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Weekly Review
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May 26, 2009
 
 
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In This Issue
Last Week of Regular Session
ITEP report highlights need for tax reform
Calendar of Events
 
From the Capitol
 
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Budget and Capital Bill in Six Days?

 A lot has happened at the Capitol in the past few weeks but two major issues, the FY 2010 budget and the capital bill have yet to be finalized.  The General Assembly closes its regular session this Sunday. 


Capital Bill
 Last week the General Assembly approved a $29 Billion infrastructure program funded mostly by fee increases, expanding lottery sales and legalizing video gaming. 

HB 255 outlines funding for the program:
 
  • Legalizing video gaming like poker and black jack will generate approximately $375 million.  Only licensed liquor establishments, truck stops, veterans establishments, or licensed fraternal establishments may operate the machines
  • Selling Illinois Lottery tickets online and handing over management functions to a private firm will generate approximately $150 million. 
     
  • Increasing the tax on wine, spirits and beer to generate $115 million, wine from 73 cents to $1.39 per gallon, spirits from $4.50 to $8.55 per gallon and beer from 18.5 cents to 23.1 cents per gallon.
     
  • Expanding the sales tax to candy, non-carbonated beverages like tea and health and beauty products will generate an estimated $150 million
  • Increasing vehicle fees will generate $330 million.  The driver's license fee would increase from $10 to $30 and the vehicle registration fee will increase $20 to $98.  Title fees and commercial license fees would increase $30 and transfer fees would increase $10.
HB 312 appropriates the funding for investment in schools, universities and community colleges, roads, bridges, mass transit, parks, libraries and technology projects.  Specifically:
 
  • $2.8 billion in new road projects
  • $1.5 billion for school construction
  • $1.4 billion for universities and community colleges
  • $150 million for Amtrak
  • $2 billion for public transportation: 10 percent for downstate, the rest to the Chicago area
  • $875 million for environmental and water projects
  • $150 million for state parks
     
Source:  President Cullerton to the State-Journal Register
 

HB 2400 Outlines the programs bond financing and repayment.

 According to the State Journal Register (SJ-R), Governor Quinn remarked he would not sign the construction bill until the General Assembly sends him a balanced budget and ethics reforms. 

That prompted the sponsor of the construction bills, Rep. Lou Lang to use a parliamentary move to keep the plan from going to Governor Quinn's desk. Rep. Lang said to the SJ-R that Governor Quinn went back on his word to not link the capital plan to the budget.  "When the governor is ready to sign the bill, I'll send it to him," said Lang.

The parliamentary move, known at the Capitol as reconsidering the vote that approved the measures, now lets the House decide when - or if - Governor Quinn will receive the construction package.

Quinn spokeswoman Katie Ridgway said the governor has been committed all along to a capital bill, balanced budget and ethics reform.

 As of today it is unclear when or if the much needed infrastructure bill will reach the Governor's desk.


FY 2010 Budget
It also remains unclear what will occur between today and Sunday to close the $12.4 billion budget deficit for Fiscal Years 2009 and 2010.  Governor Quinn's proposal to increase the individual income tax from 3% to 4.5% coupled with increasing the personal exemption to $6,000 and skipping pension payments has not surfaced in bill form.  Read CTBA's analysis of the FY 2010 proposed budget here.

SB 750
 Last week SB 750, a revenue proposal, sponsored by Senator James Meeks passed the Senate Education Committee.  The Center for Tax and Budget Accountability testified at the hearing in support of the legislation.

SB 750 makes significant changes to tax and school funding laws.
 
  • Reduces reliance on property taxes to fund schools by doubling the Illinois residential property tax credit.
  • The Invest in Illinois Fund is created and funded with $1 billion each year to provide funding for debt service and fees on bonds for capital projects, such as roads and schools, throughout the State.
  • The bill also mandates a $300 million annual appropriation (indexed for inflation) for grants to institutions of Higher Education.
  • Increases for Early Childhood education are phased in, from $45 million in fiscal year 2010 to $180 million in fiscal year 2013.
  • Increases to the Foundation Level are phased in, raising it to $8,410 over four years (from $5,959).  The Foundation Level and Supplemental General State Aid (Poverty Grants) are automatically tied to increases to the Employment Cost Index to control for inflation.
  • Doubles the special education personnel reimbursement rate.
  • Maintains and expands grants for high-poverty schools.
  • Funds teacher and principal mentoring programs.
  • Provides funding for science, math and technology programs.
     
  • The personal income tax is increased to 5% (from 3%).
  • Expands the sales tax base to include only what Illinois' neighbor states tax.
  • A Family Tax Credit is provided to low and middle income taxpayers to help offset the income tax increase.
  • Triples the Earned Income Tax Credit to offset any tax increase on the working poor.
     
Income Tax
 
The Institute on Taxation and Economic Policy (ITEP) recently released a report analyzing the Illinois Income Tax.  The report, Ready, Set, Reform How the Income Tax Can Help Make the Illinois Tax System Fairer and More Sustainable finds:

 
  • The state of Illinois faces a large budget deficit, with a projected gap between revenues and spending needs exceeding $11.6 billion over the next two fiscal years. The state also faces a long-term structural deficit-a mismatch between the state's spending needs and the revenues available to fund those needs.
     
  • Illinois also faces a chronic tax fairness crisis, with one of the most unfair tax systems in the nation. Low-income families pay more than twice as much of their incomes in Illinois taxes than do the wealthiest Illinoisans.
     
  • Each of these crises can be traced to inadequacies in the state's personal income tax, which is among the lowest and least progressive in the nation.
     
  • Fortunately, there is a growing consensus among elected officials, including Governor Quinn, that a more progressive income tax should be the cornerstone of any effort to resolve the state's budget dilemma in 2009.
     
  • Simply increasing the income tax rate will go a long way towards closing the state's budget deficit-but lawmakers should also take steps to mitigate the impact of such an increase on middle- and low-income families. Options for doing so include exemptions, deductions, and a "tax forgiveness credit."
     
  • The income tax doesn't have to be the only answer for Illinois. Income tax increases can usefully be supplemented with reforms in other taxes-especially the sales tax and the property tax-in ways that further achieve the sustainability and tax fairness goals that all Illinoisans share.
     
  • Refundable tax credits, including the Earned Income Tax Credit but also possibly including new credits to offset sales tax or property tax liability, could help to make the Illinois tax system somewhat less unfair.
  • A sensible combination of the reforms outlined in this paper would raise at least $3.6 billion if implemented in tax year 2008, while cutting the taxes paid by
    the poorest sixty percent of the Illinois income distribution substantially. This
    option would also result in a federal tax cut of $900 million for Illinoisans. 
     
ITEP goes on to report:

After more than a decade of inaction, Illinois policymakers are, at last, increasingly recognizing
that strengthening the state's personal income tax must be a focal point in any effort to balance the state's budget without unduly burdening middle- and low-income families. The failings of the state's current income tax, documented in this report, give lawmakers an important opportunity for straightforward and reasonable tax changes that enhance the yield and fairness of the tax system.

However, while raising the state's income tax rate is a sensible cornerstone for revenue-raising
tax reform, steps should also be taken to mitigate the impact of these tax increases on middle and low-income families. Expanding the state's Earned Income Tax Credit and increasing the "no-tax floor" would help ensure that the fixed-income families hit hardest by the current tax system wouldn't be pushed further into poverty by income tax reform.

Finally, it's important to remember that while the income tax is a sensible starting point for reform, other taxes can be tailored as well in a way that will help avoid structural deficits.  Sales tax base broadening and better targeting of property tax credits would each make the Illinois tax system fairer and more sustainable.

Read the entire report here.
Visit ITEP's website here.


About ITEP
Founded in 1980, the Institute on Taxation and Economic Policy (ITEP) is a non-profit, nonpartisan
research organization, based in Washington, DC, that focuses on federal and state tax
policy. ITEP's mission is to inform policymakers and the public of the effects of current and
proposed tax policies on tax fairness, government budgets, and sound economic policy.
Among its many publications on state and local tax policy are Who Pays? A Distributional
Analysis of the Tax Systems in All 50 States and The ITEP Guide to Fair State and Local Taxes. ITEP's full body of research is available at www.itepnet.org.



 
Calendar
 

WHAT:   The 2010 Governor's Proposed Budget: What Grantmakers Need to Know
WHEN:  June 17, 2009 10:00 a.m. to 12:00 p.m.
WHERE: Donors Forum 208 S. LaSalle, Suite 1540, Chicago, IL 60604
INFO:  Donors Forum is hosting a briefing for funders about Governor Pat Quinn's proposed budget for fiscal year 2010.

A panel will offer insights about the short and long-term implications of the proposed budget to both grantmaking and nonprofit organizations in the communities they serve.  In addition, key legislators will share their perspective and discuss the current state of the General Assembly in light of new leadership.  

Panelists include: Ralph Martire, Executive Director, Center for Tax and Budget Accountability (confirmed), State Representative Kathy Ryg (D-59) (confirmed), Ginger Ostro, Director of the Governor's Office of Management and Budget (invited); Grace Hou, Assistant Secretary of the Illinois Department of Human Services (confirmed). Larry Suffredin, attorney and Cook County Commissioner (confirmed) will provide an overview of the proposed state budget and Larry Hansen, Vice President of the Joyce Foundation, (invited) will moderate the event

WHAT: Dupage Federation on Human Services Reform, Making the Connection:  Accessing Public Benefits for Low Income Persons
WHEN: October 1, 8, 15, 22, 29
            February 18, 25
            March 4, 11, 18
            June 3, 10, 17, 24
            July 1
WHERE: All trainings held at NIU Naperville, 1120 Diehl Road, Naperville, IL
INFO: Making the Connection training sessions contain information in an easy-to-understand format regarding many programs available to assist low income persons.

Individuals who register for a Making the Connection training session now receive membership access to the Federation's newly developed Making the Connection Illinois website, www.mtcil.org.

To register and for more information please visit www.dupagefederation.org.

 

 



Do you have something to add to the Weekly Review?
email Chrissy Mancini @
cmancini@ctbaonline.org

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Center for Tax and Budget Accountability
70 East Lake Street, Suite 1700
Chicago, IL  60601
312-332-1041
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