Democratic leaders in the Illinois General Assembly say they have an agreement with Governor Pat Quinn to raise income taxes and corporate levies to help eliminate a budget deficit of at least $13 billion this year.
The Democratic plan includes about $12 billion in borrowing to make pension contributions and pay bills. The components of the revenue-generating package could change, Senate President John Cullerton, a Democrat, said yesterday.
Illinois’s worst financial crisis is prompting the proposal to raise the state’s 3 percent personal income tax to 5.25 percent. Two percentage points of that increase would be temporary, lasting three years, Cullerton said.
“It’s the right time to do it because we’re in desperate need to pay our bills,” Cullerton told reporters at the state capitol in Springfield.
Patty Schuh, a spokeswoman for the Senate minority leader, Republican Christine Radogno, didn’t immediately respond to a call yesterday seeking comment.
“At least the state is doing something on the revenue side,” said Paul Brennan, a senior vice president in Chicago for Nuveen Asset Management, which holds $73 billion of municipal securities. “It’s a very large, substantial tax increase but it’s a little disappointing that there’s not much yet on the expense side.”
During the legislative session that ends at midnight Jan. 11, the Senate has been considering a bill authorizing the state to sell $3.7 billion in bonds to make this year’s payment into underfunded state pensions.
The Democratic proposal was developed in a meeting with Quinn, a Democrat, and House Speaker Michael Madigan, Cullerton said. The increase in the corporate tax rate would raise an additional $1 billion annually, he said. The cigarette levy would also go up by $1 per pack, raising about $377 million a year, Cullerton said.
Illinois faces a backlog of more than $6 billion in unpaid bills. In November, the state sold $1.5 billion of bonds supported by tobacco-settlement payments to help pay vendors.
Illinois shares with California the lowest U.S. state credit rating from Moody’s Investors Service, which in September forecast possible “further financial deterioration.”