CHICAGO (AP) – Illinois’ historic budget impasse ended Thursday when lawmakers voted to override the GOP governor’s veto and give the state its first spending plan in more than two years. But there was little rejoicing.
Related Story: Illinois House OKs Budget, Ends Historic Impasse
While some crises will be averted, taxes will go up and some areas will see state spending cuts under the new plan. Republican Gov. Bruce Rauner and Democrats who control the Legislature remain hugely divided. And Illinois’ finances are significantly worse than when the impasse started in 2015.
Here’s a look at how it happened, and what the new deal means:
HOW DID IT HAPPEN?
Rauner, a former businessman, won election in 2014 with a promise to make Illinois more business-friendly, strip union influence and change politics as usual.
Around the time he was sworn in, a temporary, four-year Democratic income tax increase that had provided up to $7 billion in extra revenue annually was allowed to expire. Revenues fell far short of spending and red ink began piling up.
The new governor demanded changes before he would sign off on another tax increase to balance the budget. Democrats resisted, saying his agenda would hurt middle-class and vulnerable residents.
For more than two years, the two sides were deadlocked.
WHAT WAS THE FALLOUT?
Illinois racked up more than $15 billion in overdue bills to vendors, such as social service agencies that care for disabled people. Some homeless and domestic violence shelters were forced to close and universities laid off thousands of employees.
As Illinois approached July 1 the start of a third fiscal year without a budget pressure grew. Credit rating agencies warned Illinois it could become the first U.S. state to be downgraded to “junk” status, which would mean paying more to borrow money.
When the new fiscal year started, many road construction projects stopped, putting thousands of employees out of work. That same week the Illinois Lottery stopped selling Powerball tickets.
HOW DID ILLINOIS GET AWAY WITH IT?
In nearly two dozen states, failure to pass a budget leads to a government shutdown. Other states have consequences to deter late spending plans, such as not issuing lawmaker paychecks.
Illinois has no such laws. Instead, the state continued to spend billions of dollars annually because of laws and court orders that required some items to still be paid. Lawmakers also have passed various “stop-gap” appropriations bills to fund areas such as K-12 education.
While people who rely on government for assistance felt the pain, the impasse was barely noticeable for others. Roughly 63,000 state workers received paychecks, and schools and state offices stayed open.
HOW WAS IT RESOLVED?
House Democrats presented a new plan in late June that incorporated pieces of a deal approved by Democrats in the Senate and a separate one proposed by Republicans.
Fifteen GOP lawmakers in the House and one in the Senate broke from Rauner and supported it, helping Democrats send it to the governor’s desk. Many of the lawmakers who broke ranks represent districts where universities and social service agencies have suffered greatly.
Rauner vetoed the plan, calling it a “disaster” that does nothing to fix Illinois.
On Tuesday, the Illinois Senate voted to override his veto; the House did the same on Thursday.
WHAT’S IN THE PLAN?
The $36 billion plan calls for about $3 billion less in spending than Illinois was sending out the door without a budget.
That means there’s good news, and some not-so-good news. Universities and vendors that haven’t received any money during the impasse or have waited months to be paid will soon have a more reliable funding stream. But many will be funded at a level that’s lower than what they received the last time Illinois had a full state budget.
Higher education, for example, will receive 5 percent less than it did in the fiscal year that ended in mid-2015. State agencies also are seeing a roughly 5 percent cut.
The plan is funded through a $5 billion income tax increase. It raises the individual income tax from 3.75 percent to 4.95 percent. That’s slightly less than the 5 percent tax rate Illinois had from 2011 through 2014. How much that will cost individual households will vary greatly.
WHAT HAPPENS NOW?
The tax increase and the spending plan are retroactive to July 1, so state funding should begin flowing at the new levels relatively soon. Some workers also will begin seeing a difference in their take-home pay.
The budget deal also includes a plan to borrow money to pay down a portion of the $15 billion bill backlog. That would allow the state, which is paying 12 percent annual interest on some of the overdue bills, to pay them off at a lower rate.
Still, social service agencies and other entities say it will take time to recover. Credit rating agencies are still reviewing the plan, and Moody’s Investors Service has said that it could still downgrade Illinois to junk.
That’s largely because the plan doesn’t address Illinois’ other massive crisis: a roughly $130 billion unfunded pension liability. It remains the worst-funded public-pension system of any U.S. state.
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