Bowing to the “hard choices” of the pandemic, Illinois Gov. JB Pritzker proposed a $41.6 billion state budget Wednesday that keeps the income tax rate steady and cuts corporate tax credits but could shift dramatically if Congress delivers another multibillion-dollar round of COVID-19 relief.
Keeping a lid on new spending, the Democratic governor’s plan represents a no-frills, no-drama approach shaped by the all-encompassing nature of the COVID-19 pandemic that Pritzker said has forced a sobering recalibration of his pre-pandemic priorities.
“I had bolder plans for our state budget than what I am going to present to you today. It would be a lie to suggest otherwise,” the governor said in his budget address Wednesday that was streamed from the Illinois State Fairgrounds, site of an emergency hospital during the 1918 Spanish flu pandemic and now a mass-vaccination location for the coronavirus.
“But as all our families have had to make hard choices over the last year, so too does state government. And right now, we need to pass a balanced budget that finds the right equilibrium between tightening our belts and preventing more hardships for Illinoisans already carrying a heavy load,” he said.
After the November defeat of his graduated income tax amendment, Pritzker did not follow through on a financial step some had assumed would be inevitable: increasing the state’s 4.95 percent income tax rate.
Instead, in his outline for a state spending plan that would take effect in July, the governor is proposing “flat” spending, keeping more than $700 million in cuts he imposed late last year and calling for the elimination of $932 million in corporate tax breaks.
At the same time, the governor committed to a $60 million increase to help handle the flood of pandemic-related unemployment claims from those who have lost jobs and steering a portion of any new federal dollars that come Illinois’ way to small businesses reeling from pandemic-imposed shutdowns.
State spending on education and public safety is nearly static in Pritzker’s proposed budget, but human service appropriations see one of the largest upticks in his plan. The governor also committed to devoting more than $10 billion to cover mandated state pension payments.
The package will go before a Democratic-controlled Illinois House and Senate, where Republicans are relegated to super-minority status without the numbers to block the governor and his legislative allies.
Pritzker used part of his speech to target obstructionist Republicans who have fought him at every turn in his management of the pandemic.
“Throughout the pandemic, they have encouraged businesses to defy health guidelines, spread conspiracy theories about Covid deaths and fought mask guidelines tooth and nail,” he said. “Amidst the tragedy of this pandemic, they have lobbied against the federal government providing relief to Illinoisans, ignoring the life-changing economic pain of real working families.
“In essence, they eliminated the fire department, burnt down the house, and poured gas on the flames — and now they’re asking why we’re not doing more to prevent fires,” Pritzker said. “In a normal year, I might have more patience for their hypocrisy. But this is not a normal year.”
Republicans and some business groups threw their own barbs back at Pritzker over his move to eliminate some corporate tax breaks that were part of a 2019 budget deal between the governor and the GOP.
House Minority Leader Jim Durkin, R-Western Springs, accused Pritzker of reneging on his word from two years ago, questioning whether it was “some sort of payback” against Republicans for not supporting his graduated income tax amendment. He also ridiculed the governor’s characterization of the tax breaks as mere “loopholes.”
“There is a difference between loopholes and incentives,” Durkin said after Wednesday’s speech. “Incentives are what create jobs, grow our economy and keep our families in Illinois. ‘Loopholes,’ on the other hand, are what tycoons use to avoid paying taxes in Illinois like parking money in the Cayman Islands or using questionable property tax exemptions.”.
That dig harkens back to a couple of tough campaign issues the billionaire governor faced in his 2018 election.
Pritzker acknowledged having deposits in the controversial Caribbean tax haven. He also had to answer for a controversial property tax reduction on a Gold Coast home he was renovating by removing its toilets. A federal investigation ensued on the governor’s property tax reduction, though no criminal charges have emerged from the probe.
Durkin also accused the governor of trying to strip away the corporate tax breaks as “some sort of payback” against the GOP for the defeat of his graduated tax amendment.
The Illinois Retail Merchants Association, the only major business group not to endorse GOP Gov. Bruce Rauner in 2018, hammered Pritzker over his move to scale back one particular tax break used by small businesses in a move that will save the state $73 million.
“While the governor claims he is focused on rebuilding the state’s economy, it is counterintuitive that his first step is to raise costs on businesses by eliminating the retail discount, which only partially reimburses store owners for administering and collecting sales tax on behalf of the state,” said Rob Karr, the retailer trade group’s president and CEO.
Bickering aside, the governor does have the good fortune of the state weathering the coronavirus’ impact without state government’s two main funding sources – state income and sales taxes – freefalling because of the pandemic.
A new report by the legislature’s non-partisan budget-forecasting arm, the state Commission on Government Forecasting and Accountability, shows state income tax receipts are running nearly 10% greater than a year ago and state sales tax receipts are nearly 4% greater during the same period.
Those surprisingly strong financial results at a time of high unemployment are one reason Illinois’ pandemic-influenced fiscal picture isn’t as dire as once feared.
Still, even the budgetary framework Pritzker put on the table Wednesday could look far different in a matter of weeks depending on the fate of President Joe Biden’s $1.9 trillion COVID-19 relief package awaiting congressional action.
The office of U.S. Rep. Raja Krishnamoorthi, D-Ill., estimated Monday that Illinois’ share of the COVID-19 relief plan House Democrats are advancing totals more than $7.5 billion. Another $5.7 billion would be earmarked for local governments in Illinois, including $1.8 billion for Chicago and $1 billion for Cook County.
A vote by the full U.S. House is expected within two weeks, and then the measure would move to the Democratic-led U.S. Senate.
Senior Pritzker administration sources said Wednesday if that money comes through, his administration intends to expedite repayment of more than $3 billion in pandemic-related borrowing from the Federal Reserve Bank between June and December of last year.
“Congressional action will help us today, but it won’t solve Illinois’ remaining fiscal challenges,” Pritzker said. “That’s why any money we receive from the federal government needs to be spent wisely, by paying down borrowing and our bill backlog. Anything remaining must be used to invest in expanding jobs and economic growth.
“More jobs, more businesses, more economic activity – means a higher standard of living for our citizens, a healthier budget and a healthier state government,” he said.
Last week the governor’s office made clear he would not be seeking an increase in the state’s 4.95% individual income tax rate. In December, former Democratic House Speaker Michael Madigan had floated that as a possibility, saying he’d help the governor push for that increase if Pritzker wanted it this spring.
“I started with the premise that hardworking families should not have to pay more when they’re stretched the most thin,” the governor said Wednesday. “I want middle-class Illinoisans to pay lower income taxes, not higher. So this budget does not propose an across-the-board tax increases.”
Pritzker also laid out several non-budgetary priorities in his speech, including a call for passage of prohibitions on Illinois lawmakers doing lobbying work before other governmental entities and ending a practice where retiring legislators immediately can become lobbyists.
Additionally, Pritzker expressed backing for another cannabis licensing lottery and renewed his push for some kind of utility energy omnibus this spring that “protects our nuclear fleet and builds up our wind and solar industries, protects the environment, puts consumers first and supports jobs.”
The governor’s speech didn’t directly address his recent call for lawmakers to separate Illinois tax law from federal law, but administration sources stressed it remains a priority that could resurface in Springfield next month and mean a $500 million windfall for state government.
When Congress enacted earlier COVID-19 relief last spring, it altered how net operating losses and excess business losses would be handled under federal law. That provision also affected state law toward those business tax questions, resulting in an expected revenue hit to the state of $500 million. Legislative action to decouple the state from that federal provision would keep that money in Springfield.
Because of the pandemic, Pritzker characterized his proposed spending plan as “one of the most challenging budgets this government has ever had to craft,” but he pledged to be cooperative with the General Assembly and not make the burden of the coronavirus any harder on suffering Illinoisans.
“I enter the process of negotiation with an open mind. I have only one hard and fast rule – we aren’t going to treat people who have been decimated by this pandemic as roadkill,” he said. “Those most in need in our most desperate times deserve our help, and we cannot fail them.”