CHICAGO — Illinois’ wobbly books were propped up last year by $5.7 billion more in income tax revenue thanks to rate hikes.

Base general fund revenues grew by nearly $9 billion in in fiscal 2018. “Increased income tax receipts, fund sweeps, strong transfers, and increased federal sources resulted in the significant gain,” said the legislature’s Commission on Government Forecasting and Accountability’s June revenue report.

Illinois Gov. Bruce Rauner
The administration of Illinois Gov. Bruce Rauner is under the gun to say what it will do about up to $400 million debt owed to employees for step increases withheld since 2015.

That doesn't mean the state can rest on its laurels as risks loom over spending pressures this year and concerns that some revenue sources in the fiscal 2019 budget won't materialize.

Gross personal income taxes finished at $20.8 billion in fiscal 2018. That’s $5.4 billion up — a net of $4.98 billion after refunds. Gross corporate income taxes ended at $2.6 billion. That’s up $1 billion — $689 million net of refunds.

The fiscal 2018 budget package lifted the personal income tax rate to 4.95% from 3.75% and corporate rates to 7.0% from 5.25%.

Overall, sales taxes were up $213 million, but once direct sales tax receipts were diverted to the transportation funds as required, net receipts actually fell $233 million. Federal sources generated $2.8 billion in growth as the state paid down its overdue Medicaid bills allowing it to leverage more federal matching funds.

The actual results marked an improvement over previous estimates from both COGFA and Gov. Bruce Rauner’s administration with general funds totaling $38.4 billion. That’s higher than COGFA’s estimate of $37.5 billion and the administration’s estimate of $37.4 billion but is due in part to higher tax collections that resulted from accelerated payments as a result of last year’s federal tax law changes.

“While overall revenues outperformed the Commission’s February forecast by approximately 2% and nearly 2.3%" in the case of the Governor’s Office of Management and Budget and Illinois Department of Revenue, “when the highly volatile category of federal sources is excluded, both agencies produced forecasts within 1% of actual results,” the report says.

The state finished off the year on a strong note with base revenues in June growing by $469 million over June 2017. “The increase reflected higher income tax rates as well as a strong performance of transfers” from the state’s capital projects fund, the report says.

The state’s general fund is supposed to receive $245 million annually from the projects fund, but an accumulated deficit in transfers has resulted as taxes and fees raised to help cover the state’s $31 billion 2009 Illinois FIRST program have fallen short of expectations. The fund transferred $440 million in fiscal 2018 to help cover past shortages but is still behind $260 million.

The state’s new budget factors in $150 million following the U.S. Supreme Court’s recent sales tax collection decision in the South Dakota v. Wayfair. The state’s fiscal 2019 budget package banked on the decision overturning prior law and so it changed the definition of who is liable for collecting the Use Tax and the Service Use Tax to a “retailer maintaining a place of business in this state” to include any out of state vendors who sell more than $100,000 worth of merchandise in a 12-month period in Illinois or have more than 200 transactions. It could eventually result in about a $200 million gain annually.

Potential holes in fiscal 2019 stem from the budget’s reliance on $445 million of pension savings, most of which would come from a voluntary buyout program, about $250 million from the long-stalled sale of the state’s downtown Chicago headquarters, and the lack of funding to cover up to $400 million owed to employees for step increases based on experience. The budget also does little to further chip away at a roughly $7 billion bill backlog.

“The budget legislation directs the pension funds to implement the buyout plan ‘as soon as practical,’ so it is not clear when it will take effect,” the Chicago Civic Federation wrote in a recent review. “Given the uncertainties inherent in actuarial projections, budget officials who are relying on the savings to balance the budget should also outline contingency plans in the event that the assumed savings do not materialize.”

The state also was ordered on July 10 to provide the Illinois Labor Relations Board, within 20 days, a report about the steps it has taken to comply with a previous order to “make whole” employees who saw their step raises withheld by the state as part of the state’s contract negotiations.

The state must pay “back pay with interest” of 7%, the latest order says.

It’s not yet known what time frame the state will propose to make good on the raises or if American Federation of State, County and Municipal Employees, Council 31, which filed the case against the state will challenge it. The board would act as an intermediary through its compliance process if the two sides can’t agree on how to proceed, said board executive director Kimberly Stevens.

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