Income-Tax Surcharge Dealt Setback in Illinois House

By Peter Schmidt — June 05, 1991 4 min read

A Senate-passed bill making permanent Illinois’s 20 percent income-tax surcharge, half of which goes directly to local schools, has suffered a major setback in the House.

The bill was scheduled for House action last week, but sponsors pulled it from the agenda in the face of overwhelming opposition.

The poor prospects for the bill, which was put forward by its Senate backers as a compromise, underscore a partisan confrontation over the tax issue between the Democrat-controlled legislature and the Republican Governor, Jim Edgar.

Adding to the tensions last week was the lack of an agreement on the state’s overall budget problems--in particular, a mountain of unpaid medical bills.

The Senate legislation also touched off regional antipathies by redirecting the other half of surcharge revenues, which currently go to local governments, largely to health-care costs. That brought strong objections from Chicago Democrats, led by Speaker of the House Michael J. Madigan, who argued that it would force their hard-pressed city to bear the burden of paying for state services.

While the surcharge bill ran into a stone wall, the other major proposal on the table for dealing with the state’s budget woes--a plan issued by Senate Democrats last month to take out a $600-million long-term loan--also appeared to have a dim future.

The loan proposal would almost certainly be vetoed by Governor Edgar, and so is not likely to move, according to a spokesman for Senator James “Pate” Philip, leader of the Senate’s Republican minority.

“On both sides, there is a lot of working out that has to be done,” said Jeanne Crowley, press secretary for Senate Democrats.

The legislature has until June 30 to pass a budget for the next fiscal year, but current state cash-flow problems have lent a tone of urgency to the debate.

The state owes $600 million in payments for Medicaid, nursing homes, and other health services for the poor, and repayments to some health-care providers are running more than 100 days behind schedule.

The Senate measure would make permanent the surcharge, which is set to expire July 1, and for two years budget 37 percent, or $283 million, of the revenues to repay health-care debts.

The funds for health care would be taken out of the share of surcharge revenue now used to assist local governments. The 50 percent share now budgeted for state aid to school districts would remain the same, and 13 percent would be allocated for property-tax relief.

As the Governor had requested, the measure also would cap local property-tax growth at the lesser of 5 percent or the rate of inflation.

But critics said the proposal repre8sented an attempt to take money from local governments and “keep it in the state bureaucracy,” according to Steve Brown, press secretary for Mr. Madigan.

The measure amounts to “a state tax increase,” asserted Mr. Brown, who maintained that the surcharge was passed two years ago with the intent of providing local governments with aid.

The Senate Republican leadership, meanwhile, last week said it would not seriously consider the Democratic plan to take out a four-year, $600-million loan under the state’s Casual Deficit Act.

Senator Howard W. Carroll, a Chicago Democrat who chairs one of his chamber’s two appropriations committees, has argued that the loan plan would allow the state to settle debts from this year at an interest cost of $83 million--far less than the amount the state would have to pay in interest on overdue bills.

The plan, which called for $1 billion in spending cuts, also wouldel10lhave avoided the need to spend $600 million to pay the overdue bills next year and thus would have freed up funds to offset the Governor’s proposed cuts in social services, Democratic leaders asserted.

Governor Edgar, however, dubbed the plan “smoke and mirrors.”

“They have just put out there a plan to borrow money without any explanation as to how they are going to pay it back,” said Mark Gordon, a spokesman for Senator Philip, who asserted that the Casual Deficit Act prohibits the state from taking out a loan for more than a year.

Regional School Tax Backed

Late last month, the Senate also soundly defeated a measure by Senator Thomas A. Dunn, a Democrat from Joliet, that would have sharply rolled back homeowners’ property taxes for schools and replaced the lost money with increased income taxes.

Opponents asserted that the measure would do nothing to provide tax relief to businesses and did not address disparities between rich and poor districts.

A separate measure, approved 39 to 10 by the Senate last month, would allow voters to impose a regional income tax of 0.5 percent to help pay for new schools.

The measure, which was before the House Revenue Committee last week, was designed to help homeowners in fast-growing areas, where property-tax bills have risen sharply to pay for needed schools.

A version of this article appeared in the June 05, 1991 edition of Education Week as Income-Tax Surcharge Dealt Setback in Illinois House