CHICAGO - Illinois lawmakers return to the state capitol this week to begin in earnest work on proposed $26 billion capital and $52.9 billion operating budgets that both rely on a controversial income tax increase.

Efforts likely will first focus on the capital program as lawmakers seek to stimulate the economy with new construction projects.

Gov. Pat Quinn, who toured the state in recent days to promote his plans, told lawmakers in his budget address last Wednesday that he wants a capital bill passed in the next several weeks.

While lawmakers believe that deadline may be too ambitious given the difference of opinions between Democrats and Republicans - and internally among Democrats who control the General Assembly chambers over how to fund it - many believe a deal can be reached quickly.

"We have a lot of needs" as it has been 10 years since the last major capital budget was enacted, Senate Minority Leader Christine Radogno, R-Lemont, said Friday during a legislative forum hosted by the Metropolitan Planning Council. "We are moving in the right direction," she said of the general consensus on the size, although differences remain on funding.

The Republican caucus has endorsed an end to the diversion of funds from the state's road fund and gaming expansion to finance the capital budget.

Quinn's Illinois Jobs Now bill - which would be funded by $8.6 billion of mostly general obligation bonding including $1.1 billion of bonding in fiscal 2010, and federal and matching grants - relies on increases in the state's driver license and license plate and title fees. It also relies on 10% of the proceeds from the $2.8 billion expected from the personal income tax increase of 1.5% and $350 million from the corporate income tax increase.

Senate Majority Leader John Cullerton, D-Chicago, who was also a panelist at the MPC forum, floated an increase in the motor fuel tax to lower the hike in the income tax because it's a "user tax" that users have some control over by limiting their driving.

The MPC has praised the capital budget and supports the funding streams that are outlined, but it also is urging passage of pending legislation that would require all projects under consideration for state assistance be weighed against criteria based on statewide goals.

A three-fifths majority is needed to approve new bonding and Democrats enjoy such a majority in the Senate at 37 to 22, but are short in the House at 70 to 42, so some Republican support is needed.

Both Cullerton and Radogno are new in their positions following the retirement of their predecessors and both said there's a newfound spirit of cooperation at the capitol. Former Gov. Rod Blagojevich and lawmakers often clashed and last year they passed an operating budget without the governor's input. Blagojevich was removed from office earlier this year by impeachment following his arrest on federal corruption charges.

The proposed $52.9 billion operating budget closes an $11.5 billion deficit through $1.3 billion of cuts, the income tax increase, federal stimulus dollars, and $550 million in savings by restructuring $2 billion of debt. The budget also trims a $4 billion pension fund payment to $1.5 billion, hikes the cigarette tax, and dips into various non-general fund accounts.

Radogno said her caucus favors additional cuts, management efficiencies and reforms in areas such as Medicaid spending and long-term planning initiatives before members will consider a tax increase. She endorsed Quinn's move to cut pension benefits for new hires, but questioned the proposal to cut the scheduled payment.

"We simply cannot afford the pension system" as it is, she said.

Cullerton said his caucus is "open to anything" to avoid the income tax increase, with options including delaying its effective date until the economy recovers and borrowing in the interim or enacting just a temporary tax. Cullerton endorsed the proposed cigarette tax.

Overall, the reaction to Quinn's operating budget has been mixed. The Civic Federation of Chicago endorsed the pension reforms but is leery of the income tax hike.

"We cannot support an income tax increase unless we see real reform on spending and the funds are used only to address the core structural problems of the state and not to support new spending," said federation president Laurence Msall.

Labor groups oppose the pension reforms and Quinn's proposal to ask employees and retirees to pay more toward their health care. The state currently carries a $73 billion unfunded pension liability and a $24 billion other post-employment benefits accrued liability.

The Illinois Hospital Association praised the governor for leaving Medicaid funding intact and endorsing a cigarette tax to speed up payment of unpaid bills.

"In these extremely difficult economic times, we are gratified that the governor wants to preserve Medicaid funding for hospitals in the state budget and that he is committed to taking the necessary steps to address the Medicaid backlog," said IHA president Ken Robbins.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.