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Illinois gets a budget - and an income tax increase - as lawmakers override governor's vetoes

Illinois lawmakers today ended a record-setting, two-year budget impasse by overriding Gov. Bruce Rauner’s vetoes of a spending plan and an income tax increase.

Today’s action eases some of the tension spawned by a highly acrimonious stalemate between the Republican governor and the Democratic legislature that climaxed in national headlines and the threat of junk bond status for Illinois, as well as the potential loss of accreditation for the state’s public universities. Illinois had already been kicked out of multi-state lottery games as it approached another new fiscal year on July 1 without a budget, while nearly 20,000 road contractors working on state projects were sent home earlier this week.  

However, the resolution comes at a cost to both individuals and businesses. Retroactive to July 1, the personal income tax rate rises from 3.75 percent to 4.95 percent, while the corporate rate jumps from 5.25 percent to 7 percent. The move is expected to bring in a much-needed $5 billion annually, as organizations and businesses that provide services to the state – including Catholic Charities of Chicago – waited as their bills went mostly unpaid during the past two years, growing to a current statewide total of $14.7 billion.

Under threats from bond rating houses to lower Illinois’ rating to junk status, House lawmakers on Sunday approved a budget package consisting of a $36 billion spending plan (Senate Bill 6), an income tax increase (Senate Bill 9), and a plan that actually authorizes the budget (Senate Bill 42). On Tuesday – the Fourth of July – the Senate concurred with the legislative package, the governor then vetoed it, and the Senate then promptly overrode his veto. The House waited until today to take action since several members had left Springfield, and the needed 71 votes would require Republican support.

Left hanging in the lurch, however, is funding for public K-12 education, as the budget package calls for the monies to be distributed via an “evidence-based” funding formula. Lawmakers approved such a funding method in Senate Bill 1, which has yet to be sent to Rauner, who has said he will veto it since it provides money for Chicago public schools and teacher pensions in what he calls a “bailout.”

The Catholic Conference is currently seeking an amendment to SB 1 or new legislation that would create a tax-credit scholarship program for low- and middle-income students to attend Catholic and other private schools.  

The budget package also allows the state to pay off $8 billion of its unpaid bills by authorizing up to $6 billion in general obligation bonds, with the remaining money coming from inter-fund borrowing and fund sweeps. It also calls for cuts of 10 percent and 5 percent to higher education and state agencies, respectively, while funneling an extra $350 million to K-12 education.

The longest-in-the-nation budget impasse was allowed to linger past a reasonable time frame since a separate K-12 education budget was approved, which kept schools open. Additionally, court orders and consent decrees forced state payrolls to be met and some Medicaid providers to be paid. All of these actions resulted in the state spending $39 billion annually in spite of not actually having a budget.

However, tensions still lie ahead for Illinois. As noted, K-12 education funding needs to be resolved before schools can open in the fall. Even if the state pays off $8 billion from its bill backlog, another $6.7 billion remains. House and Senate Republican lawmakers who broke ranks with the governor and voted for the budget package and the veto override are most likely facing primary election challenges in March. Democratic lawmakers who voted “yes” will have to explain their votes to constituents who are now facing an extra, yearly tax burden of $1,200 for a family with a net income of $100,000.

All of this makes for a highly contentious campaign season, which essentially begins now.