General Assembly sends tax increase to governor

A 66 percent increase in the individual state income tax passed the General Assembly early today and is on its way to Gov. Pat Quinn for his signature.

However, lawmakers didn't approve an $8.7 billion borrowing plan intended to help the state quickly pay off it's massive backlog of bills, and the Illinois House also rejected a $1.01 per pack increase in the cigarette tax to provide an estimated $377 million, mostly for education.

 The General Assembly also ended its 96th legislative session without voting on a massive gambling expansion bill or approving reforms to workers' compensation or education. A new General Assembly will be sworn in today.

The Senate, though, did early today finally approve a plan to borrow $3.7 billion that will be used to make this year's payments to the state-funded pension systems. Sen. Larry Bomke, R-Springfield, voted for that bill.

In the House, the contentious tax-hike bill was approved with 60 "yes" votes, the minimum number of votes needed for passage, to 57 "no." No Republicans voted for Senate Bill 2505. Ten lame-duck Democrats - whose terms expire at noon (Wednesday) - all voted for the tax hike.

In the Senate, the vote was 30-29, also the minimum needed to pass the tax bill. Again, no Republicans voted in favor of it.

Under the bill, the individual income tax rate in Illinois will increase from 3 percent to 5 percent. The rate would drop by 1.25 percent after four years. Sponsoring Rep. Barbara Flynn Currie, D-Chicago, said the hope is the taxes will be replenished by revenue from an improved state economy by then.

Currie said the state has to own up to its financial problems.

 "Illinois is in a financial crisis and there is no way for the state to dig itself out of this crisis without revenue," Currie said. "There is no way, no way we can cut our way out of the deficit we face."

Trying to solve the problem by budget cuts alone would require complete elimination of more than a half dozen state agencies to cover the $13 billion to $15 billion deficit.

"It's time for us to be adults, face the crisis and together find a solution," Currie said.

GOP: Hit to business

House Minority Leader Tom Cross, R-Oswego, said his caucus had hoped to see reforms to workers' compensation, an effort to curb medical malpractice lawsuits and fewer business regulations before members voted for more borrowing.

"We know that vendors need to be paid ... but talk about a day of huge numbers being tossed around," Cross said. "It's a real hit to business."

Cross was also said the notion the tax would be temporary is "clearly false."

Rep. Raymond Poe, R-Springfield, voted against the bill in part because he said he was worried the business tax increase would kill jobs. He also said his office was getting 60 to 70 calls an hour on the tax hike and 98 percent were against it.

 Rep. Rich Brauer, R-Petersburg, also said his "no" vote was based on fears the bill would have on business. He, too, said nearly all the calls coming into his office were against the tax hike.

"When you look at the district I represent, they paid taxes, they don't receive that many services," Brauer said.

State Rep. Jim Watson, R-Jacksonville, said he had a conversation with Gov. Pat Quinn Monday night, but the plan lacked reforms he thought were necessary for him to consider voting "yes." Watson has state facilities and workers in his district.

"Look, I do not believe you can cut your way out of this. I don't believe you can tax your way out of this," Watson said. "It's going to take a combination.

 "But the price of admission for a lot of us - spending caps, spending cuts, spending reforms, workmen's comp reform - if you're going to put a burden on business, you better make it easier for them to do other things, and none of those things have happened," Watson said.

Rep. David Leitch, R-Peoria, predicted businesses will respond to the tax hike by moving out of Illinois. When the state raised fees on trucks, owners moved 60,000 of them to neighboring states to be registered, he said.

"A mobile economy can move with its feet," Letch said.

Burden on working families

Rep. Roger Eddy, R-Hutsonville, said working families will bear the burden of the state's mismanagement in the meantime. He said a family of four making $40,000 a year will pay $800 more annually because of the tax hike.

 "Let's be adults and punish the hardworking people of the state of Illinois for our mistakes the last eight years," Eddy said sarcastically.

Members of the Black Caucus had wanted an increase in education funding as part of a tax hike package. That didn't happen when the cigarette tax was defeated. Still, caucus chairman Rep. Will Burns, D-Chicago, said the income tax should be raised.

 "I'm voting for a tax increase, not because I want to but because there are no other options," he said.

 Business groups said the higher corporate rate, coupled with a 2.5 percent personal property replacement tax paid by businesses, will give Illinois the highest corporate rate in the Midwest and the third highest rate in the country. They said the hike will be a job killer.

The Illinois Manufacturer's Association also said more than 80 percent of Illinois businesses pay income taxes under the individual rather than corporate rate, meaning they will still be hit by the tax hikes.

"The only businesses that will benefit are moving companies that will help my companies leave," said Greg Baise, president of the Illinois Manufacturers' Association.

 "If this tax increase is adopted, all of the gains you have tried to make will be terribly set back," said Illinois Chamber of Commerce President Doug Whitley. "You might as well have a neon sign that says Illinois is closed."

No alternative - budget director

Gov. Pat Quinn's budget director, David Vaught, said the state is out of options. Without a tax increase, Illinois will see its credit rating reduced to junk bond status in a matter of days, he said.

 "It is time to end this state of denial that we are not in crisis," Vaught said.

The original plan called for the state to issue $3.7 billion in bonds to be repaid over 14 years with a portion of the tax hike. The House twice failed to put the super-majority vote on the plan needed to approve the bond issue.

Currie said the failure means it will take the state longer to pay off its backlog of bills.

In an attempt to mollify critics of state spending habits, the bill contains a provision limiting growth in state spending for the next four years. If the auditor general determines the spending cap has been exceeded, the tax increase could be voided.

Vaught said projected growth just in pension costs and Medicaid - despite recently approved reforms -probably will eat up the allowable increases each year. That means other state spending will remain flat or be cut to comply with the limits, he said.

Republicans said the limits in the bill still allow spending to increase too much.

Sean Noble, policy director of Voices for Illinois Children, which pushed for the tax hike, called it a "really momentous step in putting Illinois on more sound financial footing."

"So far ,our response to the recession has been cuts and borrowing and unpaid bills," Noble said. "Now we are doing what 30 other states have done, which is add new revenue."

However, he said he is disappointed the state did not approve the borrowing plan to pay old bills. He's also concerned that the spending limits could put a squeeze on programs in the future.

Statehouse reporters Chris Wetterich and Andy Brownfield contributed to this report. Doug Finke can be reached at (217) 788-1527.