Shortly after the Illinois House passed an income tax increase Sunday, Gov. Bruce Rauner announced plans to veto the bill, citing a lack of reforms that influenced his decision.
"When I took office, I promised the taxpayers of Illinois that I would fight every day to take this state in a new direction after decades of failed leadership from both parties," Rauner, a first-term Republican, said in a statement.
"Today, Springfield has decided to give the people of Illinois the largest tax hike in history and continue out of balance budgets with no real reform. Under Speaker Madigan’s direction, legislators chose to double down on higher taxes while protecting the special interests and refusing to reform the status quo. It’s a repeat of the failed policies that created this financial crisis and caused jobs and taxpayers to flee," he continued.
The income tax increase cleared the House on a bipartisan vote of 72 to 45, while an accompanying spending plan passed 81 to 34, a major development in ongoing negotiations to end Illinois’ historic budget impasse.
"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. But tonight they got more of the same."
The bills passed on the second day of the state’s third straight fiscal year without a budget – a stalemate that has left Illinois with a $6.2 billion annual deficit and a $14.7 billion backlog of overdue bills. [[431431973, C]]
The tax hike would have permanently raised the personal income tax rate by 32 percent, from 3.75 percent to 4.95 percent, while the corporate tax rate would have gone from 5.25 percent to 7 percent.
Both increases were similar to the proposal that passed the Illinois Senate in May, and were projected to raise roughly $5 billion in revenue by restoring rates to almost exactly where they were before the temporary, four-year increase was allowed to expire in 2015.
Since taking office that same year, Rauner has demanded a series of non-budgetary items like a statewide property tax freeze and workers’ compensation reform, among others, in order to agree to a deal to end the impasse.
"For two and a half years we have been working to find common ground on a balanced budget," Rauner’s statement continued. "As recently as two days ago we believed that was possible. The legislature could have passed a no reform budget like this one two years ago. Instead, they allowed Mike Madigan to play his political games, passed phony budgets, racked up our debt and inflicted pain on the most vulnerable. All of this to force a permanent, 32 percent tax increase on Illinois families," he added.
"Moving forward, this vote shows that if the legislature is willing to pass the largest tax hike in state history with no reforms, then we must engage citizens and redouble our efforts to change the state," his statement ended.
Both the tax increase and the roughly $36 billion spending proposal head back to the Illinois Senate for concurrence. A spokeswoman for the governor did not immediately respond to a request for clarification on whether Rauner also planned to veto the appropriations bill.
Both measures passed the Illinois House by a margin that would enable lawmakers to override Rauner’s veto. A similar tax hike garnered 32 votes when it passed the Senate in May, but will need 36 to override a veto.
Democratic House Speaker Michael Madigan called Sunday's votes "a crucial step toward reaching a compromise," highlighting in a statement that the legislation cuts billions of dollars in spending while generating new revenue.
"There is more work to be done, and we will continue working with Republicans to ensure the issues still on the table are fully resolved," Madigan said in a statement.
Without a budget, credit agencies have warned that they plan to downgrade Illinois’ bonds to “junk” status, making it more expensive for the state to borrow money at higher interest rates, ultimately deepening the deficit and potentially costing taxpayers millions of dollars for years to come.
State Comptroller Susana Mendoza has also forecasted that the state will soon be unable to continue to pay for basic services as legally required by a patchwork of court orders.
Already, lottery ticket sales have halted and road construction could soon do the same, putting thousands of people out of work.
If no agreement is reached, schools across the state will also not receive state aid and may be unable to open in the fall.
Illinois is the only state to ever go two years without passing a budget, according to the National Conference of State Legislators.