The announcement confirms major local aid commitments and explains how the
House proposes to meet them. Additionally, leadership signaled an
intention to pass a local aid resolution soon, now that some broad
parameters have been defined, so that communities can plan with full
Essentially, the House leadership roughly accepts the Governor’s plan for
corporate tax reform, but, instead of positing casino revenues in FY09 —
which most felt was unrealistic, even if casinos were approved — raises the
cigarette tax by $1.
The Governor’s budget proposal expands Chapter 70 education aid in
accordance with the legislature’s 5-year expansion plan and level funds the
other major components of local aid — Lottery and Additional Assistance.
Speaking roughly, the result of these commitments and many other smaller
decisions is that the Governor’s estimated Fiscal 2009 budget gap — the
difference between projected revenues and expenditures needed to maintain
services — is $1.3 billion.
The Governor proposed to close this gap in three very roughly equal parts —
budget adjustments (savings, reforms, enhanced collections), new revenues,
and hitting the stabilization fund (actual withdrawals or suspended
The House proposal has the same major components. The main difference is in
the new revenue sources. The House proposal starts with the same strong
commitment to local aid that the Governor made.
As to budget adjustments, no specifics were offered, since the budget
hearing process has yet to start. However, the House accepts $253 million
of the Governor’s proposed $344 million in savings and reforms and suggests
the need for $100 million in actual cuts — likely achievable in a budget of
$28 billion. The House concurred with the Governor’s proposal to capture
$166 million through improved revenue collections.
As to the Stabilization Fund, the House proposal captures $429 million from
the Stabilization fund’s projected end-of-year 2009 balance, while the
Governor captures just a little more — $469 million. The components are
identified slightly differently. Either way, the stabilization fund will be
remain strong by national bond rating standards.
The House proposes to adopt the corporate tax reforms recommended by the
Study Commission on Corporate Taxation and embraced by the Governor, raising
$289 million, and to reduce corporate tax rates from 9.5% to 8.5% in 2009
cutting taxes by $85 million, for a net $204 million. The House will also
freeze a scheduled rate increase in unemployment insurance levies. This
freeze does not affect the budget, but reduces the immediate impact on
businesses. Further corporate rate reductions would be phased in to achieve
revenue neutrality by 2011 — essentially a bet on future economic
Finally, in lieu of $124 million in casino revenues, the House proposes $152
million in revenues from increasing the cigarette tax.
So, the real bottom line budget difference, squinting past the smaller
details is: Cigarette tax, instead of casino revenues, in 2009.
Additionally, from the perspective of businesses, the House plan comes
fairly close to revenue neutrality by offsetting the corporate tax increase
with the off-budget unemployment tax decrease.
If the House, Senate and Govenor support this compromise, and there have
been some favorable signs on that, we’re down to the usual relatively fine
strokes in the budget process. Of course, the wild card remains the economy
and where tax revenues head between now and the start of the fiscal year in
July. News continues to be mixed and confusing on this front.