(Adds reaction from Republican legislative leaders and credit
rating analyst, budget numbers)
By Karl Plume
SPRINGFIELD, Ill., March 26 In an effort to keep
the state budget afloat, Illinois Governor Pat Quinn on
Wednesday proposed making permanent a once-temporary hike in the
state's income tax, a key issue in the 2014 gubernatorial
Quinn, who is facing a tough re-election campaign against
wealthy Republican venture capitalist Bruce Rauner, sought to
soften the move to lock in the higher tax rate by also offering
a property tax refund to homeowners and increasing the earned
income tax credit for low-income workers.
"This comprehensive tax reform plan would maintain current
income tax rates, allowing us to balance the budget, properly
invest in education, and provide every Illinois homeowner with a
guaranteed $500 property tax refund every year," the Democratic
governor said in his budget address to the state legislature.
The tax increase, which took effect after Quinn signed the
67 percent hike in the personal income tax rate into law in
2011, is set to expire partially on Jan. 1, 2015, the halfway
point of the state's upcoming fiscal year. Under the law, the
rate is scheduled to drop from 5 percent to 3.75 percent, while
a corporate tax rate increase will also fall to 5.25 percent
from 7 percent.
Rauner released a statement blasting his opponent for
backtracking on an earlier commitment to allow the tax hike to
"After five years of Pat Quinn's failed leadership, we have
record tax hikes, outrageously high unemployment, massive cuts
in education, and there's still a giant budget mess in
Springfield," he said in the statement.
House Speaker Michael Madigan, a powerful Chicago Democrat,
told Illinois Public Television that the governor showed
political courage and that he will push for Quinn's tax proposal
during the legislature's spring session, which ends May 31. He
added that lawmakers have an opportunity to "improve" the
state's overall tax code.
Madigan last week unveiled a proposed constitutional
amendment that would subject millionaires in the state to a 3
percent income tax surcharge in an effort to raise $1 billion a
year for schools. The move was seen by political
observers as an effort to help Quinn's re-election campaign.
Quinn, in his speech, said he opposed taxing services and
retirement income, but did not address Madigan's millionaires'
Senate President and Chicago Democrat John Cullerton also
threw his support behind making the tax hike permanent, adding
that "draconian budget cuts to vital programs" would be
"In order to stay on this path of fiscal stability, we have
to maintain the same level of revenue," he said in a statement.
The hikes in the state's personal and corporate tax rates
have raised between $7.5 billion and nearly $8 billion a year,
according to an August report by a legislative commission.
Republican legislative leaders took issue with the argument
made by Quinn and other Democrats that funding for education and
other vital problems would be drastically cut if the tax hike
were to expire.
"The governor said time and time again that we are going to
have all these cuts," Senate Republican Leader Christine Radogno
told reporters. "They don't have to happen. There is significant
wiggle room built into the numbers that they are portraying."
Quinn unveiled a $65.9 billion all-funds budget that
includes $38.57 billion in general fund spending for the fiscal
year that begins July 1, according to budget documents. The
governor also released a five-year budget blueprint that
forecasts a general funds surplus that would reach $757 million
in fiscal 2019 and a decline in an unpaid bill backlog from $4.8
billion in fiscal 2014 to about $2.2 billion in fiscal 2019.
Wall Street credit ratings agencies, which have slapped
Illinois with the lowest ratings among U.S. states, have been
focusing on the partially expiring tax hikes and the impact of
the lost revenue on the state's shaky financial position.
"It's obviously something that affects our view of the
credit," said Moody's Investors Service analyst Ted Hampton. He
added that while it was noteworthy that Quinn came out in favor
of keeping the tax rate hike, it remains to be seen how and when
the legislature may act.
Rating agencies welcomed the enactment in December of
comprehensive pension reforms aimed at easing Illinois'
estimated $100 billion pension funding shortfall. But they also
are awaiting the outcome of five lawsuits challenging the
constitutionality of the reforms.
(Reporting by Karl Plume in Springfield; Additional reporting
by Karen Pierog in Chicago; Editing by James Dalgleish, David
Greising; G Crosse and Dan Grebler)