An Illinois court on Wednesday voided a law that created a variety of revenue sources earmarked for funding big transportation projects and other job-generating programs.
The Illinois Appeals Court ruled the law violated the state Constitution's requirement that bills contain related subject matters and not disparate items.
The law, passed in 2009, included a wide array of revenue measures, including higher motor vehicle title fees, a liquor tax increase, the authorization of video gambling, and new sales taxes on candy and other products.
Making matters more complicated is the state's sale last year of bonds whose debt service payments may be linked to the revenue sources that were struck down by the Appeals court on Wednesday.
The state sold at least $1.2 billion of taxable general obligation Build America Bonds for capital projects last year. The official statements for the deals said the $33 billion capital plan includes about $14.6 billion of bonds with debt service paid through the revenue sources that were struck down by the appeals court on Wednesday.
Illinois was planning another $1 billion to $1.5 billion bond sale for capital projects in late spring or early summer, the state's capital markets director said this month.
Kelly Kraft, a spokeswoman for Governor Pat Quinn, said all the bonds issued for the capital plan have a source of payment and that the general obligation bonds are backed "by the full-faith credit and taxing power of the state."
Quinn's office said in a statement that the ruling will be appealed, and the state is seeking an immediate stay from the Illinois Supreme Court.
Robin Prunty, an analyst at Standard & Poor's Ratings Services, said the ruling will not affect the state's general obligation rating, which was affirmed at A-plus with a negative outlook on Tuesday.
There was no immediate reaction to the ruling in the secondary municipal market for the state's bonds, according to market analysts and traders.
CHALLENGES TO SINGLE-SUBJECT RULE NOT UNCOMMON
Liquor distributor W. Rockwell Wirtz filed the lawsuit in August 2009, claiming various violations of the state constitution, including the single-subject requirement. The lawsuit headed to the appeals court after a Cook County Circuit Court tossed the complaint.
The state disclosed the lawsuit in its bond documents.
Mark Rosen a law professor at the Chicago-Kent College of Law, said it is not uncommon for state laws to be challenged for not following the single-subject rule.
"They are often readily rewritten and repassed," Rosen said. "But as a practical matter, it can be difficult to get statutes repassed, given the political realities of mustering a majority."
Legislators who felt obligated to vote for the original bills because they contained elements they wanted, might not support those elements when they are separated out, Rosen said.
The governor signed the legislation into law in July 2009, saying it would generate jobs by funding projects to improve roads and bridges, public transit, schools, parks and water systems.
While the higher fees and taxes went into effect, the video gambling component has not moved forward. The ruling also voids the state's move to generate more money by hiring a manager for its lottery. This month, the state finalized a deal with a group that includes Lottomatica and Scientific Games Corp.
The statement from Quinn's office called The Illinois Jobs Now! capital program " an important part of Governor Quinn's plan to put Illinois back to work," and said that capital projects already in progress will continue as scheduled.