This Week in Illinois: End of Session 2019 Update

BUDGET

Bipartisan, balanced budget passed after inclusion of House Republican-backed business reforms. As the General Assembly’s May 31 scheduled adjournment approached, intense negotiations took place in a bipartisan, bicameral effort to reach a deal on a balanced budget and capital infrastructure plan.

Under the leadership of House Republican Leader Jim Durkin and Deputy Leader Tom Demmer, House Republicans insisted that key business reforms be included in the budget and capital plan. These reforms will make Illinois a better place to create jobs and grow capital investment and were strongly backed by the Illinois Manufacturers’ Association, the National Federation of Independent Business, the Illinois Retail Merchants Association and other business groups.

After the legislative leaders and Governor Pritzker reached an agreement on the inclusion of these reforms, the House took action on May 31 to pass a $40.6 billion balanced Fiscal Year 2020 budget.

Senate Bill 262 contains the operating budget for FY20, including a total GRF spend of $40.6 billion which matches the available revenue from FY20. It includes $1.2 billion to pay down the backlog of bills and makes the full FY20 certified contribution to the state pension systems. 

The FY20 balanced budget does the following:

  • Puts an additional $375 million into the Evidence-Based Funding Formula ($25 million more than statutorily required)
  • Puts an additional $50 million towards early childhood education
  • Contains a 5% increase to university and community college operations
  • Adds an additional $50 million for MAP grants
  • Adds an additional $10 million towards AIM HIGH scholarships ($35 million total)
  • Includes additional funding for the Home Services Program, Supportive Mental Health Housing, Community Based Services for Developmentally Disabled, Developmentally Disabled/Mental Health, Addicted Treatment Related Services, and Early Intervention Program 
  • The budget contains $29 million for census participation
  • Includes funding to complete two ISP cadet classes, of approximately 170 sworn officers 

SB 262 passed the House by a vote of 83-35-0 and passed the Senate on Concurrence by a vote of 40-19-0. It was signed into law by the Governor on June 5 as Public Act 101-0007.

House Republican Leader Jim Durkin released the following statement on the end of this year’s legislative session:  

“The end of this legislative session was another historic moment for the House Republicans. Not only did we pass a bipartisan, balanced budget without any tax increases, but we also achieved significant business reforms for our communities that will boost the economy across our state. As I’ve said before, we can get great things done for Illinois families as long as we respect the principles and priorities of each caucus. In doing so, we have passed historic education reform, two bipartisan, balanced budgets and now important reforms that will grow jobs. I am proud to have worked with the legislative leaders and the Governor to finally do what’s right for Illinois families and businesses.”

Key Business Reforms include:

  • Creation of the Blue Collar Jobs Act – which will attract large scale construction projects.
  • Creation of a Data Center Tax Incentive – which will enhance the state’s ability to locate data centers in Illinois by providing tax incentives.
  • Reinstatement of the Manufacturer’s Purchase Credit – to encourage further investments in manufacturing in Illinois. 
  • Elimination of the antiquated Illinois Franchise Tax.
  • Elimination of cap on the Retailer’s Discount.
  • Tabling of Senate Bill 1407 – a bill that aimed to impose wage and regulatory requirements on refineries, ethanol plants, and chemical facilities

Senate Bill 689 contains the FY20 operating budget revenue and key business reforms. It passed the House by a vote of 107-9-0 and passed the Senate on Concurrence by a vote of 49-8-1. SB 689 was signed into law as Public Act 101-0009.

Senate Bill 1814 creates the FY20 Budget Implementation Act (BIMP bill) which makes the changes in State programs that are necessary to implement the FY20 budget recommendations. SB 1814 passed the House by a vote of 97-17-1 and passed the Senate on Concurrence by a vote of 52-6-0. It was signed into law as Public Act 101-0010.

CAPITAL PROGRAM

First capital infrastructure program in a decade passed by the General Assembly. Illinois has not had a major capital and infrastructure package since 2009. In the decade that has passed since the last capital program, Illinois’ roads, bridges and building infrastructure has continued to decay, leading to massive capital needs across the state.

State Facilities
Estimated deferred maintenance needs at state facilities alone total nearly $7.8 billion, and grows at an average of $500 million per year. 

Higher Education
Deferred Maintenance needs in Higher Education total $6.7 billion and continue to grow. 

K-12 Education
K-12 Deferred Maintenance needs are close to $9.3 billion, and are currently funded mostly by local property taxpayers. Schools are still waiting on capital grants for projects submitted in 2004.

Transportation
Illinois’ motor fuel tax has not been increased since 1990. Inflation, better fuel economy, fund sweeps, and additional road and bridge requirements have eroded state support to horizontal capital. Illinois roads and transit systems have $30 billion in deferred maintenance needs 

The American Society of Civil Engineers (ASCE) gives Illinois a C- on their annual infrastructure report card, including a D for roads.

A 2017 assessment of Illinois’ transportation system finds that it is broken, in these ways:

  • If no significant investment is made in state transportation funding, nearly 40% of road miles and 20% of bridges will be in unacceptable condition by 2022.
  • Large portions of Chicago’s CTA transit rail system are in such disrepair that trains must slow every day to reduce stress on the system and ensure passenger safety. On some lines, “slow zones” are as much as 30 percent of the total length.
  • Northeastern Illinoisans lose an estimated $8.2 billion a year in productivity from traffic congestion, Chicagoland Operators estimate.

Ongoing Problem
An estimated 6,089 miles of state highways needed repair in 2002, that total grew to 7,458 miles by 2008 and was on pace to hit 8,687 miles by 2012. The State’s 2009 capital construction program, Illinois Jobs Now, and federal stimulus program helped slow the growth. The total backlog grew from 2,560 miles in 2012 to 3,292 miles in 2017. By 2022, the number grows by another 2,000 miles to 5,588 miles in disrepair.

Bridge Repair
There are more than 660 bridges in less than acceptable condition right now in Illinois. By 2022, over 1,000 bridges will be in less than acceptable condition. 

Given the massive list of capital infrastructure needs, the Governor and General Assembly spent months negotiating a new capital and infrastructure package, named “Rebuild Illinois.” In total, the Rebuild Illinois program includes $45 billion in funding for both vertical (buildings) and horizontal (transportation) capital improvement projects.

House Bill 62 contains the capital appropriations for Rebuild Illinois. It appropriates moneys from the Capital Development Fund, the School Construction Fund, the Anti-Pollution Fund, the Transportation Bond Series A Fund, the Transportation Bond Series B Fund, the Coal Development Fund, the Transportation Bond Series D Fund, the Multi-Modal Transportation Bond Fund, and the Build Illinois Bond Fund, among other funds, for specified purposes. HB 62 passed the Senate by a vote of 53-6-0 and passed the House on Concurrence by a vote of 95-18-1.

House Bill 142 contains the bond authorization for Rebuild Illinois. It amends the General Obligation Bond Act. Increases the amount of bonded indebtedness by $20,538,914,226, from $57,717,925,743 to $78,256,839,969. Specifies the uses for which the additional moneys may be used. Expands the Funds used to determine the debt limit to include the Fund for the Advancement of Education, the Commitment to Human Services Fund, the Budget Stabilization Fund, and the State Construction Fund (currently, GRF, the Common School Fund, the General Revenue Common School Special Account Fund, and the Education Assistance Fund). 

HB 142 further amends the Build Illinois Bond Act. Increases the amount of bonded indebtedness authorized by $3,238,672,100, from $6,246,009,000 to $9,484,681,100 and specifies the uses for which the additional moneys may be used. Increases the amount for grants to school districts for school improvement projects authorized in the School Construction Law by $59,403,700, from $3,050,000,000 to $3,109,403,700. Creates the Mass Transportation Bond Fund. Proceeds from the sale of bonds for rail transportation shall be deposited into the Multi-modal Transportation Bond Fund. 

HB 142 passed the Senate by a vote of 53-6-0 and passed the House on Concurrence by a vote of 94-20-0. 

Senate Bill 690 includes the vertical capital revenue, gaming expansion and sports betting components of Rebuild Illinois. It enacts comprehensive FY20 tax language, gaming expansion, and authorizes sports betting, including (a) language governing collections of online Illinois sales taxes, (b) a new tax on motor vehicle parking lot services, (c) language to grant an income tax credit for the construction of data centers sited in Illinois, (d) language capping the motor vehicle trade-in sales tax credit at $10,000, (e) an increase in the Illinois state cigarette tax from $1.98/pack (current law) to $2.98/pack, (f) the new Illinois Works Jobs program, (g) sports wagering, (h) slots and table games at tracks, (i) a 4,000-gaming-position Chicago casino, (j) five new riverboat licenses at Danville, Rockford, South Cook County, Walker’s Bluff, and Waukegan, (k) authorization for increased gaming positions at existing casino riverboats, (l) an authorization for riverboat casinos to move to on-land locations, and (m) video gaming expansion. SB 690passed the House by a vote of 87-27-0 and passed the Senate on Concurrence by a vote of 46-10-2.

Senate Bill 1939 includes revenue for the horizontal capital components of Rebuild Illinois. It provides for $2 billion in annual funding for transportation infrastructure across the state by making the following changes: 

  • Motor fuel tax (MFT) increase of 19-cents per-gallon on gasoline and 24-cents per-gallon on diesel. (Rates are indexed to inflation).
  • Sales Tax on Motor Fuels: beginning July 1, 2021, proceeds are incrementally transferred to Road Fund over 5-year period (1% of the 6.25% in the first year, then 2% in the second year, up until 5% starting July 1, 2025). Retains 1.25% sales tax portion to local governments.
    • Revenues from increase to special fuels deposited into Road Fund.
    • Revenues from increase to gasoline deposited into new Transportation Renewal Fund.
  • Creates the Transportation Renewal Fund that is funded by proceeds from increase in MFT.
    • 80% for roads and bridges; of that: 
      • 60% to State Construction Account Fund.
      • 40% to Local Governments (identical to existing distribution to local governments).
    • 20% for transit (90% RTA, 10% downstate).
  • Passenger Vehicle Registrations increased by $50, with $49 of proceeds deposited into Road Fund ($1 to State Special Services Fund) for a total registration fee of $151 per-year. 
  • Electric Vehicle Registrations: equal to other passenger vehicles plus a $100 additional fee for a total registration fee of $251 (currently $17.50).
  • Truck Vehicle Registrations: Increased by $100, with $99 of proceeds deposited into Road Fund ($1 to State Special Services Fund). 
  • Certificate of titles: Increase by $55 for standard vehicles, but reduces fee for duplicate certificates by $45; adds other fees for salvage certificates, junking certificates, and motor home certificates. 
  • Commercial Distribution Fee: repealed on July 1, 2020.
  • Provides that Cook County may impose a local motor fuel tax up to 3-cents per-gallon by local ordinance.
  • Adds Lake and Will County to the list of counties that may impose a local motor fuel tax. The local motor fuel tax may be up to 8 cents.
  • Provides for a $50 million annual IDOT program for pedestrian and bicycle facilities and the conversion of abandoned railroad corridors to trails.

SB 1939 passed the House by a vote of 83-29-1 and passed the Senate on Concurrence by a vote of 48-9-1. 

TAXES

Democrats advance Gov. Pritzker’s graduated tax hike. On Memorial Day, the Democrat super-majority passed a graduated income tax amendment out of the Illinois House of Representatives, over strong Republican objections.

SJRCA 1 was adopted by the House on a partisan vote of 73-44, with all Republican members voting ‘No.’ As the constitutional amendment resolution was previously adopted by the Illinois Senate, it will be placed on the November 2020 general election ballot for voter approval or disapproval.

House Republican Leader Jim Durkin released the following statement on the passage of the graduated tax amendment (SJRCA 1) from the House Chamber:

“Today’s vote on the graduated tax amendment is another step in robbing the pockets of Illinois businesses and families. For more than 30 years, the House Democrats and Speaker Madigan have controlled the finances of our state which has resulted in Illinois having the highest overall tax burden in the entire nation. The House Republicans will continue to stand united against the majority party’s insatiable desire for higher taxes that has caused businesses and families to flee the state in droves.”

Democrats also passed Senate Bill 687, which contains their proposed graduated income tax rates. It amends the Illinois Income Tax Act to impose a graduated income tax rate structure on individuals and increase the income tax rate on corporations. Provides that on or after January 1 2021 (pending voter approval of SJRCA 1), the following income tax rates apply: 

Leader Durkin released the following statement on Governor Pritzker signing SB 687 Wednesday:

“For two years in a row, Republicans and Democrats have proven that we can balance the state’s budget with no new taxes on Illinois families. However, the graduated tax rates signed into law today are simply the next step to giving Illinois Democrats a blank check for uncontrolled spending for years to come. Illinois families should remain very wary on the rates that are being ‘promised’ today – as Democrats will continue to come back, year after year, and pickpocket more money from Illinois families and businesses.”

The graduated income tax proposal rammed through by the Democrats will raise taxes on Illinois families and businesses by at least $3.4 billion. These are the same Democrats who raised taxes twice (2011 and 2017), yet failed to ever pass a truly balanced budget.

This proposal is exactly what Republicans have been saying it would be – no protectionsfor middle-income families and businesses and a blank checkfor Democrats. There are no provisions in placeto prevent future rates from being raised. It will now be easier for Democrats to raise the ratesunder their plan, as they’ve put forth in this proposal.

Illinois residents are already paying the highest combined state and local taxes in the nation, in addition to some of the highest property tax rates in the nation. We believe the Democrats’ graduated tax hike proposal puts families and businesses even more at risk.

The current Illinois Constitution provides safeguards and protectionsfor middle-income families that we desperately need to keep in Illinois. It helps to force lawmakers to face economic and spending realities. 

As Leader Durkin said, “If the Democrats were sincere about protecting the middle class, then they should have the rates that they are proposing incorporated in the Constitution. Because otherwise, they will be subject to change by the same people that raised taxes over the last 10 years, and you just can’t trust them.”

We cannot trust Democratsin Springfield at their word on this because they’ve lied to Illinois families and businesses over, and over and over again. Illinois families can’t afford to give Democrats a blank check.  

MARIJUANA

Illinois General Assembly passes bill to legalize recreational marijuana. On the final day of the regular spring session, the House of Representatives passed legislation legalizing the recreational use of marijuana in Illinois.

House Bill 1438 creates the Cannabis Regulation and Tax Act. It allows for the recreational use of cannabis by individuals over the age of 21. Illinois citizens may possess up to 30 grams of cannabis and out of state individuals may possess up to 15 grams. Medical cannabis patients may grow up to 5 plants in their residence. 

It expunges arrest records for possession of cannabis up to 30 grams. For individuals who have convictions for possession of up to 30 grams, the Governor will pardon those individuals and the Attorney General will file a petition to expunge. For those individuals convicted of possession between 30-500 grams, they may file a motion to vacate or expunge their records. 

HB 1438 also creates the Recovery, Reinvest, and Renew (R3) grant program, which will invest in communities hit by economic disinvestment and violence. 25% of revenue generated by the Act will go to the R3 program.

It allows for additional dispensaries (in addition to medical cannabis dispensaries) and cultivators, and adds licenses for craft growers, infusers, and transportation organizations. Local governments may reasonably zone where craft growers and dispensaries may be placed. Local governments may opt out of having cannabis-related businesses within their borders. 

Taxation on cannabis: 7% on cultivators, 10-25% on purchase of cannabis, up to 3% excise tax by municipalities, up to .75% for counties, and up to 3.75% for unincorporated areas. 

As more and more states move toward legalizing the use of recreational cannabis, proponents argued that HB 1438 is a reasonable answer to the question how do we tax and regulate this emerging industry. While many are uncomfortable with the concept of legalizing cannabis, the fact is that this is the direction the nation is moving.

This legislation provides for public safety, taxpayer protections, workplace protections, and local control. It contains similar provisions to laws regulating the consumption of alcohol, like a prohibition on driving a car under the influence. It incorporates laws that will deter and punish use by minors – including a zero tolerance policy for those under 21 who drive under the influence of cannabis. Employers are given the strongest policy protections in the nation, allowing for a “drug free” workplace. Local municipalities and counties may opt out at any time and can tax cannabis up to 3.75%.

Opponents pointed out that nothing in this legislation changes the fact that cannabis is still a Schedule 1 Controlled Substance which remains illegal under federal law. They argued that the bill will not raise nearly as much revenue as proponents expect; instead, it will place additional burdens on taxpayer dollars to pay for drug treatment and the negative health effects of chronic marijuana use. Opponents believe that legalizing marijuana is a terrible way to raise money for the State and that it will cause more harm than good.

House Bill 1438 passed the Senate by a vote of 38-17-2 and on May 31, the House concurred with Senate Amendment 2 by a vote of 66-47-2.

REVENUE

May 2019 State revenue numbers come in flat year-over-year. The May 2019 report from the nonpartisan Commission on Government Forecasting and Accountability (COGFA) covers the next-to-last month of State Fiscal Year 2019. Revenue numbers make clear that the FY19 budget, in contrast to previous years, will end the year in the black. State general revenues, earned from sources such as income and sales taxes, continued to come in at the healthy level established one year earlier. Sales tax revenues, which benefitted from the State’s imposition of sales taxes upon distance purchases made over the Internet, were particularly strong during this 31-day period, with revenues rising by $107 million in May 2019 as opposed to May 2018. This rate of year-over-increase is expected to drop off sharply in the near future as the State “annualizes” its new Internet sales tax collection apparatus. Credit rating firms such as Standard & Poor’s have said mildly good things about Illinois’ revenue numbers in recent months, although Illinois’ credit rating continues to be negatively affected by its many years of structural deficits and uncontrolled spending.