Illinois budget with income tax revenue hole passes

SPRINGFIELD, Ill. Fri May 30, 2014 5:18pm EDT

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SPRINGFIELD, Ill. May 30 (Reuters) - The Illinois Senate gave final approval to the state's $35.7 billion fiscal 2015 budget on Friday, sending the governor a spending plan that plugs a big tax revenue hole with one-time measures.

Temporary income-tax rate hikes, passed in 2011 in the midst of one of the state's budget pinches, are set to partially expire on Jan. 1, causing an estimated $2 billion revenue decline in the fiscal year that begins on July 1. Yet the budget bills, which were passed by the Democratic-controlled House on Tuesday, keep most spending flat despite the projected revenue decline.

Democratic Governor Pat Quinn had proposed making the temporary tax rates permanent, but House Democrats could not muster enough votes to pass the extension, which Republicans in both chambers opposed. The House also refused to enact spending cuts to account for the revenue loss.

"This is a budget that reflects the fact that there is not a revenue solution before us to fix our long-term problems, to help people who can't help themselves, and to provide the world-class education for our children. It is a budget that lives within the means already provided by our taxpayers," said Democratic Senator Dan Kotowski.

The revenue decline will occur in the second half of fiscal 2015 as the personal income tax rate falls to 3.75 percent from 5 percent and the corporate rate drops to 5.25 percent from 7 percent.

Lawmakers said the budget is expected to add $2 billion to Illinois' big backlog of unpaid bills, while it would allow the governor to borrow up to $650 million from a variety of dedicated state funds to boost general fund cash flow. These kinds of one-time revenue measures have contributed to past downgrades of Illinois' bond ratings, which are at the lowest level among states.

The state has been shrinking its bill pile, which stood at $5.3 billion in April 2013, down to $4.17 billion as of last month, according to the governor's budget office.

Ahead of the budget vote in the Democratic-controlled Senate, Republican senators held a news conference to push a resolution to prevent a post-November general election vote on making the income tax rates permanent.

"Lame-duck action is not something that needs to be occurring on very controversial and important issues," said Senate Republican Leader Christine Radogno. "Those should be reserved for the regular session of the general assembly."

(Additional reporting by Karen Pierog in Chicago; editing by Matthew Lewis)

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