Share the wealth and spread the pain

By Bethany Jaeger, with Jamey Dunn and Hilary Russell contributing
The theme of Gov. Pat Quinn’s first budget proposal, which will be announced at noon Wednesday before the General Assembly, is “shared sacrifice.”

It is “a very difficult budget, but it’s an honest budget,” Jack Lavin, Quinn’s chief operating officer, said during a Springfield budget briefing tonight. “It’s an honest budget that we present the people of Illinois to address the tsunami of red ink that we are facing, but it’s one worth having — shared sacrifice, shared responsibility — to address this unprecedented budget crisis.”

The tsunami of red ink he’s talking about is the recent $11.6 billion deficit projected by the end of next fiscal year. The budget proposal needs to go through the legislative process, meaning it’s far from a done deal. For it to become law, Quinn will have to persuade lawmakers to take a series of politically tough votes.

The most controversial item would be to increase the state income tax rate on individuals and businesses. The rate levied on individuals would rise from 3 percent to 4.5 percent, while the rate applied to corporations would jump from 4.8 percent to 7.2 percent.

According to the administration, if Quinn's budget is enacted, about half of the state’s 11.3 million taxpayers would pay more in state income taxes, while the rest could pay less.

That’s partially because Quinn wants to help individuals cope with the increased rate by tripling the personal exemption from $2,000 to $6,000, which would take a chunk out of the new tax revenue. A family of four would pay no state income tax on the first $24,000 they earned.

Quinn also proposes implementing a “back-to-school sales tax holiday” for 10 days each August to help spur the economy and help families better afford everything from school supplies to gym shoes for kids.

Jerry Stermer, Quinn’s chief of staff, said the extraordinary budget scenario creates a once-in-a-lifetime opportunity to reform the state’s tax structure based on ability to pay. “So those who have more ability can pay more. Those who have less ability ought to be asked to pay much less. And this would bring that kind of fairness to our code.”

If the legislature didn’t enact all of Quinn’s proposals, his administration says drastic changes would occur. According to Ginger Ostro, Quinn’s budget director, if the state cut spending without raising new revenue to fill the deficit, state government would return to 2004 funding levels. The result: 800,000 people losing health care coverage, 200 state police officers laid off, 34,000 teachers laid off, per-student education funding down by $1,200 per child, and one of the state’s four veteran’s homes closed.

Highlights
State employees (Pending negotiations with public employee unions)

• Take four furlough days (one each quarter) — $36 million saved.
• Pay more into their health care plans (the administration offered no estimate per person) — $200 million saved.

Pension benefits

• Maintain the “defined benefit” plan, but new employees would receive fewer benefits.
• Employees would increase their contributions by 2 percentage points.
  
• Cost-of-living adjustments would be readjusted to 50 percent of the consumer price index or 3 percent, whichever is lower.
• Similar to the Social Security system, retirement age for new employees would be 67.
• Employees covered by Social Security would earn 1.5 percent of their final pay per year of service. Employees not covered by Social Security would earn 2 percent.
• Estimated savings by the new system: $162 million by 2045.

Pension funding

• The administration would pay less than scheduled into the five public employee pension systems by $550 million this fiscal year and by nearly $2.3 billion next fiscal year.

Budget cuts

• The $500 million in cuts implemented in FY09 would remain.
• Across-the-board 2 percent reductions in grant programs, excluding programs for education and health care — $80 million saved.
• Reduce some community grant amounts by 10 percent and eliminate other grants altogether.
• Consolidate the Historic Preservation Agency into the Department of Natural Resources, reducing some administrative positions — $2.3 million saved.
  
• Other cuts and efficiencies to state agencies — $390 million total saved.
  

Federal stimulus

• Use about $4 billion of federal stimulus funds to plug the state deficit.
• Use $2.9 billion in federal stimulus funds to reduce the Medicaid payment cycle to 30 days.
• Use $2 billion to support elementary, secondary and higher education to avoid budget cuts below current FY09 levels.

Road and school construction
$26 billion plan paid for by:

• Increase driver's license fees from $10 to $20.
• Increase license plate fees from $79 to $99.
• Increase vehicle registration fees from $15 to $30.
• Increase title transfer fees from $65 to $105.
• Use Road Fund money.
• Shave some of the local governments’ share of tax revenues to pay for school construction.
• No increase in motor fuel taxes.
  

We'll have reaction from lawmakers and policy analysts after Quinn's budget address tomorrow.