May 11, 2010—Issue 14

Budget Negotiations Stalled

The General Assembly abruptly recessed on Friday night (the scheduled day for adjournment), when it became clear that there were not sufficient votes to enact a budget plan for Fiscal 2011.  If a budget plan is not adopted by May 31st, a three-fifths supermajority vote in both chambers will be required on any budget plan after that date. This would make minority Republican votes necessary in the House and could dramatically alter any final agreement. It is expected that the General Assembly will be called back to Springfield by Speaker Madigan and President Cullerton sometime in the next couple of weeks to see if a final solution can be enacted before any supermajority vote would be required on or after June 1st.  The state faces a structural deficit of approximately $7 Billion for next year if cuts are not incorporated into the fiscal plan. In addition, there will be an accumulated deficit of between $7 and $8 billion by the end of fiscal year 2010.  Governor Quinn had proposed cuts of $2 Billion in his budget message; however he also proposed an income tax surcharge of 1% to reinstate most of those spending cuts and to address a small portion of the structural deficit.  The following items are some of the options being considered as part of a potential budget “solution”:

·         Cigarette Tax Increase

·         Tax Amnesty Program

·         New Pension Obligation Bonds/Notes

·         Pension Funding Holiday

·         Securitization of Future Tobacco Settlement Funds

·         Borrowing from other State Funds (18 month period)

·         Emergency Budget Powers for the Governor to Reduce Spending

·         Extension of Lapse Period Spending (defer 2010 cash payments further into 2011) 

·         Actual Budget Cuts

There appears to be little to no interest in other forms of tax increases. We will see what occurs over the next couple of weeks and of course report those developments in future issues of TFI from the Capitol.

Research and Development Tax Credit Extended

SB 3655, sponsored by Sen. Dan Kotowski (D-Park Ridge) and Rep. Barbara Flynn Currie (D-Chicago) clarifies the extension of the research and development credit to make it applicable for taxable years ending on or after December 31, 2004, and ending prior to January 1, 2011 (now, the credit sunsets on December 31, 2009 under the Act's automatic sunset provisions). TFI, the Illinois Chamber of Commerce and the Illinois Manufacturers’ Association amongst others advocated on behalf of this extension and hope to have further discussions in the future on a permanent extension.  A link to SB 3655 can be accessed here:  click here

EDGE Tax Credit Revisions

SB 3089, sponsored by Sen. Kwame Raoul (D-Chicago) and Rep. Barbara Flynn Currie (D-Chicago), is headed to Governor Quinn after passing both the House and Senate.  The measure amends the Economic Development for a Growing Economy (EDGE) Tax Credit Act to provide that provisions allowing certain motor vehicle manufacturers to elect to claim the credit against their withholding tax obligations also apply to heavy duty truck manufacturers that meet certain criteria. It further provides that motor vehicle manufacturers, other than heavy duty truck manufacturers, that elect to claim the Credit against withholdings must enter into an EDGE agreement within 365 days (instead of 180 days) after the effective date of Public Act 96-834. The bill also amends the Illinois Income Tax Act to provide that employers who claim the EDGE credit against their withholding tax liability must file returns with respect to those taxes. A link to SB 3089 is provided here:  click here

Cook County 7% Tax Assessment Cap Extended

SB 3638, sponsored by Sen. Terry Link (D-Waukegan) and Rep. Barbara Flynn Currie (D-Chicago), extends the alternative general homestead exemption for a period of 3 years in Cook County.  It provides that the maximum amount of the exemption is $20,000 in the first taxable year, $16,000 in the second taxable year, and $12,000 in the third taxable year. The bill allows counties other than Cook to elect to be subject to the alternative general homestead exemption if those counties adopt the necessary ordinances within 6 months after the effective date of this amendatory Act.  It further provides that, beginning in taxable year 2010, the returning veterans' homestead exemption also applies in the taxable year after the taxable year in which the veteran returns from active duty in an armed conflict involving the armed forces of the United States and requires reapplication each year thereafter. It also specifies that taxpayers in counties of 3 million or more, who are eligible for a senior citizens homestead exemption, must also reapply each year. The annual amount of the disabled veterans standard homestead exemption is $5,000 for veterans with a service connected disability of at least 70% (instead of the current 75%).  SB 3638 also creates a Homeowner Review Board as an advisory board within the Department of Revenue and provides for the creation of 7 Taxpayer Action Boards within the Department of Revenue. It provides that one board shall be established for each of the following counties: Cook, DuPage, Kane, Kendall, Lake, McHenry, and Will and sets forth the duties of these boards.  A link to SB 3638 can be found here:  click here

School Supply Sales Tax Reduction Proposed

Governor Quinn has proposed legislation to reduce the sales tax on school clothing and supplies from the current 6.25% to 1.25% from August 6, 2010 to August 15, 2010.  SB 3658, as amended by House Amendment #2, is being pushed by its legislative sponsors as a way to save money for families buying “back to school” clothing and supplies.  TFI opposes this legislation as a new exemption that, with the current condition of the state budget, these are “sales” the state cannot afford to fund at this time.  A link to SB 3658 can be found here:  click here

Wind Farm Property Tax Special Valuation Extended

HB 4797, sponsored by Rep. Frank Mautino (D-Spring Valley) and Sen. Don Harmon (D-Oak Park), amends the Property Tax Code to provide that a Division of the Code setting forth special valuation procedures for wind energy devices applies through assessment year 2016 (instead of 2011).  TFI supported passage of HB 4797 and a link to the bill can be found at this link:  click here

 And Finally….

TFI from the Capitol will be back as soon as the General Assembly returns and we will update you on the latest developments regarding any potential FY 11’ Budget Resolution.