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Governor Offers One-Time Business Tax “Cut”;
Calls for $1.5 Billion Tax Increase for Businesses; Pushes Sale of
State Assets and Bonds
Governor
Blagojevich presented his Fiscal Year 2009 budget request today,
calling for the General Assembly to approve a $1.2 billion economic
stimulus package for families and businesses while at the same time
pushing a $1.5 billion tax hike on Illinois businesses over the next
two years. These business tax hikes include:
·
3% payroll tax on businesses of 10 employees or more that
spend less at least 4% of their payroll on healthcare for employees.
Cost to businesses: $1 billion.
·
Increase in the state tax on gaming. Cost to
businesses: $250 million.
·
Closure of corporate income tax “loopholes. Cost to
businesses: $250 million.
Despite
the Comptroller’s repeated warnings about the state’s shaky
financial condition, the Governor’s budget proposes an overall
increase of $1.45 billion. His proposed budget does nothing to
resolve the growing Medicaid backlog, nor does it provide any relief
for the State’s $2 billion in unpaid bills. The Governor does
call for a 3% reduction in agency budgets, excluding healthcare,
education, and public safety, that will be achieved largely by
offering another early retirement package to state
employees.
Finally,
the Governor’s proposed budget relies heavily on revenue sources
that result from the sale of state assets and issuing bonds; a move
that ultimately pushes the State’s financial problems onto future
generations. Furthermore, these proposals, which include the
partial sale of the State Lottery, the securitization of the state’s
tobacco funds, and the sale of pension obligation bonds raise
serious questions about the feasibility of the Governor’s overall
budget, particularly at a time when the bond market is near crisis
and investors are backing away from risky, long-term
investments.
Other
questions and concerns that arise from the Governor’s revenue
proposals, particularly over the securitization of tobacco
settlement dollars to pay for the economic stimulus package
include:
·
Under the original terms of the tobacco settlement agreement,
Illinois was scheduled to receive $9.1 billion through FY 2025;
however, actual amounts received due to lower sales receipts are
approximately 81% of the original estimated level.
·
Securitization of tobacco settlement receipts usually only
result in lump sum payments that provide 40-60 cents on the dollar
or less.
·
The market for tobacco settlement bonds created by
securitization is already saturated and the bond market crisis has
made it much more difficult for states to anticipate successful sale
of these bonds. Furthermore, states that have recently looked
into the securitization of tobacco settlement dollars have abandoned
those plans due to the risk and the hit they usually take on their
bond rating.
·
If Illinois chooses to securitize its tobacco settlement
dollars on top of issuing pension obligation bonds, it may take a
severe hit on its bond rating, if it is able to sell those bonds at
all. States have recently experienced problems being able to
sell bonds on the troubled market.
The
chart below summarizes the major components of the Governor’s
proposed budget. The Chamber will provide a more detailed
analysis of the budget in Friday’s Government Affairs
Report.
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