The Illinois House on Sunday approved a major income tax increase as more than a dozen Republicans broke ranks with Gov. Bruce Rauner amid the intense pressure of a budget impasse that's entered its third year.
The Republican governor immediately vowed to veto the measure, saying Democratic House Speaker Michael Madigan was "protecting the special interests and refusing to reform the status quo."
The measure, which needed 71 votes to pass and got 72, is designed to start digging the state out of a morass left by the lengthy stalemate. Madigan, in a statement, praised the action as "a crucial step toward reaching a compromise that ends the budget crisis by passing a fully funded state budget in a bipartisan way."
The tax hike now heads to the Senate, but whether there will be enough votes to send it to Rauner's desk is in question. When the Senate approved its own tax hike in late May, no Republicans voted for it and several Democrats voted against it. Senators return to the Capitol on Monday.
The crucial vote in the House was the big story Sunday, though. Ultimately, pressure that had built up in districts across the state moved enough Republicans to defy the governor.
With state government operating without a budget for two full years, public universities risk losing their accreditation, social service providers are closing their doors and layoffs of road construction workers are imminent. Adding to lawmakers' anxiety was a promised downgrade of the state's credit rating to junk status, which could spike the cost of borrowing at a time when the state has $15 billion in unpaid bills.
Left out of the House budget package was a plan for dealing with the unpaid bills, though both sides generally agree that some amount of borrowing will be needed.
Rauner, a former private equity specialist from Winnetka, had spent tens of millions of dollars on legislative campaigns and TV ads to prop up the Illinois Republican Party as a counterweight to Madigan and his labor union allies. And Republican lawmakers largely had stuck by their governor until Sunday.
A pair of Downstate Republicans summed up the split.
"For me right here today, right here, right now, this is the sword that I'm willing to die on," said Rep. Michael Unes, a Republican from East Peoria. "And if it costs me my seat, so be it."
Rep. Terri Bryant, R-Murphysboro, said while she hated taxes, as a fiscal conservative she could not stand by while the state cannot pay billions of dollars in bills owed to small businesses.
Bryant teared up when explaining that she must do what is best for her district, which includes Southern Illinois University in Carbondale.
"I hope you will help me bring my university back," said Bryant, who added that she expected to face a primary challenge because of her vote.
Fifteen Republicans broke ranks with Rauner to join 57 Democrats in voting for the tax hike. A dozen Republicans were from Downstate, where many of the state's public universities, prisons and other state facilities are located. Another three were from the suburbs.
Getting so many Republican votes allowed 10 Democrats to vote against the tax increase. Six are from the suburbs and four Downstate, and all are potentially targeted for defeat next year by the Rauner-funded Illinois Republican Party.
Democratic leaders portrayed the vote as an attempt to let rank-and-file lawmakers from both sides do something to show their seriousness about putting an end to the budget stalemate in the face of concerns the state's credit rating will hit a first-in-the-nation junk status.
Republican leaders, though, saw it as a politically motivated attempt to force those in their ranks into a corner. Shortly before voting began, Democrats introduced revamped tax and spending plans, prompting House Republican Leader Jim Durkin to say the process had been "hijacked."
Following the vote, Durkin rejected the notion that the outcome amounted to a defeat for Rauner and Durkin's own leadership of House Republicans. The governor had kept out of the public eye during much of recent negotiations, and Durkin assumed the role of Rauner's proxy in the talks with Madigan and Democratic Senate President John Cullerton.
Durkin said House Republicans who voted for the tax increase succumbed to intense pressure made worse by the belief that Democrats would not cave on the changes Rauner wanted.
"There's going to be another vote on this, but the fact is we've done a pretty good job over the last three years hanging together," Durkin said. "I knew this was going to be a tough vote. I'll let my members decide how they characterize me after today. I've done what I could to operate in good faith and keep my caucus together."
Durkin noted that the vote may not mean Illinois is out of the woods when it comes to a potential credit downgrade.
"It is not law yet. It is not law," Durkin said. "I don't know how much value the bond houses put into legislation that is facing a veto from the governor."
Sponsoring Rep. Greg Harris, Madigan's top budget negotiator, said during debate that it was time for lawmakers to "rise above" the partisan gridlock of the past several years that is likely to have repercussions for years to come.
"Today, we can change the awful trajectory of the last several years. We can vote. We can do our jobs. We can get it done," Harris said. "We all love this state, and we know we cannot delay any longer."
Just two days earlier, nearly two dozen Republicans had joined Democrats to tentatively approve a spending plan, with Madigan and Durkin telling lawmakers the vote was an expression of good faith as negotiations continued.
State spending has been on autopilot during the impasse, vastly outpacing revenues after the January 2015 expiration of a temporary income tax increase.
The proposal mirrors a plan the Senate passed earlier this year and calls for raising the personal income tax rate from the current 3.75 percent to 4.95 percent, which would generate roughly $4.3 billion. An increase in the corporate income tax rate from 5.25 percent to 7 percent would bring in another $460 million.
Unlike the Senate measure, the tax hike would not be retroactive to Jan. 1 but instead would begin with the Saturday start of the budget year. That change, sought by Republicans, was designed to avoid having people pay even more in income taxes the rest of the year to catch up for the past six months. Also out is an expansion of sales taxes to some services. The tax hike would be permanent, against Rauner's desire to make it temporary to match a temporary property tax freeze he is seeking.
The legislation would also reinstate the research and development tax credit, which would expire in 2022, and increase the earned income tax credit for low-income families. It also ends several corporate tax breaks, including those for companies that operate on the continental shelves or shift production out of state.
After approving the tax increase, House lawmakers quickly signed off on a reworked spending plan that would funnel funds to local schools, social service programs, higher education and other state operations such as the lottery, prisons and road projects. That measure passed 81-34, receiving nine more votes than the tax plan that was needed to cover the cost of the spending.
Under the revised budget blueprint, the state would spend a little more than $36 billion, a roughly $400 million cut from the plan House Democrats first floated. Universities would see cuts of 10 percent instead of the 5 percent in the earlier proposal.
The budget also contains a provision that would prevent monthly school aid payments from going out unless there's also an "evidence based" funding model, an attempt by Democrats to force Rauner to sign a measure they've already passed to revamp how dollars are doled out to schools. Rauner has said that plan amounts to a bailout for troubled Chicago schools.
The Sunday House tax vote capped a tumultuous three days. By Saturday morning, the tone of optimism that had briefly overtaken the Capitol on Friday had started to shift. Madigan announced that no votes would occur on Sunday, which would have given his members some time to go home for a few nights. Durkin accused Madigan of trying to slow momentum.
That dispute sparked angry outbursts on the floor. Rep. Grant Wehrli of Naperville shouted that Madigan was "Speaker Junk," a reference to the anticipated credit rating downgrade to junk status as the state entered a new fiscal year without a budget in place.
Hours later, Madigan reversed course and announced his plans to put the tax plan up for a vote on Sunday, even though it was clear Durkin would not deliver the 30 GOP votes the speaker has asked of him. Democrats said it was time to see who was ready to vote for a tax hike, saying that some Republicans have expressed a desire to break from Rauner and support the plan.
Indeed, Rep. David Harris, R-Arlington Heights, voted in favor of the tax bill, saying Sunday that he was not elected "to preside over the financial destruction of this state."
"How many of our business people have told us they need stability?" Harris said. "This revenue bill gives them that, and it ends some of the horrible dysfunction that has infected our government."
Rep. Reggie Phillips, R-Charleston, whose district is home to Eastern Illinois University, said he credited the state's college tuition grant program for making it possible for him to attend college. He also noted that he is a business owner in Charleston and the financial troubles caused to universities by the state budget impasse have rippled into university towns.
"I'd like to save my university. I'd like to save my town," Phillips said. "And so although it's against some of the principles that I came here for, I am going to vote for this bill."
While Rauner has said he could support a tax hike, his signature comes with a list of conditions.
Rauner is pushing for a property tax freeze in exchange for his approval of an income tax hike. Democrats are open to a four-year freeze, but the governor argues that if a freeze is temporary, the income tax increase should also be temporary. Democrats have opposed that, saying it will lead to more financial problems down the road.
Another holdup centers on Rauner's push to overhaul the state's workers' compensation system. Rauner wants to cut fees doctors get for treating patients, which advocates say will help businesses control costs. Democrats say the fees were slashed several years ago and want tougher oversight of insurance rates, contending the industry hasn't passed along savings.
The Democratic-controlled legislature has yet to meet Rauner's conditions, and the governor blasted them Sunday.
"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 in a statement. "Illinois families deserve more jobs, property tax relief and term limits. But tonight they got more of the same."
Rauner and his Republican allies have also pushed in negotiations to keep any eventual tax hike as low as possible. When House Democrats crafted their tax-hike bill, they kept rates at the level that Senate Republicans had insisted upon when negotiations were taking place in the Senate.
That left some Democrats dissatisfied with the amount of money that would be available to fund programs and services that have been starved of cash for the past two years.
Rep. La Shawn Ford, D-Chicago, said the budget plan was "not a compassionate budget," and was instead a "compromise that's brought on by the threat of a junk bond rating, not by the pain of the people."
mcgarcia@chicagotribune.com
kgeiger@chicagotribune.com
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Madigan's House approves major income tax hike as Republicans break with Rauner - Chicago Tribune