The budgetary fine print
Wednesday, Jul 12, 2017 - Posted by Rich Miller
* This story is making the rounds on social media, but it’s not accurate…
When state lawmakers approved the Illinois budget last week that included a provision to raise the state income tax rate to one of the highest rates in the history of Illinois, state lawmakers, under the direction of Illinois House Speaker Michael Madigan (D), snuck in another tax increase, that will hit you every time you fill up your car or truck.
Yes, a gas tax increase of 5 cents a gallon. Rockford Senator Dave Syverson, took to social media on Monday night to remind his constituents that “back door gas tax increase” was approved. So how does this work, according to Syverson, the back door gas tax is:
a tax at the wholesale level, which raises the retail price. This move will add approximately 5 cents a gallon. ($95 million total)
Yet another reason why this budget plan was wrong.
So, if you fill up a 20 gallon tank when you go to fill up, it will add a $1.00 on to the average fill up. If you fill your car. If you fill up once a week, this new back door tax will add about $52 to you gasoline bill, every year. Truck divers and transportation companies will notice it even more as their gas consumption levels are much higher. Those costs, of course will be passed on to the cost of good the consumer will pay.
* This new law is actually about ethanol blends, not “pure” gasoline.
Current state law taxes “gasohol” (10 percent ethanol blends) on only 80 percent of the sales price. Biodiesel and E85 (85 percent ethanol) are exempt from all sales taxes.
All three sales tax incentives were scheduled to expire on December 31, 2018. If no legislative action was taken by then, all three fuels would be taxed at 100 percent of sale price.
The new law accelerates the sunset of the gasohol tax break to July 1 of this year. So, from here on out, 10 percent gasohol blends are taxed at 100 percent of purchase price.
So, if you don’t use gasohol (E10), you won’t see any price increase.
According to the Department of Revenue, 4.6 billion gallons of gasoline were sold in Illinois last year, compared to 5.1 billion gallons of gasohol and 517 million gallons of E85. Thanks to an eagle-eyed commenter, I now realize I misread that particular chart. That’s the fuel blending amounts. Thanks!
* The new law also extends the total sales tax exemption on biodiesel and E85 through the end of 2023. The ag community understandably likes the idea of extending these exemptions…
“One of those being that the biodiesel sales tax incentive was extended until 2023,” said Mark Gebhards, Illinois Farm Bureau’s executive director of governmental affairs and commodities. “The E-85 sales tax incentive was extended as well until 2023.”
The revenue bill also included a sunset provision on the E-10 sales tax incentive.
“So that was the trade-off of giving up something that at least from the renewable fuel industry, they feel that E-10 is well on its way and didn’t need the incentive that was needed for E-85 and biodiesel,” Gebhards said.
* Meanwhile…
The city of Chicago may be able to end junk status on much of its debt—potentially saving $100 million or more in interest charges each year—thanks to a clause that was quietly tucked into the state’s new budget.
The provision will allow home-rule entities such as Chicago to separate out money they get from the state from other receipts and use that dedicated revenue to pay for new debt, or to pay for retiring old debt.
The city now gets well over $1 billion from the state each year, including $630 million in sales taxes collected by the Illinois Department of Revenue on the city’s behalf, the $368 million city share of local income tax receipts, and $71 million in motor fuel taxes.
City officials hope the provision will allow them to save as much as 3 full percentage points—300 basis points—compared to what junk-level city general-obligation debt now costs. With more than $8 billion in outstanding general-obligation debt, the city would save $30 million a year on each $1 billion that could be refinanced, assuming it indeed can sell such “statutory lien” debt at the lower rates. […]
The Illinois Municipal League was aware of the provision and “didn’t have any issue with it,” according to Brad Cole, the league’s executive director. The provision mostly will affect Chicago, though some other large cities around the state could take advantage of the clause, he added.
* And…
Built into legislation that passed last week is a $293 million increase in the bonding capacity for the Metropolitan Pier & Exposition Authority. The agency maxed out its borrowing limit two years ago.
Despite a gargantuan long-term debt burden that totaled $3.7 billion as of June 2016, McPier officials plan to take advantage of the new line of credit immediately to change the way they pay for the 1,205-room Marriott Marquis hotel going up on the Near South Side convention campus.
The agency plans to sell the bonds “as soon as possible” and will use $250 million of the proceeds to repay its construction loan for the Marriott, said McPier Chief Financial Officer Larita Clark.
- former southerner - Wednesday, Jul 12, 17 @ 12:50 pm:
And the sooner “farmer gas” goes away the better off most of the country will be. Big Ag and little farmer will have to figure out a different set of subsidies in which to insert their greedy snouts.
- winners and losers - Wednesday, Jul 12, 17 @ 12:57 pm:
Every gas station in Illinois sells 10 percent gasahol.
==4.6 billion gallons of gasoline were sold in Illinois last year, compared to 5.1 billion gallons of gasohol==
Who knew we were going to pay more for gas?
- Boat captain - Wednesday, Jul 12, 17 @ 1:01 pm:
America wants and expects cheap food. Check out the cost of land, equipment, seed etc. The little farmer doesn’t exist anymore. The government uses the excess crops the farmer grows to export to countries that trade with us. Take away the subsidies, expect to pay more for the food on your table. The government helped create the large farmer or farmer corporations, and it is something that’s here to stay.
- DuPage - Wednesday, Jul 12, 17 @ 1:05 pm:
I have not seen any gasoline without the 10 percent mixture in Illinois. I buy pure gasoline when I am travelling in other states. My car gets better mileage and seems to run better.
- Thoughts Matter - Wednesday, Jul 12, 17 @ 1:06 pm:
Basically a subsidy was eliminated, which means gasohol has to compete on the free market. This goes against GOP principles in what manner? The fact that the end consumer would otherwise pay more is not usually a justifiable reason to subsidize industries for the political right.
- weary - Wednesday, Jul 12, 17 @ 1:16 pm:
DuPage - there’s a website that lists stations that sell gas without ethonal. (Google “pure gas”.) There’s only one station where I live (HyVee) and everywhere else has a 10% blend. So you have to look for it, but it is out there. Based on what I’ve seen, I’m surprised the gasohol number isn’t a lot higher compared to straight gas (5.1 vs 4.6 billion gallons).
- Philo - Wednesday, Jul 12, 17 @ 1:18 pm:
Rich, I’m pretty sure the pure gasoline stat you reference is in fact the pure gas that goes into blending gasohol, so it’s part of the gasohol total (4.6/5.1 equals about 90 percent). Almost no pure gas is sold at retail in Illinois.
- Last Bull Moose - Wednesday, Jul 12, 17 @ 1:21 pm:
Thank you Philo. I could not figure out who was using so much non-ethanol gasoline.
- Anonymous - Wednesday, Jul 12, 17 @ 1:21 pm:
Where can i get e-10 free gasoline? Lol
- DuPage Bard - Wednesday, Jul 12, 17 @ 1:21 pm:
Even if not totally true, it’ll be in the mail pieces on those who voted yes.
Granted Indiana just raised their gas taxes and seems there was little fall out?
- Anon - Wednesday, Jul 12, 17 @ 1:22 pm:
Fun fact!
Studies have found that when a tax credit exists for ethanol at the same time as a mandate (the federal renewable fuels mandate) the net result does not actually subsidize the price of ethanol. It winds up subsidizing the price of the oil components.
So the impact winds up being economically inefficient as a means of promoting ethanol, which is why the federal blenders credit was allowed to expire. If there’s any interest I can dig up the paper.
This is without addressing the poor energy balance of corn based ethanol, which is pretty gosh darn terrible.
- Rod - Wednesday, Jul 12, 17 @ 1:23 pm:
From my understanding the City of Chicago and other cities would be able to borrow against pledged state revenue, the rating of those bonds would be subject to the combined credit standing of the City and the State driven in part by the State of Illinois’ ability pay its bills and pay out revenue sharing to the municipalities. In other words its not impossible that these new bonds will be junk rated too because they are backed by money coming from a fiscally tapped out State.
- Philo - Wednesday, Jul 12, 17 @ 1:27 pm:
Also, the E85 number you reference is the pure ethanol part of the gasohol number. It’s not E85. The IDOR report you use is blending components for retail gasohol.
- BigDoggie - Wednesday, Jul 12, 17 @ 1:34 pm:
An increase to the gas tax would actually be a big plus in our state. The current state tax (19 cents/gallon) has not changed in 24 years and is low compared to the average nationwide. Over that time, road construction has gotten much more expensive, and vehicles have gotten more fuel efficient. So the net result is that we have less Motor Fuel Tax funding to pay for higher cost road construction.
What has been done to make up the shortfall is periodic capital programs. These are beloved by politicians because they create a rallying point for political fund raising. However, this method of funding creates peaks and valleys in transportation spending on a year-to-year basis. For everyone involved in the industry (agencies like IDOT, design consultants, contractors, etc), it would be far preferable to have a consistent program that doesn’t force staffing up and laying off in cycles. This in turn would indirectly benefit the taxpaying public as well. An increase to the state gas tax would achieve this, and eliminate the need for these huge bonding outlays every 4 to 8 years.
But, like many other things in this state, this makes too much logical sense for the taxpayers to expect it to be implemented. Our infrastructure is NOT improving. I’d hate for it to get to the point of having failures occur to spur the Powers That Be to action on this.
- My button is broke... - Wednesday, Jul 12, 17 @ 1:39 pm:
Before the bill, ethanol was taxed at 80% of the selling price. Now its taxed at 100% of the selling price. If it costs $2 a gallon, you are now paying sales tax on 20% of the price that you weren’t before or 40 cents of that purchase price or an additional tax of 2.5 cents per gallon. So for 20 gallons it is 50 cents. So I disagree on the amount being $1 per 20 gallons.
Additionally, it has been argued for a while that the gas stations were essentially pocketing this tax break opposed to passing it along to consumers. Problem is since it is a 2.5 cent increase, seems it will be hard to tell if prices increase because of this law change or other external factors.
- Anonymous - Wednesday, Jul 12, 17 @ 3:50 pm:
Met Pier actually has way more than $3.7 billion in debt. It’s north of $8b when including the full accreted value of zero coupon bonds. That 2002 transaction was a mess.
- Frank O'Pinion - Wednesday, Jul 12, 17 @ 4:27 pm:
I’m 34, grew up in Chicago going to IN for gas, and still do to this day, increasingly shopping for other items as well. Such actions have helped my household come out ahead. I absolutely refuse to pay these ridiculous plastic bag, soda, and bottled water taxes.
- Pelonski - Wednesday, Jul 12, 17 @ 6:44 pm:
“So that was the trade-off of giving up something that at least from the renewable fuel industry, they feel that E-10 is well on its way and didn’t need the incentive that was needed for E-85 and biodiesel,” Gebhards said.
The Ag community probably benefits quite a bit from the sunset of the gasohol exemption. They’ve pretty much forced us to use at least E10 with federal rules, so it is unlikely that the loss of the exemption will cause a rush back to pure gasoline. Instead, it will create more of an incentive for retailers to purchase E15 which contains even more ethanol. In theory E15 can work with all modern vehicles, but it hasn’t seen much distribution because it is generally considered inferior. Having a tax break to help distinguish it may be enough to increase its distribution. You have to hand it to the farmers, they know how to use the government to their advantage.
- RNUG - Wednesday, Jul 12, 17 @ 9:40 pm:
== I have not seen any gasoline without the 10 percent mixture in Illinois. ==
Any Hy-Vee grocery store with a gas station has at least one grade of pure gasoline, usually premium. And some of the stations in boating / resort areas usually have some pure gas. And, as mentioned above, the one web site maps it out.
- Chicago 20 - Wednesday, Jul 12, 17 @ 10:38 pm:
Regarding the MPEA credit limit story.
The figures in the story can’t be correct.
The MPEA long term debt stated as of June 30, 2016 on the MPEA FY 2016 Audited Financial Statement climbed to $4,069,780,000 from $3,870,460,000 on June 30, 2015.
$3.7 billion plus $293 million is a $3.993 billion credit line maximum.
According to the story and the MPEA Audited Financial Statement the MPEA has already exceeded the new bonding authority without selling ANY additional bonds.
- Chicago 20 - Wednesday, Jul 12, 17 @ 10:57 pm:
Anon- “Met Pier actually has way more than $3.7 billion in debt. It’s north of $8b when including the full accreted value of zero coupon bonds.”
Actually it’s worse than that.
The total debt with interest was $11.297 billion as of the end of FY 2016.
In FY 2016, I & A Expenses exceeded MPEA tax revenue by $64,075,000 and the MPEA deficit climbed to $1.582 billion.
The repayment of Long Term Debt now extends another 11 years further out to FY2053 from FY2042.
The repayment schedule is ramped, a Jim Reilly hallmark with yearly payments doubling in the next ten years an increasing to 133.09% over the term of the debt.
MPEA Operating Revenues show a 10.34% drop in Exhibition Facilities revenue from FY 2015 and a 49.51% decline from FY 2009, immediately before the “reforms” which have cut the workers pay while exhibitor pricing has increased over 300%.
If anyone is wondering the price of a Pepsi in a meeting room at McCormick Place is now $8.86, and that’s not including the pending Cook County beverage tax.
- CEA - Thursday, Jul 13, 17 @ 9:15 am:
If the 19 cent per gallon motor fuel tax had been CPI-indexed since it was last set in 1994, it would be 32 cents per gallon now, and counties and municipalities would have been able to keep roads paved and bridges standing without having to raise higher local sales and property taxes. Anyone seriously complaining about even an indirect increase of 5 cents a gallon should be given a lollipop and a pat on the head.
- TinyDancer(FKASue) - Thursday, Jul 13, 17 @ 9:31 am:
==Despite a gargantuan long-term debt burden that totaled $3.7 billion as of June 2016==
Who’s on the hook in the event of a default and do they respond to FOIA requests?
- Anonymous - Thursday, Jul 13, 17 @ 10:26 am:
- fka Sue “Who’s on the hook in the event of a default and do they respond to FOIA requests?”
The State of Illinois is the guarantor.
The MPEA is subject to FOIA requests.