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Doug Finke

Watchdog group: Tax services and retirement income

Ahead of Gov. Bruce Rauner’s upcoming budget address Wednesday, the Civic Federation is again calling for taxing some retirement income and extending the state sales tax to some services as part of its proposal to stabilize state finances.

The Civic Federation, which is a watchdog over state finances, said the budget passed last summer to end the 2-year budget impasse meant the state “was no longer careening toward unprecedented financial disaster.”

“However, our elected officials again relied on shaky financial practices for short-term relief, such as counting on dubious one-time revenues and repeatedly kicking the pension can down the road,” said Federation president Laurence Msall in a statement. “Such actions only make achieving sound financial footing more difficult.”

The Civic Federation compiled a list of 11 steps it believes the state should follow to re-establish the state’s financial health. Number one on the list is limiting annual spending growth to 2.1 percent for the next 5 years at a minimum. The group recommended other cost-control measures, like cutting the interest rate the state pays on overdue bills, consolidating government units, and creating a commission to explore consolidating governance of state universities.

Other recommendations will be more difficult, Msall acknowledged. The organization said the state should impose the income tax on the same retirement income that is taxed at the federal level. For example, there is a federal income tax on 401(k) distributions, but Illinois does not tax them. Imposing that tax has been a third rail in Illinois politics.

Also, the report calls for a constitutional amendment to be placed on the ballot “to clarify the pension protection clause.” That clause prevents lawmakers from enacting cuts to pensions of current public employees.

The report recommends extending the sales tax to 14 services that are also taxed in Wisconsin, such as landscaping and internet services.

The federation also is calling for a new capital construction bill that would be financed by an increase in the gasoline tax.

Supplemental spending bill

The Rauner administration said Wednesday that lawmakers need to approve a supplemental spending bill to ensure the Department of Corrections can get through the rest of the fiscal year.

Budget director Hans Zigmund said that in total the administration wants lawmakers to approve a $1.1 billion supplemental spending bill to cover “unappropriated liabilities” from the previous fiscal year. The state did not have a budget in place for the 2017 fiscal year but kept spending money through a variety of court orders, consent decrees and automatic spending.

About 85 percent of the supplemental spending request is for expenses for Corrections and for Medicaid.

Sen. Heather Steans, D-Chicago, who chairs one of the Senate Appropriations committees, asked how soon the money to operate Corrections will run out if a supplemental bill isn’t approved.

“Very quickly,” Zigmund replied. “Right now, we are having to very actively manage [the bills] that are going over to the comptroller, to do things like make sure the prisoners are fed, make sure the garbage is taken out, make sure the water and lights are running.”

The supplemental spending bill will provide the authority to actually pay the bills being run up by the department.

After the hearing, Steans said that after lawmakers approved the budget to cover the 2018 fiscal year, it appeared Corrections used the spending authority to pay bills run up the previous year when there was no budget. As a result, Corrections is running short of the spending authority it needs to get through the rest of this fiscal year that ends June 30.

Also Wednesday, Zigmund said the deficit in the current budget has been cut to about $600 million. Shortly after the budget was approved over his veto, Gov. Bruce Rauner said it contained a $1.7 billion hole.

The administration later announced $150 million in spending cuts, but would not further identify what action it was taking to close the deficit.

Zigmund said a combination of somewhat higher-than-expected tax collections and borrowing $875 million from special state funds has now narrowed the shortfall. Rauner has promised to outline how he will close the deficit in his budget speech.