Quinn proposes tax hike to deal with state 'red ink tsunami'

Ryan Keith

Gov. Pat Quinn’s administration described a state budget doomsday Friday, ahead of his proposal next week that would raise billions of dollars in income taxes to fill a historic budget hole of $11.5 billion.

The governor also will propose $850 million in additional state cuts and make a potentially hefty cut in the state’s pension payment, while proposing a scaled-back pension plan for new state hires. Quinn aides would not provide more specifics on those plans.

They also wouldn’t say how much Quinn would propose raising the individual state income tax, now at 3 percent, or the corporate income tax, now at 4.8 percent. They said only that what he will recommend would bring in billions of new dollars.

“We have an unprecedented tsunami of red ink. We’re in a terrible recession, really a depression,” said Jerry Stermer, Quinn’s chief of staff.

Democrats who control the legislature say they’re willing to consider an income tax increase.

“We know we’re going to have make tough decisions,” said Sen. John Sullivan, D-Rushville.

The numbers, provided to reporters ahead of the governor’s Wednesday budget address to lawmakers, certainly painted a picture bleaker than anything the state has ever seen.

The budget deficit Illinois faces for this budget year and the next is as much as $11.5 billion – even higher than the shocking $9 billion figure floated in recent weeks.

On the revenue side, the nation’s economic sag has sent tax collections plummeting.

Department of Revenue spokesman Mike Klemens said the three main state tax sources – the individual income tax, the corporate income tax and the sales tax – are estimated to drop by more than $3 billion by next year. Those sources usually bring in more money from year to year, or at least stay flat.

“We’ve been hard hit on the revenue side,” Klemens said.

And on the spending side, expenses continue to climb. Quinn’s office expects Medicaid health insurance payments to rise by more than $1 billion next year, with $300 million increased price tags each for social service needs and employee wages and group health insurance costs.

State payments into pension funds are expected to increase by about $2 billion from this year to next, Stermer said.

But Quinn will propose a slimmed-down pension system for new hires to bring future costs more under control, allowing the state to reduce that $2 billion payment for next year – although Stermer wouldn’t say by how much.

The state expects to ease some of its money troubles through about $2.4 billion in federal stimulus money.

Quinn also is looking at increasing driver’s license and vehicle registration fees, but aides would not say how much. He will not propose an increase in the gasoline tax or gambling expansion.

Along with the $850 million in undisclosed cuts, Quinn will continue a freeze on $500 million in spending that predecessor Gov. Rod Blagojevich put on last year.

Most of the heavy money lifting, though, will fall to the income tax increase.

Stermer and Quinn’s chief operating officer, Jack Lavin, stressed Quinn’s plan is not an unfair tax increase at a time when many Illinoisans can’t afford to pay more.

Along with the increase, Quinn will propose boosting the personal exemption on taxable income from $2,000 per person to $6,000 per person. With the tax increase and exemption increase, a family of four making $60,000 or less a year would see a tax break, while those making more would pay higher taxes.

Stermer called that a “tax fairness” plan while asking all Illinoisans to share in the sacrifice.

“The people who lose their jobs would not be the ones paying an increased rate,” Stermer said.

What Quinn lays out could create a firestorm in the legislature.

Unions representing state employees have vowed to fight efforts to cut jobs or change pension plans. Other advocates have asked for more money without more cuts.

Senate President John Cullerton and House Speaker Michael Madigan, both Chicago Democrats, have said they support a gasoline tax to pay for a major construction program. Quinn and his aides say that’s too painful for those with lower incomes.

Cullerton and Madigan also have said they’re open to considering an income tax increase. Republicans have promised to fight such a plan.

Even Blagojevich, who Quinn replaced, couldn’t resist weighing in. The former governor, who has said part of the reason he was booted from office was because lawmakers wanted to raise income taxes, called an income tax increase “unconscionable.”

"This is exactly what I said was going to happen,” Blagojevich said in a statement.

Lavin acknowledged the current climate adds to the difficult job ahead.

“It’s going to take a lot of hard work to get a budget that’s balanced,” Lavin said.

Ryan Keith can be reached at (217) 788-1518 orryan.keith@sj-r.com.

“Red ink tsunami” for next state budget

*Budget deficit: $11.5 billion

*Income, sales tax revenues to drop by $3 billion

*Medicaid payments to rise by $1 billion

*Pension payments to rise by $2 billion

Quinn plan

*Raise income tax, while also raising personal exemption amount

*Create slimmed-down pension system for new employees

*Use $2.4 billion in federal stimulus funds

*Increase driver’s license and auto registration fees, no gas tax hike

*$850 million in budget cuts