While most of Illinois, and all of America, is enjoying a long 4th of July holiday, Springfield ground on in an attempt to bring a multi-year budget/fiscal crisis to an end as the 2017 fiscal year came to an end on June 30th. The week was also noteworthy for an unusual, but not wholly unexpected, mid-session change in leadership.
TAX & BUDGET BILLS PASS – REFORMS MISSING
Illinois has not had a full budget in over two years – the only state with that historical notoriety and has watched its credit rating fall to one-step above ‘junk bond’ status with the credit rating agencies expected to move it into junk bond status Wednesday morning absent a solution. Meanwhile, spending continues at approximately $39 billion while receipts are closer to $32 billion. The result has been a bill backlog exceeding $15 billion and counting with state vendors threatening to cut off services or cutting of services.
On June 21st, Governor Bruce Rauner utilized his constitutional authority to call special session and promised to keep the Assembly in session until a balanced budget and meaningful reforms were agreed to and passed. This was the result of the Assembly and the Governor not agreeing on a budget by midnight on May 31st. Since then, there have been an endless series of discussions between working groups, formal and informal, of various legislators and leaders on budget, taxes, and some reforms including workers’ compensation, reducing local governmental units, and property taxes.
Friday, June 30th witnessed a comprehensive budget amendment adopted, but not formally passed, in the House with a bi-partisan 90 votes – well above the 71 needed for passage after May 31st. The proposal, contained in House Amendment #3 and House Amendment #4 to S.B. 6 (Sen. Heather Steans, D- Chicago/Rep. Greg Harris, D- Chicago) seeks to authorize just over $36 billion in spending. That is approximately $2.5 billion less in spending than is being spent today without a budget.
Early in the evening of Sunday, July 2nd, the House considered and passed 72-45 a tax bill with 15 Republicans voting in favor. One House Republican voted for the spending but against the revenue to pay for it. Conversely, ten House Democrats considered politically vulnerable voted for the spending contained in the budget bill but did not vote for the revenues to pay for it in SB 9. This is a common practice for both parties but stands out in particular contrast this time given the actions of the 15 House Republicans. Contained in House Amendment #3 to S.B. 9 (Sen. Toi Hutchinson D- Chicago Heights/Rep. Greg Harris, D- Chicago), is a $4 billion-plus tax increase and includes the following provisions:
- Increased personal income taxes from 3.75% to 4.95%;
- Increased corporate income taxes from 5% to 7%;
- Gasohol will be taxed at 100% while biodiesel, biodiesel blends, and majority blended ethanol, which were to be taxed at 100% after December 31, 2018, had their exemption extended to December 31, 2023. Gasohol is currently taxed at 80% and was scheduled to be taxed at 100% beginning January 1, 2019.
- Rewrites the Unclaimed Property Act. While it retains the exemption for gift cards, it removes the business-to-business exemption. Unclaimed property receipts go to pension funds and this is estimated to bring in approximately $63 million more;
When SB 9 was originally passed by the Senate, it contained an expansion of the sales tax to include most services as well as a tax on cable, satellite and streaming. Those, and several other provisions, were not included in the amendment passed by the House.
Immediately after the passage of the tax bill, the budget bill, SB 6, was also called for a final vote and approved on a bi-partisan 81-34 roll call. Monday, July 3rd, the House passed the Budget Implementation Bill, otherwise known as the “BIMP”, 73-36 as contained in SB 42 (Sen. Donne Trotter, D- Chicago/Rep. Greg Harris, D- Chicago). The appropriation bill (SB 6) grants spending authority and is the budget, the revenue bill (SB 9) provides the funding mechanisms, and the BIMP (SB 42) makes statutory changes necessary to allow the agencies to implement the budget as passed.
Two of the bond rating agencies issues statements after the House action signaling their approval of their actions. Standard & Poor’s, in particular, noted that is it only a start but “even with a budget, however, it is likely that Illinois’ finances would remain strained and vulnerable to unanticipated stress.” The statement went on to note that “If a budget is enacted, the degree to which it closes the state’s structural deficit, provides a pathway for addressing the backlog of unpaid bills, and its impact on cash flows, will be important factors in our review of its effect on Illinois’ credit quality.” Many budget experts and observers have noted that while SB 6 predicts a surplus of between $353 and $377 million, and those monies can be used to finance bonds, likely around $3 – $3.5 billion, that is well short of dealing with the state’s $15 billion backlog.
Today, July 4th, the Senate voted to concur with the House on their amendments to Senate Bills 6 (roll call of 39-14) , 9 (roll call of 36-18), and 42 (roll call of 36-17), and sent the bills to the Governor. The bills were passed with primarily Democratic votes. One Senate Democrat voted for the budget and against the revenue. One Senate Republican voted in favor of the revenue bill and budget bill. Three other Senate Republicans voted against the revenue bill but voted for the budget bill. Republicans primarily voted ‘no’ based on the fact that the reforms Illinois needs were not included. Democrats counter that there are a number of bills they have passed to the Governor on workers’ compensation and property taxes in particular. However, the Republicans note those are the Democrats’ version of what constitutes a compromise and not an actual, negotiated compromise.
Governor Rauner had previously stated his intent to veto the bills as they lack the reforms he is seeking. Indeed, within two hours of the Senate concurring with the House on Senate Bills 6, 9 and 42, the Governor vetoed all three. The Governor’s veto message stated his belief that the budget bill is $2 billion out-of-balance and that the reforms he is seeking and believes will return Illinois’ economic competitiveness are missing. The Senate promptly voted to override all three vetoes. Speaker Madigan announced that the House will not be considering override motions today as there are not enough House members in town – particularly those who would be needed to vote to override the Governor’s vetoes. At the moment, we anticipate House action tomorrow but that could change at any time.
It is also widely anticipated that the Governor will utilize his authority to call the Assembly into special session each day until reforms are enacted.
Missing from these votes are truly bi-partisan reforms. Particularly three non-revenue impacting reforms retail sought not to mention reforms such as workers’ compensation. At a joint press conference Monday afternoon, IRMA, the Illinois Manufacturers’ Association, and the Illinois Chamber of Commerce noted the progress on a budget but absent much needed reforms, the cycle that got Illinois into this fiscal and economic mess over the course of 20-plus years will continue. While the Democrats vowed to continue to work on these reforms, it remains to be seen if they, the Governor’s Office, and the legislative Republicans engage in meaningful discussions in the days to come.
ONE SENATE REPUBLICAN LEADER RETIRES….
Last week, then-Senate Republican Leader Christine Radogno (R-Lemont) announced her retirement effective July 1st. A social worker by education and profession, Radogno first won election as a trustee in the Village of LaGrange. She was elected to the Illinois Senate in November 1996 when she bested a long-time Republican incumbent in the primary and subsequently won the general election. An unsuccessful candidate for State Treasurer in 2006, Radogno secured a special place in Illinois legislative history in 2009. That was the year she was became Senate Republican Leader and the first women to lead one of the four legislative caucuses.
Known for her calm hand and reasonable approach to the legislative process, she was always a strong supporter of the retail sector. On behalf of Illinois’ retail sector, we thank her for her 20 years of sacrifice, dedication, and support and wish her nothing but every happiness.
…NEXT SENATE REPUBLICAN LEADER ELECTED
Within 24-hours of then-Leader Radogno’s retirement announcement, the Senate Republican Caucus unanimously coalesced around Senator Bill Brady (R- Bloomington) as its new Leader. A real estate developer and businessman by profession, Leader Brady is a veteran legislator having served in the Illinois House from 1993 – 2001 and in the Senate since 2002. A three-time candidate for Governor, Brady was the Republican nominee in 2010 when he lost to former Governor Pat Quinn by approximately 32,000 votes despite winning 98 of Illinois’ 102 counties. On behalf of the Illinois retail community, we congratulate Leader Brady, look forward to working with him, and wish him every success.