Illinois has a state budget after a record two-year impasse but it occurred only after a contentious and fiery debate in the House of Representatives and Senate where lawmakers narrowly overrode a veto by Governor Bruce Rauner. The new $36.054 billion state budget became effect immediately and is fueled by five billion dollars in new tax revenue generated largely by a 32 percent increase in the state’s income tax that takes effect on July 1, 2017.
There is no doubt that Illinois needs a balanced state budget that restores fiscal integrity and spending reforms. However, the IMA publicly opposed the final package (SB 6, SB 9, SB 42) because it failed to include any real spending reforms, property tax relief, economic development reforms like workers’ compensation, or address the massive pension debt totaling $251 billion. Simply raising taxes on Illinois businesses and families is not a solution to the state’s challenges.
In the final days of session, the IMA held a press conference expressing opposition while calling on lawmakers to enact real and meaningful changes. Following passage of the tax and budget plan, the IMA released a statement that included the following:
“Illinois lawmakers ignored reality today and drove another nail in the coffin of job creators. Imposing a five billion dollars tax hike on Illinois families and businesses without addressing the root causes of our stagnant economic growth is a recipe for disaster and will only hasten the further loss of Illinois’ middle class. The General Assembly refuses to recognize the lasting damage they are causing our economy by failing to address Illinois’ downward spiral. Our members are frustrated and angry today because of the abject failure to help make Illinois more attractive for job creators. Higher taxes and additional regulations such as a minimum wage hike and paid leave will not create jobs or help grow the economy.”
While Illinois sits one notch above junk status, passage of this tax package may not positively change the state’s credit rating that could actually be downgraded again. On Monday, Moody’s Investor Services released a statement noting, “the plan appears to lack concrete measures that will materially improve Illinois’ long-term capacity to address ins underfunded pension liabilities.” Moody’s opined that the legislation does not address Illinois’ two most pressing credit challenges: it’s severely underfunded pensions and backlog of unpaid bills, which has doubled during the past year.
The tax legislation (SB 9) permanently increases the income tax rate for both individuals (3.75 to 4.95 percent) and corporations (5.25 to 7.0 percent) while eliminating the Qualified Production Activities Deduction for manufacturers. SB 9 includes a short-term, five-year extension of the Research & Development tax credit and a permanent extension of the Graphic Arts sales tax exemption but it failed to extend the Manufacturers Purchase Credit. The Earned Income Tax Credit for low-income families is doubled while new means testing is imposed for the education expense tax credit, property tax credit, and standard exemption.
The state budget (SB 6) spends $36.054 billion, representing a decrease of approximately three billion dollars from current spending levels fueled by court orders and consent decrees. It includes $350 million in new funding for K-12 education with smaller increases for Early Childhood Education. State agencies will see a five percent across the board cut while colleges and universities will see a 10 percent reduction from FY15 levels. MAP grants for low-income students are increased by 10 percent.
Initially, fifteen House Republican lawmakers joined 57 Democrats to ensure passage of the tax bill in the House of Representatives while only one Republican voted in favor of it in the Senate. Following the Governor’s veto, only 10 House Republicans supported overriding the Governor while 61 Democrats favored it.
Click below to see how your state legislators voted on the override of the Governor’s veto.
SB 9 – Tax bill
House Override Vote: 71-42-0
Senate Override Vote: 36-19-0
SB 6 – Budget Bill
House Override Vote: 74-37-0
Senate Override Vote: 39-15-0
SB 42 – Budget Implementation Bill
House Override Vote: 71-41-0
Senate Override Vote: 36-18-0