* State's financial future hinges on tax and spending
* Democrats have firm, veto-proof control on state
* Budget gap could hit $9.4 billion in 2016 without tax
By Karen Pierog
CHICAGO, Nov 10 Illinois Democratic lawmakers,
facing the state's own version of the fiscal cliff, are expected
to use their newly won veto-proof majority in the legislature to
solve the state's impending financial crisis with permanently
higher tax rates on personal income and corporations.
Illinois, like California, on Tuesday elected a Democratic
supermajority. The outcome was thanks mainly to the handiwork of
powerful state House Speaker Michael Madigan, who deftly drew
new districts to favor Democrats following the 2010 U.S. Census.
Illinois, also like California, has one of the lowest debt
ratings among the states.
It faces an even worse financial future unless the
legislature acts quickly to make permanent the tax increases
passed by Democrats in 2011, takes steps to cut spending and
reforms the creaking state pension systems.
Illinois has the lowest rate of pension funding among the
states and does not pay its bills on time, shifting from one
year to the next a backlog of billions of dollars it owes.
Tuesday's election broke a political stalemate, turning
Illinois - the fifth most populous state - into a one-party
state, with Democrats firmly controlling all branches of
"The Democrats can install any agenda they want. They don't
need any Republican votes. My recommendation to Republicans is
let them go forward and see if it works," said John Tillman,
chief executive of the Illinois Policy Institute, a nonpartisan
public policy research group.
In the 2013 legislative sesion, Democrats will have 71 of
the 118 House seats, a gain of eight seats, and 40 of the 59
Senate seats, a gain of six seats. This gives them a
supermajority - three-fifths of the seats of both chambers -
enabling them to pass any legislation by a veto-proof margin and
making minority Republicans virtually irrelevant.
The veto override ability also diminishes the influence of
Democratic Governor Pat Quinn and confirms Madigan as the most
powerful politician in the state.
Predictions are that Madigan, who has been Speaker for 28 of
the last 30 years, will pounce on the opportunity to make
permanent temporary income tax rate increases approved in
Illinois' flat 3 percent individual income tax rate was
raised to 5 percent, with the rate scheduled to fall to 3.75
percent in 2014. The 4.8 percent corporate tax rate jumped to 7
percent and was to drop to 5.25 percent in 2014. Lawmakers also
put a 2 percent cap on annual spending growth through fiscal
Dick Simpson, a political science professor at the
University of Illinois-Chicago with close ties to Madigan's
daughter, Attorney General Lisa Madigan, said making the higher
tax rates permanent was unavoidable.
"It is imperative at some point that the income tax increase
becomes permanent or else we have our own fiscal cliff to go
off," he said.
Washington is grappling with a similar tax and spending
crisis, often called the fiscal cliff because economists have
said the country could plunge into recession around the turn of
the year when previous years' tax cuts are to expire and
mandatory spending cuts are to take effect.
A scathing report earlier this year by a budget crisis task
force headed by former Federal Reserve Chairman Paul Volcker
described Illinois as a state living beyond its means for years,
repeatedly putting off tough decisions and hiding the dire state
of finances from full public view.
If the tax increases are allowed to expire, the Illinois
budget gap could balloon to $9.4 billion in fiscal 2016 in a
state required to have a balanced budget. Lawmakers routinely
skirt the requirement through budget gimmicks, the Volcker
"Michael Madigan and (Senate President) John Cullerton along
with Governor Quinn will have complete and unilateral control of
the state's financial future," Tillman said, adding that they
will also be held accountable by voters.
Madigan has said nothing in public since the election and
his spokesman did not respond to a request for comment. Senate
President Cullerton signaled he is not rushing to lock in the
higher tax rates.
"This tax policy question and possible solutions to address
a $7 billion hole left by the expiration should be decided in
the next gubernatorial election (in 2014)," said Rikeesha
Phelon, his spokeswoman.
The estimated $7.5 billion raised by the 2011 tax increases
was quickly gobbled up by the state's annual pension payments,
according to Dan Long, executive director of the Illinois
Legislature's Commission on Government Forecasting and
Prior to the tax increase, the state had sometimes relied on
selling bonds to finance annual pension payments, a strategy
strongly criticized by the Volcker task force. The annual
pension payments required to keep the system afloat are steadily
rising and interest payments on the debt are gradually gobbling
more of the state's budget.
David Merriman, associate director of the University of
Illinois' Institute of Government and Public Affairs, said super
majority status is a mixed blessing for Democrats.
"They have no political cover to claim a bipartisan
compromise was necessary to make progress. They have to take
ownership of any change they enact," he said.
Democrats also will be pressured by special interests
demanding spending on social programs, Merriman said. Labor
unions, a key constituency of the party, also are expected to
oppose pension reform. They successfully defeated a ballot
measure on Tuesday that would have put a modest brake on any
Raising taxes could be viewed positively by credit rating
"No question about it. Having revenue flexibility,
particularly if you have the wealth and resources behind it, is
a positive in the short term," said Richard Ciccarone, managing
director and chief research officer at McDonnell Investment
But he warned that a higher tax climate could have
longer-term negative consequences if business growth is stunted
and taxpayers flee.
The 2011 tax hikes triggered intense criticism from business
executives, including from the state's largest employer,
Caterpillar. Illinois responded to threats that companies would
move out of state by offering tax breaks to some including
financial exchange operator CME Group and retailer Sears.