Social Work News

Wednesday, January 19

General Assembly Passes Bills to Help Fix Budget Crisis

Phil Milsk, NASW Illinois Government Affairs Consultant

Governor signs tax increase legislation.   Pension contribution borrowing for State Fiscal Year 2011 passes both houses.   Cigarette tax hike to fund education and debt re-structuring measure to catch up on unpaid bills fail in the House.

Early in the morning on Wednesday, January 12, 2011, during the final hours of the 96th General Assembly, the Illinois Senate passed SB 2505 with the minimum of thirty votes. The Illinois House had passed the legislation the previous evening with the required minimum of sixty votes. Senate Bill 2505, now Public Act 96-1496, does the following:

  • Raises the personal income tax rate from 3% to 5% effective immediately.
  • Raises the corporate income tax rate from 4.8% to 7% effective immediately.
  • Reduces the personal income tax rate to 3.75% in 2016 and 3.25% in 2025.
  • Reduces the corporate income tax rate to 5.25% in 2016 and 4.8% in 2025.
  • Sets specific limits on General Fund spending in fiscal years 2012 through 2015 and establishes a procedure for enforcement of these limits through the Auditor General's office. However, the chances of spending exceeding the limits is virtually impossible given the safeguards included in the bill. For example, the governor is given the power to reserve funds to meet the spending limits. Funds that are reserved are not counted toward the limit. In addition, the governor is given the authority to declare a fiscal emergency to circumvent the limits (with procedural safeguards in place to ensure that this power is not taken lightly).
  • Establishes two new special funds in the Illinois State Treasury, one for education and the other for human services. Revenues generated from the new tax rates will not flow into these new funds until 2015. The new specials funds go into existence immediately, providing an opportunity for creative advocates and legislators to find other sources of revenue for the funds.

Senate Bill 2505 provides a much-needed infusion of new revenue to the Illinois State Treasury and will improve Illinois' bond rating. However, we must keep in mind that most of the new revenue will be used to pay the state's mandated pension fund contributions and the state's debt service. It may actually be necessary (absent the creation of additional revenue streams and other cuts in state spending) to cut more from human services, health care, and education to stay under the spending limits.

At least for the current fiscal year, the pension contributions will be paid with borrowed funds. After sitting on the bill since last May, the senate passed SB 3514 on January 12, 2011, with forty-two votes (Thirty-six were needed). The bill authorizes over $4 billion in new indebtedness through the issuance of bonds for the purpose of making the pension contributions for the current year. The bonds will be paid back over eight years. The payments are back-loaded so that for year one and year two, the payment is zero. For years six, seven, and eight, the payments are close to a billion dollars per year.

Two measures that would have provided further relief for the state's budget crisis failed on January 11, 2011, in the Illinois House. The first would have raised the tax on tobacco products to provide new money for education. The measure failed by nine votes. The second bill would have authorized the issuance of bonds for the purpose of raising funds to pay off all current debt (similar to refinancing a house) and to establish a reasonable debt payment cycle. The measure failed in the house twice, the first time by six votes and the second by three votes.

Accordingly, the massive amount of unpaid bills for the current fiscal year remains and will continue to mount. Lawmakers are certain to consider refinancing and other ways to address unpaid bills and the payment cycle during the spring session.

Posted on 01/19/11 at 01:09 PM

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