Updated July 3 at 2:30 p.m.
Illinois lawmakers are back to work after a dramatic vote in the House to increase income taxes by 32 percent.
Attention turns Monday to the Senate, where lawmakers will consider the budget measures approved by the House a day earlier. The tax legislation increases the personal income tax rate from 3.75 percent to just under 5 percent. Corporations would pay 7 percent instead of 5.25 percent.
Republican Gov. Bruce Rauner already promised to veto it.
Despite the governor’s promised veto, Illinois’ financial outlook received a boost from two credit-rating houses Monday after a dramatic vote to raise the income tax rate by 32 percent.
Fitch Ratings issued a statement noting “concrete progress on reaching an agreement to break the two-yearlong budget impasse” after the House vote. Then S&P Global Ratings issued a notice shortly after Fitch, saying the House vote to raise $5 billion through an income-tax increase “represents a meaningful step toward the enactment of a comprehensive budget.” Fitch, Moody’s Investors Service and Standard & Poor’s have threatened to downgrade Illinois to “junk” status without swift action on a budget, a move that would signal to investors that buying Illinois debt would be speculative.
Also moving to the Senate on Monday is a $36 billion spending plan that was passed in the House on Sunday. It’s about $1 billion less than the spending outline the Senate passed in May.
The House turns its attention to other matters such as a Senate plan to borrow billions of dollars to pay down overdue bills.
The Illinois House approved a $5 billion income tax increase on Sunday, followed by a spending plan for the new fiscal year, with some Republicans defying Gov. Bruce Rauner and joining Democrats in a dramatic step to break the nation’s longest-running budget stalemate.
Fifteen Republicans joined majority Democrats in the 72-45 vote for the tax increase, providing one more than the three-fifths majority necessary for the law to take effect immediately. Rauner derided the proposals as lacking spending restraint or “structural” changes he wants.
“Illinois families don’t deserve to have more of the hard-earned money taken from them when the Legislature has done little to restore confidence in government or grow jobs,” Rauner said. “Illinois families deserve more jobs, property tax relief and term limits.”
Sunday’s votes did not immediately spell resolution of the impasse. The 72 votes for tax increases are sufficient to override a Rauner veto, but whether the Republicans who joined the majority Sunday would vote again against the governor is uncertain. Rauner, a wealthy businessman, has poured tens of millions of his fortune into the Republican party and the campaigns of GOP legislators.
One Republican who voted for the tax increases said the state could not continue run up billions of dollars in red ink.
“Stop playing ‘chicken’ with the fifth-largest state in the union,” said Rep. David Harris, a suburban Chicago Republican. “I was not elected as a state legislator to help preside over the destruction of this great state!”
Democrats said that negotiations continue with the GOP over Rauner’s demands, including the statewide property tax freeze, cost-cutting measures to the workers’ compensation program for injured employees and cuts to pension benefits to reduce a ballooning deficit.
Without a budget, the state comptroller will be unable by August to cover even basic services ordered by courts and the $6.2 billion budget deficit and $14.7 billion in overdue bills would grow. Credit rating agencies have threatened to downgrade as early as this week Illinois creditworthiness to “junk” status, which would be the lowest ever for a state.
Shortly after the tax-hike vote, the chamber voted 81-34 on fiscal blueprint that would spend about $36 billion. Democrats have said that is $800 million less than what Rauner himself proposed last winter. It’s about $1 billion less than the version sent over in May from the Senate, where the legislation now returns for concurrence.
Republican Rep. Sheri Jesiel of Winthrop Harbor voted against the tax increases.
“We can’t continue to be the ATM that funds programs that can’t live within their means,” Jesiel said. “It’s … very clear that because there are minimal if any structural changes in our spending, it won’t be long before we’re doing the same thing, arguing for tax increase for the spending that we’ve never learned to get under control.”