CHILD CARE ASSOCIATION OF ILLINOIS
STATE BUDGET ALERT
SUBJECT: STATE BUDGET ALERT
The General Assembly acted in the last 24 hours to generate additional revenues towards solving the state deficit, while putting in place restrictions in state spending growth.
The General Assembly passed the state income tax increase, effective January 1, 2011. The personal income tax rate increases from 3% to 5% for four years, then decreases to 3.75% after 4 years. An Illinois resident who owes $1000 in state income taxes would owe $1,666 at the new rate and then $1,333 when the tax rate drops in 4 years. Corporate tax rates will increase from 4.8% to 7% for 4 years and then drop to 5.25%.
The higher taxes are expected to generate $6.8 billion per year.
The income tax proposal passed the House late last night and passed the Senate early this morning.
Aides to the Governor say he supports this tax plan, although it is higher than what he proposed. He is therefore, expected to sign the bill.
The General Assembly also passed the bill approving borrowing/bonding to generate $4 billion to make this year’s state pension obligation.
Other aspects of the overall budget plan appear to be dead for the moment:
· The House could not produce the votes for the backlog debt/bonding plan. The measure failed, since it could not produce the 3/5 majority needed. This plan would have provided revenue to pay off the massive amount of overdue bills.
· The House could not produce the votes to increase the cigarette tax by $1 a pack. This measure would have generate $375+ million towards education funding. This bill remains on postponed consideration.
· The House did not call a gambling expansion bill on the floor. Although the income tax increase will reduce the overall state deficit, it by no means obliterates an almost $15 billion deficit. The new funds will help balance the annual budget and chip away at part of the backlog of unpaid bills. The debt/bonding plan was geared to generate $8.75 billion to address much of that backlog, but that measure failed. The increased cigarette tax was to go towards education funding, thereby reducing some drain on the overall state budget for education. Expanded gambling was meant to produce additional revenues for the budget.
Some of these measures can be reintroduced when the new General Assembly begins work. However, it will be more difficult to pass any such measures once the new legislature is seated. A strict cap on state spending growth is part of the overall tax increase plan. If state spending exceeds 2% a year, the income tax increase would be canceled. State spending is limited to $36,919 billion for FY’12, $37,554 billion for FY ’13, $38,305 billion for FY’14 and $39,072 billion for FY’15.
The Auditor General will monitor the level of increase. Because any limited growth within the 2% margin would probably be consumed by rising pension and Medicaid growth, this will force spending cuts in many other areas. Some projections put the cuts for FY’12 in the range of $800 million.
The tax increase is some good financial news for human services. However, we still face many barriers to prevent cuts even within this current fiscal year, and as we head into a restricted funding environment for at least the next 4 years. Please continue your good work with legislators to keep them aware of the importance of your agency services. Please watch throughout the spring session for CCAI legislative and advocacy alerts and provide our suggested, targeted messages to legislators.