Quinn's new budget: Illinois faces 'greatest crisis of modern times'

[March 19, 2009]  SPRINGFIELD (AP) -- Facing an unprecedented financial crisis, Gov. Pat Quinn proposed a budget that asks for "shared sacrifice" from a long list of Illinoisans: state employees, smokers, drivers and everyday taxpayers who would see their first income tax increase in 20 years.

"To be direct and honest: our state is facing its greatest crisis of modern times," Quinn told lawmakers in formally presenting his budget Wednesday.

Quinn called for raising the income tax to 4.5 percent, up from 3 percent. He proposed softening the blow by expanding a tax break that mostly benefits the poor and middle class, arguing millions of families would end up paying less under his proposal.

He also wants a sales tax "holiday" to help parents pay for back-to-school supplies.

Quinn asked lawmakers to support a $26 billion construction program that would build new roads, bridges and schools around the state, supporting some 340,000 jobs. Paying for the massive initiative would mean raising fees for driver's licenses, license plates and title transfers.

Quinn also wants smokers to pay more. He proposed increasing the tax on cigarettes, now 98 cents a pack, by an additional $1 over two years.

The governor knew he was asking a lot of lawmakers heading into an election year, telling those who offered a warm welcome as he took the podium: "I hope you're applauding at the end of this speech."

Quinn also clearly hoped to remind lawmakers -- and voters -- of the good will he has built up before and since his predecessor, Gov. Rod Blagojevich, was kicked out of office over corruption allegations.

"As we prepare for a better future, we must also make tough choices about cleaning up government right now," Quinn said during the 41-minute address. "Ethics reform is of paramount importance to me and the people of Illinois."

He called for giving Illinois voters the power to recall corrupt officials.

Silence greets tax-hike plan

Lawmakers interrupted him with applause at least 25 times, usually when he pledged to maintain spending for some project or proposed to create jobs. They were mostly silent when Quinn laid out his plan to raise taxes.

Quinn insisted he wants to trim government spending along with raising taxes. His budget plan includes about $1.3 billion in cuts, and he said a new "Tax Accountability Board" would scour the budget for other places to trim.

"I pledge this is only the beginning of the belt-tightening," Quinn said.

Quinn's budget plan is bound to trigger a battle with AFSCME, the influential union that represents state employees. He wants state employees to pay more for health care, take four unpaid furlough days and accept reduced retirement benefits in the future.

With an $11.5 billion deficit to erase, Quinn's budget contains few bright spots.

There's no money to reopen historic sites closed by his predecessor. Mental health grants would drop by $12 million. Spending on senior citizens and disabled people will be held flat.

Quinn inherited the budget mess following Blagojevich's ouster in January. He was suddenly scrambling to respond to a budget deficit that, driven by plunging tax revenues and increasing demand for services, grew from an estimated $7 billion to $9 billion to $11.5 billion.

The budget proposal depends on cutting some corners.

It would lower this year's contributions to pension systems by nearly $2.9 billion on the assumption that Illinois will save billions of dollars in coming decades by cutting retirement benefits for new state employees.

He also calls for dipping into special-purpose funds to pay for general expenses, keeping tax money that would otherwise go to local government and diverting state road fund money to help support the construction program.

That long-awaited construction plan also would be funded by raising the cost of license plates by $20, to $99, and doubling the $10 fee for a driver's license. Mass transit construction would get a boost from an increase in the vehicle transfer fee.

By one of the many ways to measure the state budget, Quinn's proposal would push spending to $52.9 billion in the fiscal year beginning July 1. That's up $2.1 billion, or about 4.1 percent.

Much of the increase comes from federal stimulus money the state will receive for education and Medicaid.

Tough sales job ahead

The governor has a tough sales job ahead of him. Many lawmakers are open to tax increases but only if they can show constituents how they will benefit.

Quinn is trying to demonstrate benefits by focusing on the increased exemption -- the amount of a family's income that is exempt from taxes. By tripling it to $6,000 per person, Quinn argues many families would benefit from his plan.

Any family of four making less than $60,900 a year would end up with a smaller tax bill, he says. But other taxpayers face a different picture. A single person making $60,900 would pay $630 more. A two-person household -- say, a single mother and her child -- would pay $420 more.

Republicans are generally opposed to an income-tax increase or a hike in the corporate tax.

Revenue from higher taxes will fall short of projections because people will change habits to shield income, said Rep. Mark Beaubien, R-Barrington Hills. Taxing businesses in this economy, he said, would be devastating.

"People won't expand their businesses, they'll leave the state," Beaubien said.

Quinn proposes raising the corporate income tax rate to 7.2 percent, generating $350 million. He also wants to end about $100 million in corporate tax breaks, a proposal that has often been rejected in the past.

"There's something wrong when our state gives more tax breaks to those who raise thoroughbred horses than it gives to parents raising children," Quinn said during his budget address.

A sales tax holiday would ease the burden on families. Quinn wants to lift the 5 percent sales tax for 10 days in August on certain school-related items. That would cost as much as $50 million, an amount made up by letting retailers keep less of their service fee for collecting the tax.

The administration estimates its income tax increase would bring the state an additional $2.8 billion.

[Associated Press; By CHRISTOPHER WILLS]

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