Coming off the defeat of his signature graduated-rate income tax proposal in November, Democratic Gov. J.B. Pritzker is preparing to present a budget plan to lawmakers next week that doesn’t increase overall state spending or raise the flat-rate income tax from the current 4.95%.
In a budget overview short of details, Pritzker’s office said he will propose closing $900 million in unspecified “corporate tax loopholes” and ask legislators to redirect some dedicated revenue streams, such as the cigarette tax, to the state’s general fund.
The governor’s office is projecting a $3 billion deficit for the budget year that begins July 1, down from a previous projection of $5.5 billion, thanks in part to a stronger-than-expected economy.
The deficit projection was also lowered because the state has paid off $700 million of the $3.2 billion it borrowed from a special Federal Reserve program ahead of schedule, according to the governor’s office. The state has until December 2023 to pay off the full amount.
While saying Pritzker’s proposal would close out the $3 billion budget hole, the administration didn’t provide a complete picture of how it plans to balance the spending plan he will present to the General Assembly next Wednesday.
While overall spending would be flat, the proposal would “strengthen” some agencies, including those on the front lines of the state’s response to the coronavirus pandemic, including the departments of Public Health and Employment Security, Pritzker’s office said.
For the second year in a row, however, Pritzker is proposing a budget that would fall short of the spending requirements in the landmark education funding overhaul his predecessor, Republican Gov. Bruce Rauner, signed into law in 2017. It was one of the few major pieces of bipartisan legislation that became law during Rauner’s single term.
The law calls for the state to increase funding for elementary and secondary education by $350 million each year. Last year, Pritzker proposed making a portion of that funding increase contingent on voter approval of the graduated income tax. The $43 billion spending plan Pritzker ultimately signed into law for the budget year that ends June 30 held state funding for schools flat.
An influx of federal funding for schools would help make up the difference next year, and Pritzker remains “committed to ensuring that education is fully funded in future years,” his office said.
Pritzker faces high stakes as he prepares to present his third state spending plan to lawmakers.
His proposed change to the state constitution to allow for a graduated income tax was the cornerstone of his plan for addressing the state’s long-running fiscal problems, and it crumbled when voters resoundingly rejected the idea in November.
Pritzker proposal to exempt state income taxes from a federal tax law change that would result in a loss of more than $500 million in corporate tax revenue also fell short when lawmakers rejected it in the waning days of the previous General Assembly in January.
The governor has taken other long-discussed options, including a tax on retirement income, off the table, leaving few options for providing long-term stability.
“I certainly hope that the governor’s budget proposal reflects the will of the voters expressed so clearly in the last election that they want state government to live within its means instead of once again reaching into people’s pockets to balance the state budget,” Senate Republican leader Dan McConchie of Hawthorn Woods said in a statement.
“I am specifically interested in seeing what solutions the governor has to help get our small businesses and unemployed workers back on their feet as they continue to struggle through the pandemic,” McConchie said.
David Merriman, an expert on state finances at the University of Illinois at Chicago, said the plan Pritzker’s office has outlined would do nothing to address the major structural problem facing the state: a lack of adequate revenue to meet its financial obligations and support the programs and services taxpayers expect.
Even still, “being able to pull this all off seems like a real stretch, and it doesn’t look like it’s enough money to close the deficit, so I’d say they have a long way to go,” Merriman said.
Republican state Rep. Tom Demmer of Dixon, a lead budget negotiator for the House GOP, said he appreciates the governor looking for ways to balance the budget without major tax increases. But he said a number of questions remain, including what the administration means by “corporate tax loopholes.”
Demmer said he also has reservations about the proposal to divert revenue from cigarette taxes to the general fund, in part because that money is dedicated to purposes that include paying for building projects as part of the $45 billion “Rebuild Illinois” infrastructure plan that was approved with bipartisan support in 2019.
In addition to infrastructure, cigarette tax revenue is earmarked for health care and education.
Elements of the proposal such as those would require changes to state law, which is never a sure thing, he said. “We’ve cautioned against counting on hypothetical revenue before it passes,” he said.
In December, the Pritzker administration proposed $700 million in cuts in the current budget through steps such as freezing hiring and grants. Some portions of that plan, such as furloughs for state workers, are subject to collective bargaining and have been opposed by unions.
The American Federation of State, County and Municipal Employees Council 31, the largest union representing state workers, has not agreed to make those concessions, spokesman Anders Lindall said.
While the governor’s office said it would seek $75 million in savings through negotiations, Lindall called the idea of instituting furloughs to save money “nonsense.”
“Besides being unfair to employees, furloughs don’t reduce costs,” he said, arguing that the state would likely incur overtime costs as prison guards and child protection workers put in extra hours to cover for their furloughed colleagues.
The administration still is hoping that new aid from Congress will help close the nearly $4 billion hole the state faces for the current year. Pritzker’s office did not respond to a request for comment on how much money the state is hoping to receive through the federal stimulus package being negotiated in Washington.
dpetrella@chicagotribune.com
