CHICAGO – The Illinois Appellate court on Wednesday struck down the 2009 law that established the funding streams to repay borrowing for a $33 billion public works program, delivering a blow to the state’s efforts to stabilize its finances while also paying for infrastructure projects.
In a unanimous opinion, the three-member panel ruled that the law – Public Act 96-34 – violated the state constitution’s single subject clause. The panel’s action reversed a lower court’s dismissal of the lawsuit filed by J. Rockwell “Rocky’’ Wirtz and Wirtz Beverage Illinois LLC in August 2009 shortly after Gov. Pat Quinn signed the law.
Quinn’s office said the state would appeal to the state Supreme Court and ask for an immediate stay of the ruling. “The Illinois Jobs Now capital program is an important part of Gov. Quinn’s plan to put Illinois back to work…while the administration’s request for a stay is pending with the Illinois Supreme Court, capital projects already in progress will continue as scheduled,” the statement read.
The General Assembly crammed most of the funding sources for the capital budget into the one bill along with other measures they considered related. The bill evolved from its original five-page form addressing the Illinois estate and generation-skipping transfer tax into the 280-page legislation that passed with bipartisan support.
The legislation created the video gaming act legalizing video gaming in various establishments; established a capital spending accountability law requiring quarterly reports on capital spending; amended riverboat gaming rules to include oversight of video gaming; and halted further diversion of state road funds.
The bill amended the state’s use tax, raising the tax to 6.25% on candy, certain beverages, grooming and hygiene products; amended the state’s lottery laws to allow for a private management contract to raise additional revenue; raised taxes on various liquors; and it established a capital projects fund to capture revenues generated by the various taxes to repay borrowing. It also required a state university study on the impact of lottery ticket purchases on families.
The appellate panel rejected the state’s argument that the various subjects all fit into a broad category related to revenue. “We find that the wide range of topics in Public Act 96-34 cannot be considered to possess a natural and logical connection,” the opinion read.
The panel said it could not discern the connection of some of the subjects such as the creation of the capital spending accountability law or the university study to the category of revenue. Because the law was found to violate the single subject rule, the appellate panel struck it down in its entirety.
The court’s action also invalidates Public Act 96-35 which provides the appropriation to spend money on the actual projects. That raises a question over whether the state can continue to fund projects included in the legislation. The state’s bond offering statements warn that if the plaintiffs are successful in invalidating the legislation it would need to either re-appropriate the projects or spend the proceeds elsewhere.
The state sold more than $3 billion of taxable general obligation Build America Bonds to support its capital budget last year and planned to sell about $1.5 billion of debt for capital projects this spring. Another $2.5 billion of bonding was planned for fiscal 2012 depending on the availability of revenues that flow to the capital projects fund. The state is selling in mid-February $3.7 billion of GOs for its pension payments.
The single subject clause is designed to prevent lawmakers from tacking more palatable or popular items on to legislation that otherwise could not win passage on its own.
The state anticipates covering its $14.6 billion share of the $33 billion program through general obligation and sales tax-backed borrowing over the length of the program. Local and federal matching dollars cover the remainder.
The state would repay borrowing with $150 million annually taken from the road fund, $122 million generated from a hike in the motor vehicle title fees, and $180 million from an increase in licenses plate fees.
Another $300 million would come from expanded gaming, including the installation of video poker machines at restaurants and bars, $109 million from the liquor tax hike, and $53 million from increased taxes on candy, sweet tea, coffee, and personal hygiene items.
State debt manager John Sinsheimer has previously stressed when asked about the pending lawsuit that investors should be reassured by the full faith and credit pledge that backs most state borrowing and the first claim it holds by statute on general fund revenues.
The state’s fiscal crisis – underscored by an up to $15 billion deficit and a backlog of $8 billion in bills expected by the close of the fiscal year June 30 – eased earlier this month with passage of an income tax increase. The state remains strained by its mammoth unfunded pension liabilities, high debt burden and overdue bills.
Legislative leaders stressed the importance of the capital program which passed with bipartisan support, suggesting that they could take action to correct the legislation should the state Supreme Court agree with the appellate panel.
“Investing in Illinois jobs and infrastructure has been and remains the Senate President’s top priority,” said John Patterson, a spokesman for Senate President John Cullerton, D-Chicago.
“We will work in concert with the other caucuses of the General Assembly, the governor’s office and the office of the Attorney General as they review the opinion, its impact on Illinois’ infrastructure program and the next course of action,” said Patty Schuh, spokeswoman for Senate Republicans.
