Fw: Arc Summary of the Tax and Borrowing Bills

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Ellen

Ellen Garber Bronfeld

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Arc Summary of the Tax and Borrowing Bills

The Arc of Illinois

January 18, 2011

Leaders in The Arc:

Phil and I wanted to get you a summary of the new tax bill and the pension

borrowing bill.

The bill that did not pass during the session was the borrowing bill to bring

payments to providers up-to-date. This bill was defeated twice in the House. We

believe that this borrowing bill will be brought back for consideration.

We intend to discuss this with Senate and House Republican Leaders soon.

The summaries are below.

Tony auski

The Arc of Illinois

815-464-1832

ARC SUMMARY OF THE ILLINOIS TAX BILL

SB 2505, now P.A. 96-1496:

1. Raises the income tax rate on individuals, estates and trusts from 3% to 5%

effective for the 2011 tax year through 2015.

2. Drops the rate on individuals, estates and trusts down to 3.75% starting in

tax year 2016.

3. Drops the rate down again in tax year 2025 to 3.25%.

4. Raises the corporate income tax rate from 4.8% to 7% effective now through

tax year 2015, drops it down to 5.25% in tax year 2016 and back to 4.8% in 2025.

5. Sets specific State General Funds spending increase limits from FY 2012

through FY 2015 of about 2%/year as follows:

FY '12: $36.818 B

FY '13: $37.554 B

FY '14: $38.305 B

FY '15: $39.072 B

I believe these caps apply even if revenue growth substantially increases due to

a significant economic recovery. However, the caps could be raised by an Act of

the General Assembly. The House rules would require a 3/5 vote to raise the

caps.

6. Defines " State General Funds " as (1) the General Revenue Fund, (2) the Common

School Fund, (3) the General Revenue Common School Special Account Fund, (4) the

Education Assistance Fund and (5) the Budget Stabilization Fund. It would be

the aggregate of all of these funds that would be subject to the spending caps.

7. Establishes a series of procedures whereby an Auditor General's report can

trigger a reversion back to the old tax rates if spending exceeds the cap for a

given year. However, the Governor is given the power to declare a fiscal

emergency to circumvent the cap (with some safeguards built in). In addition,

the Governor is given reserve powers to withhold spending for agencies under his

control in order to meet the cap. In other words, it is highly unlikely that the

cap for any fiscal year will be exceeded to allow the rates to drop back to the

old rates.

8. There are two new special funds created: one for Education and the other for

Human Services. However, deposits from the proceeds of the new tax increase

into these funds would not start until February 2015. They each would get 1/30

of the revenue increase (the difference between what is derived from the new

individual and corporate tax rates compared to what would have been derived from

the old rates of 3% and 4.8%.) until 2025 when they would each get 1/26 of that

amount. However, this would not preclude deposits of monies from other

potential new revenue sources (like gaming expansion) into these funds.

ARC SUMMARY OF PENSION FUNDS BORROWING BILL

SB 3514, the pension funds borrowing bill:

The bill passed the Senate on January 12, 2011 with 42 votes (36 were required)

and goes to the Governor. It authorizes the issuance of bonds in the amount of

approximately $4.1 billion for the purpose of making the FY 2011 mandatory

pension funds contributions. The bonds must be repaid over 8 years. The

repayment schedule is back-loaded: zero is due in years 1 and 2, almost $1

billion is due in each of years 6,7 and 8.

This will relieve about $4 billion in budget pressure in FY 11. The proceeds of

the tax increase signed by the Governor last week (SB 2505) will be used in part

to pay the debt on these bonds.

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