CHICAGO – Forging ahead on their own, Illinois Senate Democrats sent on to the House a $37.3 billion fiscal 2018 budget that relies on more than $5 billion of new tax revenue to help stabilize the state’s rocky finances.

“We’ve stemmed the bleeding,” Senate President John Cullerton, D-Chicago, said after passage of the appropriation and tax measures solely with Democratic votes. The state has been without a full budget for nearly two years.

Illinois Senate President John Cullerton, D-Chicago
The Illinois Senate passed a balanced budget that would stabilize state finances, argued Senate President John Cullerton, D-Chicago.

The plan moves on to an uncertain fate after Democrats abandoned efforts to reach a bipartisan budget agreement in the Senate, saying time was running out.

It could land with a thud in the House and it faces a veto unless Democrats agree to Republican Gov. Bruce Rauner’s demands on a local property tax freeze and other concessions which Democrats have resisted.

If no agreement is ultimately reached, the GOP could use it as ammunition in the next election cycle to attack Democrats for their willingness to raise taxes while Democrats could argue they attempted to solve the state’s budget crisis.

It could also lay the groundwork for an eventual agreement with Rauner, his fellow Republicans, and the House that ends budget gridlock and staves off more downgrades. Rating agencies have warned the state’s Baa2/BBB-level ratings are at risk if it enters fiscal 2018 on July 1 without a budget plan.

Cullerton sought to highlight expense cuts and portrayed the budget’s size as one that reflects what Rauner and GOP senators had previously endorsed. The plan, along with recently adopted measures such as legislative leaders’ term limits, pension reforms, local government consolidation and procurement reforms sought by Rauner, represents a “complete package,” Cullerton said.

Rauner and GOP senators, who have been pushing for more time to finalize the “grand bargain” and a fiscal 2018 budget, strongly disagreed.

“My caucus and I cannot support the Senate Democrats’ budget and revenue package in its current form,” said Minority Leader Sen. Christine Radogno, R-Lemont. “I want to avoid further downgrades and fiscal meltdown. I want to help put Illinois on a path to stability. We need a balanced budget. We need property tax relief. We need significant reforms to reach our goals.”

Earlier in the day during a Facebook Live appearance, Rauner made clear his demand for a local government property tax freeze that extends beyond the two years Senate Democrats has said they could support.

“Let me be clear, to get my signature, any agreement must include real property tax relief,” Rauner said. He’s pushing a four-year freeze. “We’ll keep negotiating. We’ll keep working. We’ll never give up. We’ll get a balanced budget and we will protect taxpayers.”

Rauner has also pushed for worker’s compensation reforms. They are part of a bipartisan “grand bargain” package Senate leaders have tried to develop, but a vote stalled on that item amid ongoing negotiations last week.

Top House Republicans slammed the budget and tax increases as unacceptable without additional reform measures and House Speaker Michael Madigan, D-Chicago, issued a statement that was neutral in tone.

“The appropriations measures passed by the Senate will be thoughtfully considered by the House Democratic Budget Working Group…they will thoroughly review the Senate’s proposal and consider it as part of our efforts to pass a full-year balanced budget that will end the budget impasse,” Madigan said.

The budget’s size and the revenue proposals were built off previously reached agreements between Democrats and Republicans but Democrats made revisions after they failed to garner sufficient support in a vote last week on the bill that implements cuts.

To win over the votes needed, Democratic leaders removed cuts to health insurance for retired teachers, $405 million of Medicaid cuts, and reductions in local government distributive funding.

The budget includes $3 billion in cuts achieved through a 5% across the board reduction to most state programs and agencies instead of the Republican-backed $3.8 billion in cuts. It raises early education and kindergarten through 12th grade spending by $330 million.

The budget would cut higher education funding by 10% from fiscal 2015 levels while low income student grant assistance is funded at fiscal 2015 levels of $364 million.

Democrats said the budget remains balanced despite the restoration of cuts from the previous GOP-negotiated budget plan because it no longer incorporates $1.1 billion for debt service costs. The funds represented the first year of debt service on $7 billion of proposed short-term borrowing to pay down the state’s $14 billion backlog.

The budget plan incorporates a roughly $200 million “cushion/surplus” that would be used to pay down bills and Democrats remain interested in ideas on how to reduce the backlog but it would require GOP support, said Cullerton spokesman John Patterson.

The tax package would generate $5.5 billion in new revenue, including a one-shot of $300 million from the sale of the state’s downtown Chicago headquarters.

The personal income tax rate would go up to 4.95% from 3.75% to generate nearly $4.5 billion. The corporate income tax would rise to 7% from 5.25% to generate $514 million.

Three corporate tax loopholes would be eliminated to generate $125 million. The sales tax would be extended to some services now exempt, raising $55 million. A franchise tax on cable/satellite/streaming services would be imposed to generate $54 million.

Senate Democrats called the budget “balanced” while Republicans dismissed that assertion due to the 11th-hour changes and argued more negotiation was needed to justify tax hikes. “We are delivering a punishing tax increase and making the wrong people pay,” said Sen. Kyle McCarter, R-Lebanon.

Sen. Toni Hutchinson, D-Chicago Heights, said the Senate could not wait any longer because the session formally ends May 31. “Our citizens need it…..our schools need it….our social services need it. This state cannot bear another day of us wasting time,” she said.

Senate Bill 6 which appropriates $37.3 billion of spending was approved in a 33-to-23 vote with two senators voting present. Senate Bill 9 with the new revenue passed in a 32-26 vote with one voting present. The budget implementation bill that authorizes the cuts and other appropriations in Senate Bill 42 passed in a 33-23 vote with two voting present.

The Senate last week passed “grand bargain” bills that would authorize spending for the remainder of fiscal 2017, expand gambling, overhaul the state’ school funding formulas, authorize $7 billion of short term borrowing to pay down the bill backlog, reform procurement rules, and promote local government consolidation.

Some passed with Republican support, others solely with Democrat votes. The local government property tax freeze failed.

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.