By Dave McKinney and Karen Pierog
CHICAGO (Reuters) - Illinois' Democratic-controlled House of Representatives passed big, permanent increases in income tax rates and a $36 billion fiscal 2018 spending plan on Sunday with the help of some Republican votes as the cash-strapped state scrambled to stave off a bond rating downgrade to junk.
The $5 billion tax package, which passed in a 72-45 vote and drew an immediate veto threat from Republican Governor Bruce Rauner, would boost the personal income tax rate to 4.95 percent from 3.75 percent and the corporate rate to 7 percent from 5.25 percent. It would also close tax loopholes and expand tax credits. The spending plan won passage in a 81-34 vote.
Both bills now head to the Democratic-led Senate, which returns to session on Monday, for concurrence votes.
The country's fifth most populous state began an unprecedented third-straight fiscal year on Saturday without a complete budget. A fiscal stalemate between Illinois' governor and Democrats who control the legislature has pounded the state's credit ratings to a step above junk and ballooned its unpaid bill backlog to $15 billion.
The pair of decisive House votes set Democrats on a collision course with Rauner, who vowed to veto the 32 percent personal income tax hike he pinned to House Speaker Michael Madigan.
“The legislature could have passed a no reform budget like this one two years ago,” Rauner said in a statement. “Instead, they allowed Mike Madigan to play his political games, passed phony budgets, racked up our debt and inflicted pain on the most vulnerable.”
Rauner has insisted for two years that a budget be coupled with a property tax freeze and legislative term limits, among other things.
In order for Rauner to match his tough words with results, he will have to persuade at least two of the 15 House Republicans to switch their yes votes in favor of the tax hike legislation. The measure passed the House with one more vote than the threshold necessary to override a gubernatorial veto.
In his own statement after the votes, Madigan praised how Republicans and Democrats together took a “crucial step toward reaching a compromise that ends the budget crisis by passing a fully funded state budget in a bipartisan way.”
'BRING THIS MADNESS TO AN END'
The tax legislation would give the state a revenue boost to support a full-year budget and start paying down the bill pile that was on track to grow even larger after a federal judge on Friday ordered increased payments on Medicaid provider bills.
In giving Democratic supporters the narrow margin to move the legislation to the state Senate, some House Republicans shed tears during debate, predicted their tax votes could topple them politically in next year's elections and delivered a pointed challenge to Rauner to set aside his budgetary preconditions and do what was right for the state’s fiscal health.
"I say to the governor, if these bills pass the House and Senate, the revenue bill and expenditure bill, we will have sent you a balanced budget. Have the courage to do what is right and sign the bills,” said State Representative David Harris, who was among 15 Republicans to side with Democrats. "Bring this madness to an end."
Their defiance came after House Republican Leader Jim Durkin, a Rauner ally, noted the deal was not negotiated with the governor and did not represent “an exercise in good faith,” given that negotiations involving some of the governor’s non-budgetary priorities were shunted to the sidelines.
(Editing by Peter Cooney)