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Partisan debate over replacement tax

THE CORPORATE personal property tax plan advanced by House Democrats, H.B. 2569, was the sole tax replacement plan which survived the self-imposed deadline for third reading of bills in their house of origin, May 25. The bill, sponsored by Rep. Jim McPike (D., Alton), is slightly more harsh on businesses than Republican plans. It passed the House May 23 on a partisan roll call, 90-73, with only one Republicanjoining the Democrats' solid bloc of yes votes. The only Republican voting for H.B. 2569 was Rep. Charles E. Gaines (R., Chicago), who apparently liked the provision of the bill giving 51.65 percent of the proceeds to Cook County.

The House Democratic Task Force on Taxes, which worked out the details of the plan, said it was based on percentages of actual collections of the corporate personal property tax in 1978, according to data supplied by the Department of Local Government Affairs (DLGA), which administers the tax statewide.

Republicans, however, charged that the Democrats' estimate of $533 million, which would allegedly be needed to replace the tax, was skewed. They said data employed to compute the $533 million figure was based upon obsolete Cook County collection rates, rather than current rates from the DLGA.

The main Republican proposal in the House, H.B. 2700, sponsored by Rep. Thomas W. Ewing (R., Pontiac) and amended to correspond with Gov. James R. Thompson's business task force plan, calls for $73 million less than the Democratic plan. The Republican bill is based upon the amount necessary to replace collected fiscal 1979 revenues. It is weighted to give a larger cut to downstate than to Cook County. Republicans say Cook County has experienced a decrease in actual collection rates since 1977.

Furthermore, Republicans charge that all other replacement plans properly would exempt the proposed new income tax revenues from the normal l2 1/2 percent income tax distribution to counties and municipalities, but H.B. 2569 does not. They say this distribution factor gives another windfall to Chicago and Cook County -- the most populous municipality and county in Illinois.

Finally, Republicans say Cook County would be favored by the early start-up date for the replacement tax under H.B. 2569. The new tax would begin in the final quarter of 1979, thus overlapping the final payment of the old tax.

However, the Republican and Democratic plans have much in common, including a base income tax upon corporations, business partnerships and trusts; and a .75 percent invested capital tax on utilities.

The Democrats' plan, H.B. 2569, would add a 3 percent higher corporate income tax, a 1 1/2 percent added income tax on trusts and partnerships, and a .75 percent flat tax on the invested capital of utilities.

The Republican proposal, H.B. 2700, would be easier on corporations, adding only 2 percent to the present 4 percent corporate income tax. It would be easier on partnerships and trusts by requiring only a 1 1/4 percent income tax on partnerships, a 1 percent income tax on trusts, and by excluding personal service income from taxation -- the latter exemption to insure that the new tax would closely simulate the property tax it replaces. The bill would be softer on utilities by allowing them to reclassify all real estate as personal property, making it tax-exempt.

The Democrats' plan carries a two-year "hold harmless" provision. It guarantees that no unit of local government would receive less under the new tax than was received under the old tax in the most recent year. The Democratic plan, according to its sponsors, must go into effect this fall to make certain that school districts will begin receiving funds immediately and to prevent issuance of expensive tax anticipation warrants, as often were needed under the corporate personal property tax. Republicans criticize this early start-up, alleging that it represents a double tax and is a backdoor means of inflating assessed tax valuation, thereby increasing the borrowing power of local governments.

The Republican bill, H.B. 2700, has an effective date of January 1, 1979, but no distribution would begin until after June 1, 1980, and then only annually, rather than quarterly as the Democrats would have it.

Some Republicans believe that H.B. 2569 may prove unconstitutional because it would bring in more revenue than the tax it replaces. Democrats counter that the bill merely replaces the projected revenues which would have been brought in under the old tax, estimated through the latest growth rate.

Last March 14 the Illinois Supreme Court ruled that the 1970 state Constitution meant what it said about replacing the tax on business assets with something other than a property tax by January 1, 1979. However, the court allowed fiscal 1979 taxes to be collected in fiscal 1980. So the legislature has only until July to find a replacement for the tax which will bring in an estimated $460 million for this fiscal year. Most of the revenue goes to support local elementary and secondary schools.

In order to adopt their plan May 23, Democrats believed they needed all their members present. Democrats hold a one-vote majority in the House, 89-88, with 89 votes needed to pass most bills. It is possible that Rep. Gaines would not have voted in favor of the bill had his

July 1979 / Illinois Issues / 23

vote been decisive. But Rep. Clarence Darrow (D., Rock Island) was out of town, attending his mother-in-law's funeral. Democrats stalled for over an hour while party leaders arranged for Darrow to be flown to Springfield. GOP members charged that the filibuster was illegal, but Democrats said it is permissible for members to donate their time to a fellow legislator in order to explain a vote, as was done for Rep. Raymond Ewell (D., Chicago). Ewell spoke on the punctuation and merits of a bill dealing with trains blocking railroad crossings.

Whatever tax replacement bill is finally passed into law is likely to face a quick test of legality and constitutionality in court. If H.B. 2569 passes both houses in its present form, the governor is expected to veto it.

Gov. Thompson's task force plan, H.B. 2700, fell one vote short of passage, 88-89, May 23. It was placed on postponed consideration and is technically still alive. However, the partisan nature of the vote -- all 88 Republicans voted in favor of it -- makes it extremely unlikely the bill will be called again by the Democratic speaker now that the third reading deadline is past.

RTA votes in Senate

Two important votes were brought on RTA-related subjects in the Senate in May. One, the vote on S.B. 105 May 24, was seen as a direct frontal assault upon the controversial six-county Regional Transportation Authority. The bill fell two votes short of passage. It would have allowed participating counties to hold referenda to decide whether to disconnect from RTA. Local county or township boards could then have approved withdrawal if voters demanded it. Chicago Democrats, who vehemently opposed the bill because the RTA encompasses the city, picked up the votes of two downstate senators and two Chicago suburban Republicans to help defeat the plan. Sens. Max E. Coffey (R., Charleston) and Kenneth Von Buzbee (D., Carbondale) were the downstaters who voted with Chicago Democrats. The two suburban Chicago Republicans involved were Sen. Richard Walsh (R., River Forest) and Sen. Aldo DeAngelis (R., Chicago Heights).

A second RTA vote occurred May 23 on amendments to the governor's gas tax increase proposal in the Senate. The body voted to exempt the RTA district from the 1 cent per gallon boost in the gas tax approved for the rest of the state.

RTA area motorists already pay a 5 cent per gallon sales tax on gasoline to support the authority, and the Senate defeated an amendment that would have abolished this 5 cent tax and replaced it with a 1 percent sales tax hike for the six-county area.

Gov. Thompson has called for a 1 1/2 cent per gallon increase in the gas tax statewide, along with fee increases to bring in a total of $407 million the first year. The governor's bill, S.B. 889, by Sen. David Shapiro (R., Amboy), as introduced, called for a built-in growth factor for the gas tax based upon increases in annual personal income. However, when the plan emerged from the Senate it had been altered to generate only about $200 million, with no automatic escalation factor. The amended version passed 31-21 May 25 and went to the House where more revisions are expected.

Most major bills were in amendatory flux or caught up in the traditional horsetrading when the legislature lurched into June. There seemed less charity evident between the governor and lawmakers of the windy city than in the past two sessions. Conflicts were manifested not only on the paramount corporate personal property tax issue, or the RTA and gas tax, but on many funding and philosophic agenda items such as tax relief, unemployment insurance reform and education funding. Noisy debates, crowded corridors and long calendars formed the familiar background to the increasing party polemics.

July 1979 / Illinois Issues / 26