After the longest state budget crisis in modern history, Illinois lawmakers voted on July 6 to overturn Gov. Bruce Rauner’s veto of a spending plan that included a major tax increase. Illinois finally has a budget after a bipartisan effort that included 10 Republicans and all 67 Democrats, but the state’s first full spending plan in two years will raise taxes across the state.
Two years without a budget
The Illinois government has been operating without a full budget since July 1, 2015, after House Speaker Democrat Michael Madigan proposed a new budget plan that would spend $3 billion more than the state could pay, making up for the difference by borrowing. Newly sworn in Gov. Bruce Rauner rejected Madigan’s plan, instead pushing for what he called a turnaround agenda — a series of reforms and spending cuts designed to save the state money. A supplemental budget passed in August 2015, and the state has subsisted without a full spending plan since.
After spending 736 days without a budget, the Illinois government is now burdened with billions in debt — $251 billion owed in pension benefits and $15 billion in unpaid bills, according to Moody’s investor service. Standard and Poor’s, the credit rating agency that analyzes companies and organizations, threatened to lower the state government’s credit rating to junk status, the lowest possible rating, if it didn’t pass a budget by July 8.
What happens to MAP grants?
The Monetary Award Program (MAP), a state-funded program that provides about $10 million in financial assistance to about 2,400 Loyola students each year, was left unfunded beginning in 2015, forcing numerous colleges and universities to cover the costs themselves. In case the funding never came through, Loyola planned to set aside $10 million, reducing its hiring and cutting back spending across the board, according to Loyola’s Vice President for Government Affairs Philip Hale.
The new budget provides colleges and universities in Illinois with $365 million for the 2016-17 school year — about the same as in 2015, according to Hale.
“[The new budget] includes MAP both for the current fiscal year, which ends on June 30, 2018, but retroactively it funds MAP for last year,” Hale said. “Since Loyola already included MAP grants in our own award packages last year, basically what this means is that the university will be reimbursed by the state.”
The budget also increases the amount of aid Loyola will receive to about $401 million in 2018, allowing more students to receive financial aid, Hale said.
Why was there a budget impasse in the first place?
Illinois has been plagued by budget issues since the mid 1990s, when, despite already struggling to pay its pension obligations, the state’s spending began to outpace its revenue, forcing state lawmakers to either cut spending or raise taxes.
After his inauguration in 2015, Rauner began trying to revitalize the Illinois economy through a series of economic reforms, citing stagnant job growth, high costs and faltering business as concerns. State Democrats, who control the Illinois House of Representatives, made several budget proposals that included tax increases to raise state revenues, but Rauner refused to sign any budget proposal that would raise taxes.
What happens now?
Part of the new spending package includes a state income tax increase from 2.75 percent to 4.95 percent. This is the fifth income tax hike in the last 50 years and the highest income tax rate in Illinois since 2011, when state lawmakers voted to increase the rate to 5 percent, followed by a reversal in 2015 back to the original rate of 2.5 percent.
All people who work in Illinois will be affected by the increases. For a college student working part-time at Chicago’s minimum wage of $10.50 per hour, annual income tax will increase by one to two hundred dollars per year.