CHICAGO — The Illinois Supreme Court on Wednesday agreed to hear Illinois’ appeal of a lower court decision invalidating the state’s $31 billion capital budget and the funding streams that support it.
The high court also agreed to an accelerated review and extended a stay against enforcement of the lower court decision until the case is resolved. Initial briefs are due March 1, with final responses due in early May. A date for oral arguments has not yet been set.
The court previously had granted the state’s request for a temporary stay against enforcement of the decision handed down by the Illinois Appellate Court in January. It struck down the 2009 law that established the funding streams to repay borrowing for the public works program.
That action, in turn, voided other pieces of legislation related to the capital program, including one that appropriated the actual funding for projects.
The court ruled that the legislation violated the state constitution’s single-subject clause. The action reversed a district court’s dismissal of the lawsuit filed by Wirtz Beverage Illinois LLC in August 2009 shortly after Gov. Pat Quinn signed the law.
Illinois 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 revenue that flows to the capital projects fund.
Most of those revenue — which come from expanded gaming, and tax and fee increases on motor vehicle titles, license plates, liquor, candy, and personal hygiene products — were invalidated by the appellate ruling.
In court filings, the state attorney general’s office has warned that allowing the appellate court action to take effect would “wreak havoc” on state operations and finances.
The state could be forced to suspend projects now underway and halt collection of various taxes and fees established in the overturned law, risking an irretrievable loss of tens of millions of dollars in state revenues.
Debt service for the bonds already issued under the authority of the capital projects act would have to be paid from a different revenue source, putting a further strain on state finances, the attorney general said.
The overturned law legalized video gaming in various establishments, set up a capital spending accountability law requiring quarterly reports on 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 it to 6.25% on candy, certain beverages, grooming and hygiene products; amended the lottery laws to allow for a private management contract to raise additional revenue; raised taxes on various liquors; and established a capital projects fund to capture revenue 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 Illinois’ argument that the various subjects all fit into a broad category related to revenue.
“We find that the wide range of topics … cannot be considered to possess a natural and logical connection,” the opinion says.
Under the capital bill financing scheme, the state anticipates covering its $14.6 billion share of the $33 billion through GO and sales-tax-backed borrowing over the length of the program. Local and federal matching dollars cover the remainder.
Illinois 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, $109 million from the liquor tax hike, and $53 million from increased taxes on candy, sweet tea, coffee, and personal hygiene items.