The state of Illinois finally has budget after the state’s House of Representatives voted on Thursday to override Republican Governor Bruce Rauner’s rejections of its financial plan ending more than two years of passage for the bill.
About 15 Republicans joined the Democratic Party in nullifying Rauner’s vetoes of the latest plan which includes budget expenses worth$36 billion with a $5 billion income tax increase at its core.
However, the new budget plan was not much of good news for a number of people in Illinois and there are still those financial issues that the state is trying to resolve.
$5 billion Income Tax Hike
Compared to Illinois’ past spending, the current budget is fewer by about $3 billion which corresponds to more than 7 percent of cutback and $1 billion less in spending.
The income tax increase was a big blow to state residents as it will ultimately raise 32 percent from 3.75 percent to 4.95 percent while corporations will be paying 7 percent instead of 5.25 percent.
The tax hike may also indicate cutting programs and services by more than $2 billion and as Illinois’ income tax is a flat one, it might put further pressure to employees’ household budgets.
A financial services company also said that the plan could likely devalue the state to junk bond grade regardless of the tax increase.
Moreover, despite the added money coming within weeks, after an unchecked autopilot spending that exceeded incoming revenue by $600 million a month, Illinois is still loaded with unpaid bills worth $14.7 billion.
The $5 billion tax rate raise may also be considered ineffective in terms of addressing Illinois’ $130 billion pension problem to retired and current state employees.
The $130 billion pension charge is one of the state’s biggest liabilities and the new budget is only taking small steps to sort out structural funding insufficiency of the state’s five retirement systems.
A $500 million in savings estimated by the budget would come out of the workers’ pension while a part of it will come through the creation of a new tier of pension beneficiaries which would include both standard pension and a 401(k)-type portion.
The problem with the tier is that a big part of it only applies to newly hired employees which beg the question of how Illinois is supposed to book those savings in the recent fiscal year.
The Illinois Education Association said that there was no proof that the pensioners would be affected negatively by the latest budget’s conditions but questioned why policymakers agreed to structural changes without independent financial analysis.
Civic Federation’s Laurence Msall stated that the pension strains will continue and so will Illinois’ monetary challenges but in any case there will be a structure to know there is a limit to the liability growth to the state.
Contrasting with Msall’s statement, Steve Malanga said the new budget’s solutions are not consistent with the trials dealt by Illinois.
He explained that the latest financial plan is the kind that someone would approve if the state ran into trouble and had a shortfall that is needed to be resolved over the next two or three years.
For this reason, it should not be the type of budget someone would pass if Illinois have $14.7 billion of overdue bills and a $130 billion unfunded liability.
On the bright side, the monetary plan may provide some relief for nonprofits that offered services without payment and college students who managed this past school year without access to Illinois’ needs-based Monetary Award Program.
They will be getting money from the more than $800 million in tax revenue that built up in special funds that were not used since legislators did not allocated the money.