Illinois House Democrats push tax freeze to end budget impasse

CHICAGO (Reuters) - Democrats in Illinois' House of Representatives on Monday offered Republicans a four-year freeze on local property taxes that has been a key sticking point in the state's historic budget impasse.

It was not clear whether the legislation represented a break in the political logjam that has left the country's fifth-largest state without a full-year operating budget for two fiscal years and threatens to downgrade its credit rating to junk.

Republican Governor Bruce Rauner and the Democrat-led legislature face a Friday deadline to pass a budget or risk the consequences of a third-straight year of fiscal futility, including the halt of state-funded road projects and a suspension from national lottery programs.

A committee hearing is set for Tuesday on a bill, filed Monday by a top Democratic ally of House Speaker Michael Madigan, to freeze property taxes for four years through 2020, except for Chicago.

Under state Representative Michael Zalewski's plan, debt-service and pension payments would be excluded from the freeze, and cash-strapped school systems that have been placed on a financial watch list by Illinois would be exempt, including Chicago's struggling public school system.

While Senate Democrats passed a two-year tax freeze last month, Rauner and lawmakers from his party have been pushing for a four-year freeze on property taxes.

Madigan told reporters on Monday that a House Democratic spending outline would be made public on Tuesday before a planned meeting of the four legislative leaders, but he declined to offer details.

"Once that's in place, the question is: 'Can we work together to find the revenue to pay for that spending plan?' That's where we come up against Governor Rauner's demands for an extreme-right agenda," Madigan said.

Rauner has also insisted on changes to pensions and the way injured workers are compensated by employers, as well as term limits for certain state officials. Madigan revealed his own demands on Sunday, including a school funding revamp bill already passed both chambers.

House Republican Leader Jim Durkin insisted that any tax increase match the duration of a property tax freeze before he would be willing to help secure Republican votes.

"We're looking at four years on both, and nothing more than that,” Durkin told reporters at a news conference in the state capital.

Rauner's office directed an inquiry from Reuters to Durkin's office. A spokesman for Durkin later declined specific comment on Zalewski's legislation, saying only it was being reviewed.

(Additional reporting by Karen Pierog, editing by G Crosse)