Just as Illinois legislators on Thursday were getting ready to approve a major tax hike to fund the state’s first budget in two years, a woman threw white powder in the Capitol, causing officials to lock down the building and call in a hazmat team.
The powder turned out to be harmless, the House gave final passage to the spending plan — and a joke on Twitter captured just what a contentious two years it has been in Springfield.
“It took a statehouse lock down and guys in Hazmat suits,” tweeted Chicago Sun-Times Political Editor Scott Fornek, “but Illinois finally has a budget.”
The Democrat-controlled Legislature forced the tax hike into law late Thursday afternoon, over Republican Gov. Bruce Rauner’s veto. Using the $5 billion in new revenue, it gives the state its first annual spending plan since 2015, when Rauner took office and settled into a two-year stalemate with Democratic leaders over taxes and economic policy.
The breaking of that logjam came amid breathless predictions from some that the new package will drive America’s most financially dysfunctional state further into the abyss, and from others that it will finally stop the fiscal bleeding.
Supporters of the tax hike present it as responsible governance in the face of dire circumstances. In fact, the epic-sounding personal income tax hike — up by almost a third — actually raises the previous 3.75 percent tax to just 4.95 percent. That’s still significantly below the 5.9 percent that Missourians will pay next year.
The move means schools, state vendors and other obligations that have been shorted by the lack of a budget can start counting on their checks again. It may allow Illinois to start paying down (or at least stop adding to) its $15 billion pile of unpaid bills.
And it could convince the major rating agencies not to reduce Illinois’ credit rating to “junk,” a historic first that was inevitably coming if the state did nothing.
“Today, Republicans and Democrats stood together to enact a bipartisan balanced budget and end a destructive 736-day impasse,” House Speaker Michael Madigan, D-Chicago, said in a statement, referencing the handful of Republicans who joined the Democratic majority to pass the package.
“The people in this chamber did not do what was easy today,” Madigan said. “But we did what was right for the future of our state.”
Detractors point out that the new Illinois corporate tax will go from 5.25 percent to 7 percent — which, with the additional 2.5 percent personal property replacement tax that’s assessed on Illinois corporations, will give the state one of the highest effective corporate tax rates in the country.
More than that, say critics, the new plan leaves in place the state’s plethora of other taxes that conservatives have long complained are a drag on the economy, particularly its high property and sales taxes. Even before last week’s hikes, the state was consistently listed among the top 10 in America in terms of aggregate tax burden.
And the threat of a “junk” rating — a key motivator in passage of the tax hike and budget — still isn’t off the table. While Fitch Ratings last week lauded Illinois for “concrete progress,” Moody’s Investors Service announced it has placed the state on review for a possible downgrade anyway, because it doesn’t consider the new revenue to be enough to get of out of the hole it has dug, including $251 billion in unfunded pension liabilities.
“Today was another step in Illinois’ never-ending tragic trail of tax hikes,” Rauner said in a statement released after the final House veto override vote Thursday. He predicted the tax hike will “force another tax hike in the near future” because the “tax-and-spend plan is not balanced, does not cut enough spending or pay down enough debt, and does not help grow jobs or restore confidence in government.”
In a flurry of wide-ranging reaction after the vote, supporters of the measure — including Democrats, social agencies, labor unions and school-related entities — laid blame on Rauner for the long budget impasse and predicted the new measure will begin to repair the state’s finances.
“This veto override is the first step that Illinois’ leaders needed to take in order to get our state back on track,” U.S. Sen. Richard Durbin, D-Ill., said in a statement. “Thankfully now schools will be able to open in the fall, major transportation infrastructure projects will continue on schedule, seniors will receive their life-saving services, and universities will continue their research.”
Opponents of the new tax and budget, generally political conservatives or business entities, blamed Madigan for the past two years’ jolting political drama and predicted the tax hikes would ultimately worsen the state’s economy.
“Illinois lawmakers ignored reality today and drove another nail in the coffin of job creators,” said a statement from the Illinois Manufacturers’ Association, in a common refrain from business groups.
“People … wanted a budget resolution without a tax hike,” by cutting spending instead, said John Tillman, CEO of the conservative Illinois Policy Institute, who cited polling by his organization. “The political class, led by Speaker Madigan, said no way.”
While it may take years to assess the full economic impact of the tax hikes, the political impact will be felt much earlier. Rauner and most of his legislative nemeses will be on the 2018 election ballot, giving the state’s voters a chance to weigh in for the first time on the question that has hung over the last two years of quagmire: Whose fault is this?
“This is going to be the animating issue in the upcoming election,” predicted Tillman.
One of the most widely visible, if least urgent, victims of the budget impasse was back on its feet almost immediately after Thursday’s vote: the state lottery.
The lottery recently put a $25,000 cap on winnings that the state would pay immediately, and pulled out of the multi-state Powerball and Mega Millions games, because it lacked spending authority with no budget.
The lottery agency put out a statement shortly after Thursday’s vote announcing that Powerball and Mega Millions sales in Illinois would resume immediately. The prize cap is also gone. “All prize payments are being paid in full, and without delay,” lottery Chief of Staff Jayme Odom said in an email Friday.