Next session dates: February 26-28, 2008
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This week...
Governor Unveils State Spending Plan
In the shortest budget address of his career, Governor Rod Blagojevich appeared before a joint session of the General Assembly and outlined his blueprint for the FY2009 state budget in a short, 23 minute speech. For the first time, the Governor did not pick out and focus his ire on a "bogeyman" instead preferring to offer a conciliatory tone and making promises to Illinois residents and employers.
For the general layperson who doesn’t closely follow politics, the speech sounded very good and chock full of goodies for businesses and citizens alike. The Governor proposed a $300 per child income tax credit, a one-time 20 percent cut in the corporate income tax, a new $25 billion infrastructure program to build roads, schools and bridges, and health care for the uninsured.
Unfortunately, as the saying goes, "you can’t judge a book by its cover." The fine print of the budget document reveals a very different reality from the flowery rhetoric used by the Governor.
First and foremost, the Governor’s FY2009 budget relies on increased taxes, elimination of tax incentives, risky revenue streams, and increased borrowing to balance the budget on paper. In actuality, the proposed Illinois budget contains nearly $1.2 billion in new spending programs and does not address the state’s current $3.6 billion debt that includes $1.7 billion in old bills.
Once again, the Governor proposed a 3 percent payroll tax on all employers who do not spend at least four percent of their budget on healthcare to finance free or subsidized health care for families earning up to $82,000 per year. The new payroll tax, estimated to generate nearly $1 billion, would apply to all employers with ten or more employees. Last year, the measure was never even called for a vote because of strong opposition from the business community.
The Governor proposed a one-time, 20 percent cut in the corporate income tax for businesses that paid income taxes and maintain employment levels. This one-time rebate would not apply to partnerships, limited liability companies and other entities not registered as corporations. The rebate would only apply to the 4.8 percent tax rate – not the replacement tax rate.
Governor Blagojevich again called for the elimination of corporate tax incentives and pointed lawmakers to a previous list that included the Single Sales Factor, Research & Development tax credit, Machinery & Equipment exemption, Manufacturers Purchase Credit and a new tax on computer software.
Risky revenue sources include selling 80 percent of the state lottery for an estimated $10-12 billion and using the proceeds for a capital infrastructure program. In addition, the administration is recommending the securitization of the tobacco settlement. In essence, the state would sell its annual revenue stream of $300 million for a one-time payment of $1.2 billion. And finally, the Governor is asking lawmakers to increase taxes on casino riverboats to generate additional dollars for state coffers. There is uncertainty will all three revenue sources, particularly the tobacco settlement and riverboats, which have seen decreasing revenue recently.
Finally, the Governor would like to again try and refinance the state’s pension debt by selling $16 million in pension obligation bonds and lowering Illinois’ annual contribution to the pension system by $300 million this year. The approach was used in 2003, but in recent days, entities such as the Port Authority of New York and New Jersey have been unable to sell their bonds in the market.
There was some good news in the speech as the Governor promised not to propose another Gross Receipts Tax. While the carbon tax was not in the speech, it does remain on the table and could be introduced at a later time. Finally, the Governor did propose increasing funding for the Employer Training Investment Program that helps companies maintain a good workforce.
Now the real process of committee hearings, public meetings, and debate begins as legislators try and meet the scheduled adjournment date in May.
Cook County Board Weighs Business Tax Increases
Facing a $283 million shortfall in a nearly $3.3 billion budget, Cook County Board President Todd Stroger and Commissioner Roberto Maldonado are each seeking approval of their respective tax hike plans from the Finance Committee on Monday. While the County’s fiscal year began on December 1, 2007, it has been operating on a continuing resolution using the 2007 spending levels. By law however, Cook County must pass a budget by March 1 when the continuing resolution expires.
President Stroger proposed a massive increase in the sales taxed, originally seeking a hike of more than triple the sales tax rate in Cook County from 0.75 percent to 2.75 percent. In response to opposition, he has now offered to lower the increase to 2.0 percent which is more than double the current rate.
Commissioner Roberto Maldonado, who is a swing vote on the budget, opposes the sales tax hike but is proposing a litany of taxes on the business community including an airline fuel tax (6 cents per gallon), tax on the purchase of SUVs ($100 per purchase), hotel tax (1 percent of gross rental charge), and a 1.5 percent tax on the consumption of alcohol beverages.
County commissioners have indicated that if the tax hikes fail in committee on Monday, they are prepared to meet later in the week to begin looking at budget reductions, which could include a 15 percent across-the-board cut. With a multi-billion budget that includes a seven percent increase in spending and hundreds of new employees, the IMA believes that the County Board needs to make tough spending cuts in order to balance the budget.
Income Tax Proposals
Similar proposals in the House and Senate that would hike the income tax on both individuals and businesses may be heard in committee as soon as next week. SB 2288 (Meeks, D-Chicago) would use the additional revenue for education, property tax relief, and a capital infrastructure program. A similar measure in the House, HB 750 (Miller, D-Dolton) would also raise taxes for education and property tax relief – but no funding would be allocated for infrastructure. Both bills raise the individual rate from 3 percent to 5 percent and hike the corporate tax rate from 4.8 percent to 8 percent.
Mark your calendar today...
Business Day 2008 is scheduled for May 7th in Springfield. Join hundreds of manufacturers in the State Capitol to deliver our message of jobs, growth and prosperity to lawmakers. Keep tabs with IMA publications for all the details. Sponsorships are now available. Call the IMA today to reserve your spot—contact Kim McNamara at 800.875.4462, ext. 2109 for more information.
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