Illinois Tax Rate Soars 32% After Senate Overrides Governor Veto

Two days ago when we reported that the Illinois House had voted 72-45 to pass a 32% income tax hike (and a $36 billion spending plan), in an last ditch scramble to provide the state with its first budget in three years (or else suffer the first ever US downgrade to "Junk"), we said that "ultimately, the fate of Illinois' credit rating is now in the hands of Rauner, and whether and how fast his imminent veto is overriden."

We got the answer on Independence Day afternoon, when just around noon, first the Senate voted to approve the House tax hike and spending bill, then shortly after, Gov. Rauner - just as he warned he would - vetoed both the income tax increase and the budget bill and budget implementation bill....

.... only to be himself overriden moments later by the Senate, as it took the drastic measure to end a record budget impasse.

The 36-18 vote in the Senate on the tax hike came after a very short debate, and two days after more than a dozen Republicans in the House broke ranks with Rauner to join Democrats to support the plan amid growing frustration.

Needless to say, former PE titan, Bruce Rauner disagreed, and in his veto message to lawmakers said that "the package of legislation fails to address Illinois' fiscal and economic crisis —and in fact, makes it worse in the long run. It does not balance the budget. It does not make nearly sufficient spending reductions, does not pay down our debt and holds schools hostage to force a Chicago bailout." Rauner also noted he did not get the economic agenda items he had made a requirement to sign a tax hike into law.

"This budget package does not provide property tax relief to struggling families and employers. It does not provide regulatory relief to businesses to create jobs and grow the economy. It does not include real term limits on state elected officials to fix our broken political system" said Rauner, listing the issues from what he once dubbed his "turnaround agenda."


Gov. Bruce Rauner holds a press conference

It does however stave off the day of reckoning and potentially Illinois junk status downgrade.

The voting came as Illinois entered its third year without a budget amid Wall Street's threat of a credit downgrade to junk status, potential layoffs of construction workers and with Illinois already booted from the Powerball and Mega Millions lottery games.

"We don't have any time left," said Sen. Toi Hutchinson, D-Olympia Fields. She laid out what is at stake without a resolution, including the state's credit rating being downgraded to junk status, road workers being laid off, and the dismantling of higher education and social safety net.

* * *

The tax hike and budget now head to the House, which also will have to vote to override Rauner for them to become law. But according to the Chicago Tribune, Democratic Speaker Michael Madigan said the House would not do so Tuesday, meaning the budget process will play out at least another day. The House is not scheduled to convene until 4:30 p.m., but attendance has been an issue as lawmakers had dispersed for the holiday. Still no surprises are expected:

"I think that the Senate vote is reflective of the vote in the House. I think it speaks to all the hard work that has been done by a bipartisan group in the legislature," Madigan told WICS-TV of Springfield after the vote. "My expectation is that the bills that the Senate just passed will become law and we will have taken a huge step toward correcting the financial imbalances of the state of Illinois."

Perhaps, although some have suggested that instead of hiking taxes, which will lead to a fresh exodus of taxpayers from both Chicago and Illinois (recall the Chicago population is already shrinking the most of any US city) what the budget should have done is slash spending. Of course, that is the last thing on the mind of legislators of one of America's biggest nanny states.

In fact, quite the opposite: the accompanying budget plan, which the Senate also quickly approved 39-14, would have the state spend a little more than $36 billion, about $4 billion more than it currently takes in from taxes. In other words, Illinois just "saved" itself from default but assuring it would end up with even more debt.

* * *

Going back to the vote, as the Tribune adds, the 36 votes in the Senate was the minimum needed both to pass and override a veto. There are 37 Democrats in the Senate, but two voted no. They are Sen. Julie Morrison of Deerfield, and Sen. Tom Cullerton of Villa Park. Both likely will face a tough re-election challenge. Sen. Bill Haine, D-Alton, who has been undergoing treatment for blood cancer since February, traveled to the Capitol to vote for the plan. The critical vote belonged to Republican Sen. Dale Righter of Mattoon, who noted the damage done to Eastern Illinois University in his district.

"Every dollar that we throw onto the backlog of bills is a dollar the next generation has to pay for even though we got to spend it," Righter said. "That's simply wrong, and that is the basis for which I support this."

* * *

So do today's last minute Senate fireworks mean no Illinois downgrade to junk is coming? It remains to be seen: the movement after years of dysfunction was enough to delay the state's credit rating from being cut to junk status by Wall Street ratings agencies Monday, though they warned that much rides on a final approval of the budget package.  Even then, S&P Global Ratings warned that long-term damage has already been done.

"Even with a budget, however, it's likely that Illinois' finances would remain strained and vulnerable to unanticipated economic stress," the agency said. "In addition to having accumulated record amounts of payables, the state's university system has been deprived of state funding since January 2017. If a budget is enacted, the degree to which it closes the state's structural deficit, provides a pathway for addressing the backlog of unpaid bills, and its impact on cash flows, will be important factors in our review of its effect on Illinois' credit quality."

Meanwhile, on Monday Fitch called the weekend developments “concrete progress,” noting that it appears the legislature may have enough votes to override Rauner’s planned veto of the tax hike. S&P called the actions a “meaningful step.” Yields on the state’s 10-year debt have soared to 4.8 percent, 2.8 percentage points more than those of benchmark obligations. That’s the highest yield of all 22 states that Bloomberg tracks.

It would be the ultimate insult to Illinois if despite the last minute scramble, S&P were to do to the insolvent state what it did to the USA in August 2011, when despite the pleas of Obama, Geithner and the entire administration, it went ahead and did the unthinkable, when it downgraded the US from its vaunted AAA rating. In any case, it's only a matter of time before Illinois slides not only to Junk, but to Default as well...

Comments

Hal n back Silver Bug (not verified) Wed, 07/05/2017 - 00:05 Permalink

Madigan just put the final nail in the coffin. The jackass raised taxes by 5 billion. Now Illinois has been court ordered to pay 5 billion in past due Medicaid. Remember Obamacare pushed down Medicaid to the states. All states have this problem. Consequently, Illinois is no better off than it was in Fiscal year ended 6/30/17-it was underfunding  pensions, not paying for social services, not funding schools properly had to defer lotto payments and of course not paying vendors, Madigan is corrupt to say this is fixed. The state is in deeper trouble than before, if Moodys and S&P do not downgrade to junk, they are as culpable in this mess as Madican and State Legislators. The other house representives and senate members are either corrupt to pass this, inept or have no spine. On the other hand, this act will ensure the state goes bankrupt-probably soon as there is no money to be spent. Since there is no bankruptcy law for states, they had better devise one cause its going to get crowded. The foolish vendors should do what other creditors have done in free enterprice. sue the State for their money. That will create the bankruptcy. The state of illinois has been mismanaged for decades.Also remember all the teachers in Illinois always said the kids come first? BS-its is always about the teachers(and you good teachers out there are tarnished by the bad) The teachers 30 years ago went on strike every 3 years for bigger raises--in a corporation thats losing money, it was like hitting ones head against the wall--public workers? no way.Madigan screwed the current teachers and students with this current budget, he screwed the welfare system in IL. For him, the union workers come first. Screw everone else, not jsut the taxpayers but the people who need social service the schools and IL can now forget getitng good quality vendors to do anything.And the union public workers  pensions? They will also run out of assets in the not too distant future. Too bad all the smart union bosses and teachers did not work out a good deal that actually worked. Not to mention the spiking and retiring early, etc.  

In reply to by Silver Bug (not verified)

vato poco Cabreado Tue, 07/04/2017 - 22:37 Permalink

too fuckin' funny. "the real problem here on this sinking ship is we just haven't been re-arranging the deck furniture fast enough! well, this'll fix THAT!"prediction: IL ends up putting Natl Guard troops on their state lines to keep people from fleeing before CA doesHis name was Seth RichHer name was Monica Peterson#PizzaGate#WhatsontheLaptops#WhyUNoIndictWeiner#WhyUNoIndictPodesta#WhyNoPodestaLeaks#WhoRTheAwanBrothers#DraintheSwamp#BuildThatFuckinWall#TheyAllHaveToGoBack

In reply to by Cabreado

jerry_theking_lawler Cabreado Wed, 07/05/2017 - 18:16 Permalink

I 'agree' slightly with the one republican who voted for it....in the fact that you must PAY FOR IT NOW. He should have went a step further and demanded a balance budget bill so that if they want it, they must tax someone for it. No more borrowing to finance their largess....this would change alot of things in that State, and quick. Their rates would go up 200% at least just to try and get it even. Then you would see it turn Red quick....or population drop by 50%.

In reply to by Cabreado

CoCosAB Tue, 07/04/2017 - 18:45 Permalink

What are tax slaves good for? PAYING TAXES... of course! DO NOT FORGET! KEEP VOTING! IT WILL CHANGE THE SYSTEM! KEEP WORKING! KEEP CONSUMING! KEEP OBEYING!

Keyser WFO Tue, 07/04/2017 - 20:23 Permalink

There are more transplants from Mexifornia in Texas than from any other state and they are all statists... I lived in Texas a long, long time before leaving the country for good and used to welcome these folks on a regular basis, while telling them to leave their politics in Mexifornia... The look on their faces was priceless... 

In reply to by WFO

Déjà view Keyser Tue, 07/04/2017 - 22:25 Permalink

Tejas = Sirens...movers beware!

-Bring an Español dictionary...
-2nd highest per capita combined state/local debt...
-CAB Bonds galore...financial weapons of mass destruction when due...CAN WAS KICKED DOWN ROAD 20-30 YEARS...ignorant something for nothing electorate...constantly approving opaque cost bond issues...
-81 muni pensions with MUCHO problems...some not reporting to state comptrollers office...
-$70m-$ H.S. football stadiums et al slam business with heavy property taxes...
-51 FIFTY-ONE TOLL ROADS...
-Illegals receive instate tuition...Tejas first state to introduce back in 2001...

ENJOYING HOUSTON STREET SIGN NAMES IN CHINESE/VIETNAMESE...

Shì Señor!

In reply to by Keyser

Blankone WFO Tue, 07/04/2017 - 22:01 Permalink

The people of the Tejas portion have NO idea of the powder keg that has been built and is set to self actualize. Even the rural people think they have such a colorful mix of culture. But now the mexicans have so populated the region the long held undercurrent that - the mexicans were never treated right and the land was taken (and often it was) from rightful ownership of mexicans - just needs a few sparks. The mexicans will exert their will and take the dominant position. And there will be forms of retribution felt by the whites.

Even the rural whites of Tejas go out of their way to show Texas Hospitality to the influx of Muslims and their mosques.

In reply to by WFO