Friday, May 30, 2014

Budget postpones tax debate until after election

By Jamey Dunn

The Senate approved the budget bills passed by the House earlier this week, essentially delaying the debate over a tax increase or deep cuts until after the November election.

This session, lawmakers had the challenge of crafting a budget with about $2 billion less revenue because the temporary income tax increase will begin to step down halfway through next fiscal year. The only options seemed to be deep cuts, new revenue or some combination of the two. Democrats eventually presented a third option, which relies on borrowing from special funds and increasing the state’s backlog of overdue bills

Chicago Democratic Sen. Heather Steans, who sponsored some of the budget bills in the Senate, said that the state could make it through the entire fiscal year on the spending approved today. “This budget is a full-year budget that can be executed for a full year without requiring any sort of a revenue vote. No tax increase is required for this budget.” But she said that if lawmakers do not approve any new revenues before the end of Fiscal Year 2015, many programs, such as in-home care for the elderly, would have to be cut. “We are going to have a huge issue that we cannot contend with without either mass cuts or revenue.” Steans said that there are about $700 million in new projected budget pressures that “are not probably totally funded” under the plan.

Republicans accused Democrats of setting the state up for a budget emergency, so they can push through an extension of the tax increase after the election. “This is an irresponsible budget seeking to create a crisis because you failed at convincing the people this year that there’s a sufficient crisis to require a tax increase. So now, you’re taking another stab at creating a crisis by making this huge cliff,” said Sen. Matt Murphy, a Palatine Republican.

Democrats say that they picked the least harmful option that was politically possible. “This maintenance budget allows us to provide level funding for key priorities and services. The effect of the budget is to avert doomsday cuts by deferrals, borrowing and increasing our backlog of bills,” Senate President John Cullerton said in a prepared statement. “Admittedly, this budget reverses some of the progress that we have made in recent years. Since we passed the income tax increase in 2011, we have paid down $3.6 billion in old bills and fully funded our ballooning pension payments. We have paid off $8 billion in pension debt. We have saved billions with responsible budget cuts and that demonstrated that we can be good stewards of taxpayer dollars.”

They FY 15 budget relies on $650 million in borrowing from state funds outside of the general operating budget. It would flat fund most areas of the budget with a slight increase in K-12 education. It would give larger agencies some lump sum appropriations so that they can have the flexibility to try to patch any holes that might spring up. The budget bills:
  • House Bill 6093 contains K-12 spending.
  • HB6094 contains higher education spending.
  • HB 6095 contains general operating services spending.
  • HB 6096 contains human services spending and required spending, including pension payments.
  • HB 6097 contains public safety spending 
  • HB 3793 contains capital projects, including school construction, and about half of the back pay owed to state workers. 
  • Senate Bill 220 contains budget implementation provisions 
  • SB 274 contains the authority for inter-fund borrowing and lawmaker’s pay. A mechanism in the bill would keep Gov. Pat Quinn from being able to cut off legislative pay, a move he made to try and push lawmakers to act on pension reform last summer. The bill would also put a freeze on legislative pay increases. 
Gov. Pat Quinn called the plan “incomplete” in a written statement he released after the Senate passed the spending bills. “The General Assembly didn't get the job done on the budget. ... In March, I submitted a balanced budget plan that continued paying down the state's bills, protected education and public safety and secured Illinois’ long-term financial future,” the statement said. Quinn called for an extension of the tax rates in his budget address earlier this year. “Instead, the General Assembly sent me an incomplete budget that does not pay down the bills but instead postpones the tough decisions. I will do my job. I will work to minimize the impact of cuts in vital services while continuing to cut waste and maintain our hard-won fiscal gains. There’s more work to do to continue moving Illinois forward.” 

Steans and Park Ridge Democratic Sen. Dan Kotowski, who also sponsored budget bills, would not say if they intended to revisit the income tax rates after November. But they did say that they believe more revenue is needed. However, on the topic of the tax rates, Cullerton did not mince words. “In order to return to [the state’s] path of fiscal progress, we will have to bring revenues in line with our growing liabilities. While a vote on our tax rates has been deferred, rising costs and pressures will force the issue at a later date.” Cullerton has said that he has the votes in the Senate to keep the current income tax rates of 5 percent for individuals and 7 percent for corporations. But House Speaker Madigan said that he was a long way off from being able to pass an extension of the rates in the House. If lawmakers do not opt to extend the current rates, they will step down to 3.75 percent for individuals and 5.25 percent for corporations in January.

Republicans took issue with giving Quinn the power to sweep funds in an election year. They also cried foul over areas of spending in the budget, such as money going toward a summer jobs program to prevent violence. The governor has recently come under fire for the Neighborhood Recovery Initiative (NRI). The program was funded primarily from discretionary funding that Quinn could access. NRI was the subject of a scathing audit that found that the program did not use a competitive bidding process to select the providers and dole out grants but instead relied on recommendations from Chicago aldermen. Documentation from providers implementing NRI was seriously lacking and at least $2 million was never accounted for. Contracts for NRI were agreed upon just before the 2010 election and Republicans have accused Quinn of using the program as a “political slush fund.”

Democrats argued that the problems in the program have been cleaned up and that violence prevention continues to be an important priority. They criticized Republicans for not presenting their own detailed plan for coping with the loss of revenue in FY 15. “There’s no place to really pretend in this budget. It is what it is. It’s very straight forward it’s very clear,” said Kotowski of the plan. “It’s clear where the pressures exist. It’s clear the actions that we’re taking to live within the means already provided by taxpayers.”

In his traditional end-of-session floor speech, House Speaker Michael Madigan noted that lawmakers have been faced with many tough issues in recent years. “This has been a difficult session, a very difficult session. Over the last few years, nothing seems to be simple; nothing seems to be easy. It’s just one difficult complicated issue after another.”

The legislature is not scheduled to return for fall veto session until November 19th.

Roads and bridges capital bill
The Senate sent a “mini” capital bill with road and bridge constructions projects to Quinn’s desk. House Bill 3794 calls for $1.1 billion in construction spending, $1 billion of which would go to road and bridge projects included in IDOT’s 5-year plan. The remaining $100 million would go to local street repair projects.

The bill does not list projects because they would be determined by IDOT. The department would prioritize projects that are ready to go in the summer construction season. The money for construction would come from funding sources approved as part of the 1999 Illinois First capital program. Borrowing for the plan has been paid off, but the increased fees and taxes remain. The Senate approved the bill with no debate.

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