is always on the table. Making a minimal payment, however, would not pay down the compounding liabilities.
• So is approving a temporary budget that would distribute the money on hand but would not be enough to get through the year. Cullerton said he opposes the idea of a half-year budget.
• Gov. Pat Quinn also has proposed a two-tiered pension system so that newly hired teachers and state employees would earn less generous retirement benefits. While the administration suggests long-term savings would result, teachers’ unions strongly disagree and point to a report by the legislative Commission on Government Forecasting and Accountability.

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Tax talk of how to protect low-income workers

By Jamey Dunn

As the deadline for filing income taxes nears, Illinois groups urge protection of low-income workers if the General Assembly approves a state income tax increase for next year.


The advocacy groups of Voices for Illinois Children, the Sargent Shriver National Center on Poverty Law, Protestants for the Common Good, the Center for Economic Progress and the Center for Tax and Budget Accountability joined in the state Capitol today to call for an increase in the state’s earned income tax credit.

While an increase in the credit has been proposed many times in the Illinois General Assembly, advocates are looking for a sympathetic ear in the current administration. Jerry Stermer, Gov. Pat Quinn’s chief of staff, was founder and president of Voices for Illinois Children before moving on to his current position.

The group want lawmakers to raise the amount of the state earned income tax credit so that the maximum per household would increase from $240 to about $1,000. The credit reduces the amount of income tax owed but can also result in a refund, according to the Internal Revenue Service. This year, a family of two parents and two children would have to earn less than $42,000 to qualify for the credit. According to Mary Ruth from the Center for Economic Progress, the average credit the state gives out is between $80 and $100.

Sean Noble, spokesman for Voices for Illinois Children, said that the tax credit would target lower-income families more effectively than Quinn’s proposed increase in the personal tax exemption, which he wants to raise from $2,000 to $6,000.

Noble added that an increase in the earned income tax credit might find more legislative support because it would cost less. He estimated that the earned income tax credit proposal would cost an additional $350 million a year. Quinn’s personal exemption increase would cost between $1 billion and $2 billion.

The advocates could compromise, Nobel said, if Illinois were to increase the earned income tax credit and the personal exemption.

Gaylord Gieseke, former vice president of Voices for Illinois Children, is serving as interim president until a replacement for Stermer is found. The organization is conducting a nationwide search.

Check back tomorrow for coverage of the “Tax Day Tea Party,” a protest of government spending and tax increases. It’s scheduled to take place at the Capitol at noon.

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Will the "cutting committee" cut much?

By Jamey Dunn and Hilary Russell
The state’s budget deficit could be worse than Gov. Pat Quinn’s projection of $11.6 billion next fiscal year. But some education-funding reform advocates see a silver lining in that the dire budget constraints could open the door for a longstanding effort to restructure the way Illinois pays for public education.


They’re again supporting a so-called tax swap, which would increase the state income tax and expand the state sales tax to apply to services. The new revenues would help offer property tax relief. Sen. James Meeks, a Chicago Democrat who has been pushing the idea for seven years, says relying less on property taxes to fund public education would help address funding disparities between property rich and property poor school districts.

We’ll find out tomorrow morning whether such tax reforms will be included in a series of recommendations that a special bipartisan committee will pass along to legislative leaders as they try to figure out how to balance next year’s state budget. The special committee is led by a rare co-chairmanship of one Democrat and one Republican. Sen. Donne Trotter is the Democratic chairman. He said the committee is considering recommending such revenue changes as a tax swap, as well as other changes to the public employee pension system, that both parties can support.

“There’s probably going to be a larger stack of things that we could agree upon than things that we can’t,” Trotter said. However, he added that there’s a good chance that the committee could produce a majority and minority opinion reports.

Trotter said Meeks’ tax reforms have support from committee members of both political parties.

Legislators’ reluctance to raise state income taxes has been one of the main roadblocks to various tax swap proposals advanced in the past seven years, but Meeks said the likelihood of an income tax hike this year creates a “now or never” opportunity for reform. The latest proposal, SB 750, would raise the state income tax from 3 percent to 5 percent for individuals and from 4 percent to 8 percent for corporations.

While the tax reforms traditionally have been proposed as a way to reform education funding, Meeks said he’s open to using new tax revenues to plug the state’s budget deficit for up to two years. But then it would have to switch to fund education. If lawmakers only consider the deficit, he said, “we’ll end up raising taxes, but we won’t end up fixing anything.”

Ralph Martire, executive director of the Chicago-based Center for Tax and Budget Accountability, supports Meeks’ plan for education funding and said there’s an added reason (scroll down) to reform the state’s tax structure. “The bottom line is Illinois cannot get to a balanced budget situation without adjusting both of its major taxes,” he said. He added that expanding the state sales tax could allow for a lower rate.

The Taxpayers’ Federation of Illinois opposes the bill because, according to organization president Tom Johnson, property tax is a reliable revenue source for local governments even in hard times. He added that the state may not be able to keep up with the property tax relief, which he said could “vanish in a relatively short period of time.”

Tomorrow morning’s Budget Deficit Reduction Committee will wrap up four weeks of testimony, which started out by focusing more on what agencies and advocates couldn’t live without than what they were willing to cut. The last two meetings have changed the focus to more concrete examples of ways the state could generate money while it also saved money.

Sen. Matt Murphy, the Republican co-chair from Palatine, said: “I love the idea of restraining future growth for spending because there’s never gonna be enough tax revenue if we don’t get a handle on the spending. I look forward to coming out with a collection of deficit reduction measures that we think can help fill this hole and do it in a way that’s productive for the long-term benefits for the state.”

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Legislators eye "adjustments"

By Bethany Jaeger, Jamey Dunn and Hilary Russell
Gov. Pat Quinn wrote his 40-minute Budget Address himself, just one indication of the change under the Capitol dome since the impeachment and removal of former Gov. Rod Blagojevich.


Wearing glasses and a navy blue suit, Quinn opened his speech Wednesday before the General Assembly to a standing ovation from Democrats and Republicans. But the tone soon changed when Quinn described the context in which he proposes a bold spending and revenue plan:

• An integrity crisis — The state citizenry is damaged and embarrassed by the “bipartisan betrayal” of former Govs. George Ryan, a Republican serving in federal prison, and Blagojevich, a Democrat fighting federal corruption allegations.
• A fiscal crisis — The budget deficit is projected to be $11.6 billion by the end of fiscal year 2010, and the state can’t afford to pay nearly $5 billion in overdue bills.
• An economic crisis — Unemployment is rising to nearly 8 percent.

“To be direct and honest, our state is facing its greatest crisis in modern times," Quinn said.

David Merriman, an economist and professor of public administration with the Institute of Government and Public Affairs, said in stark contrast to the budgets proposed by Blagojevich, “Quinn’s proposals are transparent, and the effects are relatively simple to identify. There is little or no smoke and mirrors.”

Senate President John Cullerton said he could see the looks on the faces of Democratic and Republican legislators. “Even if you didn’t agree with everything he said, it was just so gratifying to see the reaction of the members based on the governor’s sincerity and his words.”

Cullerton also pointed to the weighty proposals of an income tax increase, a road and school construction program, a reformed pension system and a slight bump in education funding. “It’s a lot of work, and he’s to be congratulated for making those proposals.”

But that doesn’t mean Quinn will get everything he wants. Legislators of both political parties already are eyeing “adjustments,” in Cullerton’s words, to ensure that an income tax increase is used as a last resort.

“If we cut as much as the governor has proposed, and we guarantee that we have paid our bills, and we guarantee that we have a capital bill, then — and only then — do we look to the income tax and determine whether we need it,” Cullerton said. “And, if so, how much we have to raise it?”

Income taxes
As we said last night, Quinn’s blueprint relies on a state income tax increase of 1.5 percentage points for individuals and 2.4 percentage points for businesses. But some of the new tax revenue would be shaved off to provide a heightened personal tax exemption, from the current $2,000 to $6,000 per individual. The net revenue: about $3.15 billion, according to House Democrats.

That’s one area subject to negotiations. Senate Democrats want to look at a personal exemption that’s lower than Quinn’s proposal or, possibly, phasing it in over a few years. Or, while they eventually could sign on to an income tax increase, they might seek a lower rate.

Pensions
Quinn also wants to restructure the public employee pension system, which we wrote about last week. Business groups have been advocating for pension reform for years. Yet, there’s a concern about Quinn’s plan to divert money away from the amount the state is supposed to pay into those systems through 2011.

Quinn proposes changing benefits for newly hired employees. Among other changes, that would increase the retirement age and require them to pay more into their retirement benefits. At the same time, Quinn proposes shorting the amount the state pays into the pension system by $500 million this year and $2.3 billion next fiscal year (CORRECTION: I misread a chart and mistakenly thought there would be a third year of reduced pension funding. I was wrong. There are only two years, totaling $2.8 billion. I sincerely apologize.). The pension reforms are estimated to save about $160 million by 2045.

Cullerton said while he believes the governor’s pension reforms could save money over time, “we just have to examine the numbers and make sure that those savings that we would get in the future would justify lower payments into those funds right now.”

Public employee unions reject the idea in its entirety. According to Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees Council 31, retiree benefits average about $18,000 a year. He said the state’s debt should have nothing to do with employees who consistently contribute to their benefits. “Cutting future benefits will not reduce the state’s current debt by a single penny, and skipping payments on the basis of such imagined savings will only compound the current crisis.”

State employees
AFSCME also opposes Quinn’s idea of making current employees, minus public safety, health care and university workers, take four unpaid days off, called furlough days, and pay more into their health care plans.

There’s a contract in place, Lindall said. “The state can’t force changes in any of these areas. Under our contract, they have to negotiate it. If they don’t negotiate those changes, we will enforce our contract in court.”

What else is on the table?
Republicans say everything — from budget cuts to expanded gaming — should be on the table before resorting to an income tax increase.

While Senate Minority Leader Christine Radogno agreed with parts of Quinn’s proposed budget such as pension reforms and the removal of a gas tax increase as a revenue source, she called an income tax increase “premature and irresponsible right now.”

House Minority Leader Tom Cross agreed that Medicaid spending should be reduced and, he added, lawmakers need to ensure they assess all the possibilities for using federal stimulus funds to help fill in the deficit.

Neither GOP leader would say that the state could pay off its debts without raising taxes, but they both said that tax increases should only be considered when all other options have been exhausted. Both also said that Republicans would be less wary of a tax increase if it would have a set end date.

Expanded gaming as a revenue source isn’t dead, either. Rep. Jim Durkin, a Western Springs Republican, said the state still should consider leasing the Illinois Lottery to a private entity to raise money, which has been tried before. Radogno agreed that the state should look to the “voluntary activity of gambling” for increased revenues.

Democrats also have been considering expanding gaming as a revenue source, although Cullerton said he would not intend to expand gaming as a way to pay for a capital construction plan. He did say gaming could be used to lessen the need for an income tax increase.

We'll talk more about capital plans soon.

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Tax increases will spark controversy

By Jamey Dunn
Gov. Pat Quinn already faces opposition from the business community to a possible income tax increase, even though his budget address will not take place until Wednesday. The Tooling and Manufacturing Association released a proposal today that suggests making budget cuts before turning to tax increases to solve the state’s deficit.


The premise of the plan is that Illinois corporations and families must pare down their budgets to survive difficult financial times, so the state should follow suit. “There really are some areas that we can cut in this budget before we go to that tax increase,” said Zach Mottl, chairman of the association’s government relations committee.

The association suggests a state hiring and promotions freeze, as well as changes to the state pension system that would resemble a private-sector 401(k) plan. That could include requiring larger employee contributions, getting rid of guaranteed retirement benefits and raising the retirement age to 67. The plan also includes substantial cuts to public schools, higher education and Medicaid. The only budgetary increase the association recommended was money for a job training grant program.

The plan also suggested that Quinn meet with business and labor groups to discuss changes to the worker’s compensation system, and they wanted him to reconsider his position on closing so-called corporate tax loopholes that the group said offer incentives to stimulate business growth in Illinois.

Ralph Martire (scroll down), executive director of the Chicago-based Center for Tax and Budget Accountability, recently said that budget cuts will actually hurt the state’s economy and result in job loss. He said that a progressive tax increase, which would put more of the tax burden on the wealthy, is the solution for getting the state through the recession.

“If the state raises taxes progressively and maintains its expenditures on essential public services, we have the potential to shorten the recession in Illinois by half a year, maintain or grow jobs and actually do something that counters the negative impact of this spiral down for most people in the state,” Martire said in a Statehouse news conference last week.

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Tax talk and FutureGen update

Income tax talk
By Bethany Jaeger
Senate Democrats are considering ways to trim the budget at the same time they’re considering revenue ideas to help alleviate the $9 billion to $11 billion budget deficit. At least one revenue idea includes an increase in the state income tax by as much as 2 percentage points, which would bring the rate to 5 percent for individuals.



Sen. Donne Trotter, budget negotiator for the Senate Democrats, said that for every percentage point increase, the state could collect an extra $3.3 billion, meaning 1 percentage point wouldn't plug the expanding budget gap. “If you’re going to do something as dramatic as raise the income tax, you might as well make it workable. Let’s not just do it and still have a hole and have to come back and do it next year.”

Trotter said early internal discussions about changing the tax structure include establishing a progressive system that would levy a higher tax rate on people who made more money and giving tax credits to families who made less money.

He said the idea to grant tax credits to lower-income families would allow the legislature to get around having to change the state Constitution, which established a flat income tax rate. Illinois lawmakers would have to propose a constitutional amendment to levy the tax on a sliding scale based on ability to pay.

FutureGen still being considered by the Feds
By Jamey Dunn
The U.S. Department of Energy has not taken the proposed FutureGen plant in Mattoon off the table, but the overall plan and the details of the bureaucratic process remain in flux.

According to the New York Times, Energy Secretary Steven Chu said yesterday that he still is considering the Mattoon plant as part of a “modified” project that could include international partners. “We are taking, certainly, a fresh look at FutureGen, how it would fit into this expanded portfolio,” Chu was quoted as saying.

Illinois lawmakers have focused on the record of decision, a statement that says the plan for the Mattoon site has met all environmental standards for construction. U.S. Sen. Dick Durbin recently called for Chu to sign the document so the project can move forward.

However, John Grasser, a spokesman for the Fossil Energy Division of the Department of Energy, said that being concerned with the record of decision at this point is “putting the cart before the horse.” Grasser said that the project must be resurrected before the record can be signed. He said that Chu is still open to the possibility of breathing new life into the project that was abandoned by former President George Bush's administration in January 2008. Grasser said that if the Mattoon site becomes part of a new plan, it could require a new record of decision and some administrative planning that will be worked out when, and if, the time comes.

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Time for some long-term fiscal planning

State Comptroller Dan Hynes already painted a dismal picture of the state's fiscal status with his projection of a nearly $9 billion deficit in fiscal year 2010, which starts July 1. He estimated that could drop to a roughly $6 billion deficit if the state received $3 billion from the federal stimulus package, but the federal bailout amount for states is in flux at this very minute. Adding to the problem is that the current fiscal year 2009 budget keeps getting more and more out of whack. The revenue forecast looks worse than it did in November, according to the legislature’s economic forecasting arm.


Last fall, the bipartisan Commission on Government Forecasting and Accountability said revenues for the current fiscal year 2009 would fall $550 million below the previous year, or $1.34 billion less than the level budgeted.

Part of that spending plan assumed the state would collect $435 million by selling the state’s 10th riverboat license, but the winning bid for the license came in at only $125 million — and it won’t be available in time to ease this year’s budget crunch. According to the Illinois Gaming Board, the money could come in two chunks, one in fiscal year 2010 and the rest in 2011.

In short, the current year’s revenue picture “worsened virtually over night to nearly $1 billion less than the previous year,” the commission said in its January revenue forecast.

The commission added that it may need to make further adjustments when state income and sales tax revenues decline as the national recession unfolds. The cumulative damage: at least $1.6 billion by March.

As all four legislative leaders met with Gov. Pat Quinn this past week, talk of tax increases and budget cuts circled the Capitol. Public administration professor David Merriman at the University of Illinois at Chicago said even if the state gets $3 billion in federal bailout money, cuts spending and increases the state income tax by 1 percentage point, it's still going to be a rough road ahead. "The state needs to do long-term fiscal planning, and they need the legislature to take that seriously," he said.

Watch for more context and analysis in the March edition of Illinois Issues magazine.

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Throw it into reverse

The Civic Federation lacks confidence in state leaders to rake in new cash and spend it wisely, which is partially why it withdrew its support of an income tax increase proposed last year.

The federation is a nonpartisan research body consisting of powerful corporate leaders in the Chicago area. It released a report today, reversing its position on a state income tax increase to generate new money to help pay down old and compounding debt.

“Last year, we supported a reasonable income tax increase if, and only if, it was tied to reform,” said Laurence Msall, president of the Civic Federation. He also serves on the Illinois Issues Advisory Board. “And some of those reforms would be very similar to what the Illinois General Assembly and the governor demanded of the Chicago Transit Authority, in terms of what they had to do before the state was support additional funding for them.”

Part of the Chicago Transit Authority deal negotiated in January included saving taxpayer dollars by increasing employee contribution rates, increasing the retirement age to 65 and shaving down health care benefits for future employees.

Last year, Msall said, the committee offered a modest income tax increase as an alternative to the Gov. Rod Blagojevich’s failed gross receipts tax on businesses. The recommendations started with momentum at the beginning of the year but deflated under a whole host of budget issues lasting throughout the year. And the legislature and the governor haven't shown signs of banding together behind reform any time soon.

“We have seen no evidence that there has been any serious effort, unlike three years ago when the governor stood up in a state budget address and said: ‘We have a big problem. We’re going to have to reform our pension benefit system,’” Msall said. “The General Assembly adopted only the most modest of those recommendations and then proceeded to take pension holidays, making the problem even worse.”

FYI: A special panel created by statute issued recommendations in 2005. You can read them here. Read more about the legislature’s pension holidays in Illinois Issues magazine here and in a state report here.

The Civic Federation's report says the governor’s proposed budget fails again to make “reasonable” payments to the pension system for public employees. As a result, the state’s compounding debt includes $44 billion in unfunded pension liabilities and another $24 billion in health care liabilities for retired state employees. Fun fact: That's about half of the state's entire budget.

The group also said it can’t support the governor’s proposed infrastructure program, which depends on privatizing the Illinois Lottery for an immediate influx of cash. The Civic Federation report said the proposal lacks a detailed plan for spending the money.

“There is no comprehensive improvement plan. There is a series of projects and lists,” Msall said. “You owe it to the public — and the General Assembly should demand — that they know what priorities are before they approve the extraordinary borrowing against the future revenue stream, which is what the lottery is.”

The governor’s budget office says the Illinois Board of Higher Education is responsible for evaluating and prioritizing its capital projects that would be included in a statewide infrastructure plan, and the state depends on a statutory formula for distributing capital funds for school construction projects. The Illinois Department of Transportation also has an extensive list of roads and bridges in need of repair, as well as a list for new roads and projects.

The Civic Federation’s overall message from last year still applies, however. The state should reduce, not increase, operating costs and new spending, which is why the group supports the governor’s proposals to cut most state agency budgets by 3 percent and to consolidate state agency functions to reduce administrative costs.

See “Shaky Business” in Illinois Issues, May 2007, to read about the business community’s support for a state income tax increase last year.

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Tie-breakers

By Patrick O’Brien
The House approved a constitutional amendment today that would try to take the politics out of redrawing the state’s legislative map every 10 years. (See more here.)

Many supporters and opponents of the measure said any change would be better than the existing system, which has resulted in a draw out of a hat three consecutive times because lawmakers hit a stalemate. “Determining the future of Illinois based on the flip of a coin is irresponsible,” said Rep. Lou Lang, a Skokie Democrat, during debate.

Rep. Barbara Flynn Currie, a Chicago Democrat, said the framers of the 1970 Illinois Constitution thought that the tie-breaker provision would be enough to make any sensible, responsible party compromise. “It turns out, we’ve had three opportunities. And three times, we’ve struck out.” She said the proposal would “do the job” in forcing a compromise.

Under the plan, sponsored by Rep. James Brosnahan, an Evergreen Park Democrat, a stalemate over who would redraw the map would result in the Illinois Supreme Court appointing a “special master” to oversee the process. Each chamber of the General Assembly also would approve its own map with a three-fifths vote.

Opponents said the proposal lacks specificity in multiple areas, including the role of the state’s high court and the criterion for selecting a special master.

The House approved the measure, 98-10 with one voting present, but House Minority Leader Tom Cross, an Oswego Republican, said the bill is presumed dead on arrival in the Senate. Even if approved by both chambers, 60 percent of the public would still have to vote for the idea before the state Constitution could change.

We remain flat
By Bethany Jaeger
Only 19 senators voted in support of asking the public whether the state should allow a graduated income tax rate to replace the existing flat rate. That’s far short of the 36 votes needed, indicating most senators are unwilling to support something that looks like a tax increase right now, particularly during an election year.

“I just think we need to escape the politics of self-preservation,” Sen. Kwame Raoul, a Chicago Democrat and co-sponsor of the measure, said after the vote. He and Sen. Michael Frerichs, a Champaign Democrat, said they pursued the constitutional amendment to give the state flexibility in revising its tax structure so that it could establish a system less reliant on local property and consumption taxes, which often burden the low- and middle-income taxpayers.

Republicans voiced opposition to the measure because they said it would pave the way to increased income taxes. That would be a “killer” for small businesses and job creation, said Sen. Kirk Dillard, a Hinsdale Republican, during floor debate. Republicans also said the proposal fails to address high property taxes and lacks details, leaving voters vulnerable to a tax-and-spend approach to state government without public input.

Another income tax proposal, meanwhile, is still in the works in the House. It originally tried to set new, tiered rates for individuals making more than $250,000 a year, but it narrowly failed. It’s expected to come back in some form.

Coming up
Watch for more updates regarding Senate action on another constitutional amendment to let voters recall elected officials and on ethics reform to ban so-called pay-to-play politics.

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Income tax vote expected

The Illinois Senate is expected Tuesday to vote on a proposal to change the Constitution so that the state could have a graduated income tax rate rather than the current flat rate (3 percent on individuals and 5 percent on corporations). That's according to the sponsors of the proposal, Democratic Sens. Michael Frerichs of Gifford and Kwame Raoul of Chicago.

"This is no tax increase," Raoul said, referring to a misconception that this measure relates to a House proposal that would double the tax rate on individuals making more than $250,000. (That measure recently failed. See more here.)

Both Senate sponsors said in a Statehouse news conference Monday that they did not introduce the constitutional amendment to increase taxes as a way to generate revenue for any specific purpose, although they both support a graduated income tax rate. And they acknowledged that such a system eventually would lead to increased taxes. They want to establish what they said would be a fairer tax structure, given that the existing system relies on local consumption taxes that often burden low-income residents.

The measure previously advanced out of a Senate committee (see our previous blog post for more), something the sponsors say gives them hope that the full chamber can do the same Tuesday. While the sponsors said they were counting on one Republican vote in support of the measure, it would still need more GOP support to pass the House with the necessary three-fifths vote. Then it would have to win support from of at least 60 percent of voters in the next election.

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