CHICAGO – The Illinois Senate is expected to vote Wednesday on tax hikes that would raise billions in new annual revenue as leaders press forward with their bipartisan "Grand Bargain" legislation aimed at ending the 20-month-old state budget standoff.
Senate Bill 9, which would raise the income tax and extend the state's sales tax to cover some services and additional products, is one of the more contentious pieces in the 12-bill package that has struggled to garner many Republican votes. The goal is generate more than $6 billion in new annual revenue.
"The most important thing to do is balance our budget and we need some revenue to do that so that will be up tomorrow," Senate President John Cullerton, D-Chicago, said after the Tuesday session ended. "People just have to understand that this is a classic compromise."
Votes are also expected Wednesday on a school funding overhaul, a local government property tax freeze, workers' compensation reforms, and authorization for $7 billion in short-term borrowing to bring down the state's $12 billion bill backlog, according to Senate Democrats who cautioned the schedule is subject to change. The senate session resumes at Noon Central Time.
The Senate also is expected to try again on Senate Bill 16 that offers series of pension reforms aimed at reining in the growing costs of paying down a $126.5 billion unfunded pension tab. The pension bill failed in Cullerton's second attempt at passage but a parliamentary maneuver allows for the bill to be reconsidered.
All bills that make up the package must pass for any one of them to become law.
Democrats hold 37 seats and Republicans hold 22 seats with 30 needed for measures to pass.
The most recent version of the tax hike plan raised the personal income tax rate to 4.99 % from 3.75% and the corporate rate to 7% from 5.25%, eliminated some corporate tax loopholes, and expanded sales taxes to cover some services and products that are now exempt. It won't impose the sales tax on food and medicine, which Gov. Bruce Rauner said recently he opposed.
The pension changes failed in a 26-27 vote with two casting a present vote. Cullerton picked up eight votes from an early February tally that felled the bill 18-29 with 10 voting present.
The pension overhaul is estimated to trim up to $1 billion off the state's annual contributions of more than $8 billion. It would ask state employees hired before 2011 to accept cuts to their cost of living adjustments in exchange for their future pay raises counting toward their pensionable salary.
Unions argue either choice violates the state constitutional protections of pension benefits, while backers argue by offering the choice it meets constitutional muster, in contrast to a previous overhaul that the state Supreme Court overturned in 2015.
The bill would also eliminate pensions for future state lawmakers and includes several Rauner proposals. It creates a Tier 3 hybrid defined benefit-defined contribution plan for all new employees of three of the state's five pension systems.
It caps end-of-career pension spiking and would phase in over five years any changes in actuarial or investment return assumptions made by the pension systems to ease the impact on upcoming contributions.
It would also require the pension systems to offer each member upon retirement the option to take a buyout of 70% of the present value of his or her pension benefits. It now includes the general state employees fund beginning in 2019. That fund had previously been excluded due to an ongoing contract dispute.
"I have listened to the governor," Cullerton said as he reminded members that unions had previously supported the so-called "consideration model" it uses.
Cullerton also defended the ability of the reforms to withstand the threatened legal challenge. "If you are working for the government, the state can say that it doesn't have to count your raises toward pensionable salary," he said.
Senate Minority Leader Christine Radogno, R-Lemont, recently said she wanted the package moved through the Senate by March 1. Cullerton on Tuesday said he doesn't believe this is a "do or die week" and if the legislation is a "few votes short here and there" there is time for more lobbying.
The five pieces that passed Tuesday included SB 3 to ease the path for local government consolidation, SB 8 to overhaul procurement rules, and SB 5 to provide $215 million in help with Chicago Public Schools June teachers' pension payment. SB 7 provides a big expansion of gambling that includes six new casino licenses including one for Chicago, and SB 6 would appropriate $7.7 billion in funding to pick up with the six-month stopgap budget approved last June ended.
The local consolidation bill passed 43-14; the procurement bill passed 41-16; CPS pension help passed 35-22; gambling passed 31-26; and the appropriation bill passed 42-16.
SB 10 establishing a new home rule borrowing program was held due questions raised by Sen. Dale Righter, R-Mattoon. The bill is designed to lower interest costs by allowing local home rule units of governments like Chicago to leverage a portion of tax revenue that flows through the state – such as sales taxes – in a financing that bypasses its general coffers.
The municipality enters into an assignment agreement with a special entity or trust established to handle the bond issue and the dedicated revenues flow to that entity in a process meant to insulate the revenue from potential impairment if the municipality's finances flounder.
Righter raised questions over whether the revenues would continue to flow without a budgeted appropriation in situations where the state lacks a budget. Cullerton said they could not. "The money still has to be appropriated," he said.
Righter also questioned whether language in the bill in which the state pledges not to impair the revenue stream would hinder future state flexibility in managing the amount of revenues that flow to local governments, such as their share of local distributive aid. Righter asked whether that "means that the state in one way or another loses control."
Cullerton opted to hold the bill and consult with his legal team to clear up the questions.
The property tax bill would impose a temporary freeze on local government tax levies but Rauner recently said he wants a permanent one if the income tax hike is permanent.
"We are trying to reach a compromise on that," Cullerton said.
Several Republicans stood to say they wanted to vote for some of the bills called Tuesday but still could not with some negotiations still ongoing.
Republican Sen. Bill Brady of Bloomington said while he supported some of the bills "they are part of an overall package that is not yet completed in my mind."
Democratic Sen. Don Harmon of Oak Park countered: "If not now, then when" as a vote loomed on one piece.
If the full package eventually clears the Senate, its fate is uncertain in the House where Speaker Michael Madigan, D-Chicago, wants the budget tackled separately from any of Rauner's policy objectives.
The state's fiscal strains and political gridlock have dragged its ratings down to the mid-triple-B category, making Illinois the nation's lowest-rated state.
