CHICAGO — Illinois lawmakers finished work on a roughly $35.7 billion fiscal 2015 general fund budget that relies on one-time fiscal maneuvers to avoid deep cuts as the state is set to lose nearly $2 billion in income tax revenue next January when the 2011 income tax hike partially expires.
Before adjourning the spring session Saturday, the Senate adopted appropriation bills that make up the roughly $35.7 billion fiscal 2015 operating budget and later adopted the revenue measures to support it. Many Democrats who pushed through the plan called it incomplete and warned they would need to return, expected after the November general election, to fully fund expenses.
Gov. Pat Quinn issued a statement highlighting the session's accomplishments but cautioned that more work was needed on the budget. "While we have much more work to do on the budget, I thank members of General Assembly for their work on these many issues during the legislative session. Let's keep Illinois moving forward." Quinn backed making permanent the expiring tax rates while his Republican challenger Bruce Rauner is opposed to extending them.
The House earlier in the week approved the so-called "middle-of-the-road" spending plan that holds most appropriations steady in the next fiscal year and on Friday approved the revenue measures in what's known as the budge implementation bill.
The plan relies on a series of non-recurring revenues including inter-fund borrowing and payment delays to make up for an impending loss of nearly $2 billion in income tax revenue in the new fiscal year when temporary tax increases roll off the books Jan. 1. About $4 billion will be lost in fiscal 2016.
Such budget one-shots helped contribute to the state's credit deterioration, but leaders of the Democratic majorities turned to those fiscal maneuvers after House members refused to support Gov. Pat Quinn's proposal to make permanent the 2011 income tax hike. The House also rejected a budget that cut spending levels deeply.
During debate Friday, Democrats defended the one-time revenues as needed to spare education, healthcare, and other services from dire cuts due to the impending loss of revenue. Republicans attacked the plan as a step backward that jeopardizes the state's already weakened credit rating and sets the stage for a post-election vote on the tax rates.
House Speaker Michael Madigan, D-Chicago, and Senate President John Cullerton, D-Chicago support the tax extension and have said they expect to revisit it. That consideration would likely come during a lame duck session early next year -- after the November general election and before the new legislature is installed.
During debate Friday in the House, Majority Leader Barbara Flynn Currie, D-Chicago, and other Democrats defended the authorization to transfer up to $650 million from non-general funds to the general fund. The funds must be paid back within 18 months.
"It's a budgetary tool" for cash management, Currie said. "I think it's a helpful one," she said.
"It's really mismanagement," said state Rep. Ron Sandack, R-Downers Grove. "And we wonder why the state is in a financial tailspin."
House Minority Leader Tom Cross cited Illinois' A-minus level bond ratings that are the lowest among states as he labeled the budget unbalanced and warned it would drive up the state's bill backlog up by $2 billion. The state currently is on course to close out the current fiscal year with a $4.9 billion backlog, down from a high of more than $9 billion a few years ago.
Democrats acknowledged that the budget plan would need to be revisited to fully fund services and cover rising costs.
"Make no mistake .it is not complete .it doesn't begin to solve the problems we face," said state Sen. Dan Kotowski, D-Park Ridge. "It is a budget that lives within the means already provided by taxpayers."
During debate, state Sen. Kirk Dillard, R-Westmont, said he worried the budget further jeopardizes the state's already battered credit. He cited a published report quoting investor and rating agency concerns over a budget that relies on one-time revenues and its potential impact on local governments that rely on timely state aid.
"Once again we got a credit rating credibility problem," Dillard said.
Republican senators failed to push through a resolution opposing tax increases during the annual fall veto session or a lame duck session. The 2011 income tax increase was approved early in the year before the new legislature was installed.
After the regular session closes, most legislation requires a two-thirds vote instead of a simple majority. The higher threshold is required during the veto session. After Jan. 1, during a lame duck session, the requirement drops back down to a simple majority.
"We've already seen their playbook," said Senate Republican Leader Christine Radogno, R-Lemont. "Outgoing lawmakers, who are no longer accountable to the voters, should not be approving such controversial legislation, especially tax increases."
The budget plan is not expected to sit well with investors or rating agencies. Analysts have warned that to stabilize the state's battered credit, it must adopt a budget that deals with the expiring tax rates without reversing recent fiscal progress, including the drop in its overdue bill backlog.
"The prospect that recent years' progress will be undone represents a negative factor for the state's credit," Moody's Investors Service' analyst Edward "Ted" Hampton said this week. Two rating agencies assign Illinois a negative outlook and Standard & Poor's assigns a "developing" outlook.
Passage of the compromise budget could also hurt Illinois' strides in shrinking its interest rate penalties following passage of pension reforms in December and again this year after Quinn announced his backing for making the higher income tax rates permanent.
The budget would largely hold current funding levels steady for most state agencies despite rising costs. It relies on a one-time borrowing of $650 million from non-general funds and does not account for negotiated employee wage hikes. It delays $380 million in payments for state employee group health insurance and earmarks no funds toward the state's bill backlog, which is expected to rise. Lawmakers also revised revenues estimates upward by $200 million.
The Senate also on Friday cleared House Bill 3794 which would authorize a $1.1 billion bond-financed transportation package, sending the plan to Quinn. The package taps into revenues that are becoming available as debt issued under the $12 billion 1999 Illinois FIRST capital program is repaid. Vehicle registration and title transfer fees and alcohol taxes were raised to finance the original borrowing.
The package earmarks $1 billion for road and bridge projects and $100 million for local government street repairs. Transportation Secretary Ann Schneider said the new spending would mostly go to "shovel ready" projects in the state's five-year transportation program.
The package received bipartisan support in a House vote Thursday after Democrats agreed to shrink the size from $1.6 billion. Some lawmakers questioned why the bill was being rushed through and why the available revenues were not instead being directed to the general fund. Some also wanted more specifics on what projects would be funded.
Quinn endorsed the bill in a statement. "This bill will put more people back to work improving our state's roads and bridges," he said.
Separately, lawmakers were also expected to reauthorize current and new projects in the fiscal 2015 capital budget that is part of the state's ongoing $31 billion infrastructure program later Friday.
Lawmakers gave final approval to placing an advisory referendum on the November ballot asking voters whether a 3% income tax surcharge should be imposed on income of more than $1 billion. Madigan pushed the measure through after dropping a referendum that would have sought a binding constitutional amendment. The surcharge would generate about $1 billion annually to go toward education funding. Quinn said in a statement Thursday he would sign the bill.
In other developments Friday, a proposed expansion of gambling that would have permitted a handful of new casinos including one in Chicago died. The sponsor, Rep. Bob Rita, D-Blue Island, announced he would not call the bill up for a vote.
Expanded gambling has been discussed for years but failed to pick up momentum this year despite the promise of new revenue for Chicago and the state. Rita said he needs to build support from Quinn and Chicago Mayor Rahm Emanuel and must resolve disputes over revenue sharing with local communities.
"I am disappointed we could not move this issue forward this spring, but I am determined to prepare a bill for consideration in the fall veto session," Rita said.