$5B tax hike underpins Illinois budget
End of two-year battle lets bill payment begin
SPRINGFIELD, Ill. — Illinois finally has a budget plan after two years. Now, to start paying bills.
The Democrat-controlled Legislature’s vote last week to create a
$36 billion framework over Republican Gov. Bruce Rauner’s vetoes ended the nation’s longest fiscal stalemate since at least the Great Depression. At the core of the budget was a $5 billion income tax increase.
The tax hike is retroactive to July 1, and the state could start seeing some additional money within weeks.
But after unchecked “autopilot” spending that outstripped incoming revenue by $600 million a month, Illinois has a $14.7 billion jumble of overdue bills.
The tax increase also does nothing to directly address the haunting $130 billion shortfall in pension obligations to retired and current state workers.
The debt-reduction plan also includes more debt, although slightly less costly. It allows Rauner to sell up to $6 billion in bonds, on top of the tens of billions of dollars Illinois owes from past loans. The idea is the interest owed on bonded indebtedness would be less than what is owed on overdue bills. The state must pay 1 percent per month on any bill unpaid for 90 days.
But while less, the state can expect to pay double what a more financially sound state would pay on bond-sale interest. That’s because the state’s creditworthiness has been downgraded amid the budget crisis. On a $480 million sale last fall, the state is paying 4.2 percent, and that was before major credit-rating agencies knocked down the rating further. One, Moody’s Investors Service, said a downgrade to “junk” status could come regardless of a budget deal.
More immediately, Democratic Comptroller Susana Mendoza predicts there will be enough money to cover basic services in August; she had warned that without a deal, she would fall $185 million short. If added income tax revenue isn’t sufficient, the law allows for borrowing or otherwise taking $1.5 billion from money accumulated in state funds created for other purposes.
The individual income tax rate is now 4.95 percent, up from 3.75 percent. Corporations will pay 7 percent instead of 5.25 percent.