Pritkzer’s ‘Austere’ Budget Relies on Pension Plan, New Taxes

Cigarette smokers, shoppers who use plastic bags and potential sports betting and marijuana businesses would help the state pay for additional spending on schools, human services and new classes of Illinois State Police cadets under the spending plan laid out Wednesday by Gov. J.B. Pritzker.

Pritzker – as was the case for many of Illinois’ previous governors – inherited a fiscal mess when he took office just more than a month ago.

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This budget, his first and which he said is more “austere” than he’d like, is meant to serve as a “bridge” to the ones he hopes for the in the future. 

“To get to fiscal stability and eliminate our structural deficit, there’s no quick fix,” he said. “It took decades to get us into this mess. It will take at least several years to get us out of it. We must therefore embrace a multi-year approach with fair principles and smart investments in our people.”

But like so many governors before him, critics warn that Pritkzer is merely delaying hard decisions, forcing Illinois to tread choppy fiscal waters. The state’s credit rating is the lowest in the nation, and a wrong move could give Illinois the ignoble distinction of dipping into “junk” status.

“Unfortunately, the proposed budget does not go far enough to address Illinois’ fiscal problems,” said Kelly Welsh, president of the Civic Committee of the Commercial Club of Chicago, in a statement. “Delaying an aggressive approach will worsen our state’s financial outlook, and continue to slow our economic and jobs growth. We urge the General Assembly and the governor to work together to develop a plan that changes the trajectory of Illinois’ finances now, before they get worse.”

The crucial aspect of Pritzker’s multi-year approach is a constitutional change to pave the way for a graduated income tax.

Illinois’ constitution requires a flat income tax; Pritzker campaigned on amending the constitution to allow for a system in which the wealthy would pay taxes at a higher rate. That would require support first from three-fifths of the General Assembly and then approval from Illinois voters during the 2020 election cycle.

Pritzker is banking his legacy – and Illinois’ immediate financial state – on a successful overhaul of the state’s tax system.

“The state needs a fair tax, and I am going to be relentless in pursuing one over the next two years,” Pritzker said. “To fix our state’s problems, we need fundamental tax reform. There’s no hiding from it. There’s no running from it. There’s no lying about it. I choose a fair tax system to get us out of this mess. It will take 18 months to get it done, but it’s worth the wait so we can save working families hundreds or thousands of dollars per year."

In the interim, Pritzker is proposing a budget with spending increases:

  • An additional $30 million to help an expanded class of low-income working families pay for child care;
  • An additional $52.2 million more for the state’s public universities, and $50 million for the Monetary Award Program that gives grants to low-income students;
  • And $9.8 million for more child protection and child welfare specialists.

Still, Pritzker said he reined in spending while aiming to “not hollow out vital government services any more.”

“This is a constrained budget – more austere than I would like – but I think it’s important that we be disciplined and focused over the next few years to pay down our bill backlog and the debt left over from prior administrations,” he said. “The responsible course of action is to embrace some near-term, reasonable – and realistic – new revenue, which will bring in an estimated $1.1 billion in total.”

Among the “new revenue” sources outlined by Pritzker:

  • A 5-cent statewide tax on plastic bags (similar to the tax on plastic bags already in place in Chicago)
  • Increasing the state tax on a 20-pack of cigarettes from $1.98 to $2.30 (raising a projected $55 million)
  • Implementing a new tax on e-cigarettes (which would get the state $10 million)
  • Legalizing, then taxing, marijuana. The administration projects bringing in $170 million in one-time fees from businesses seeking state licenses to grow or sell cannabis
  • Legalizing sports wagering. The administration projects $212 million through one-time licensing fees
  • Restructuring taxes on video gaming, with a sliding scale raising an additional $89 million
  • A tax on certain health insurance companies in a manner that would leverage additional federal matching money for Medicaid expenses

Some critics were left wondering just where the austerity part comes in.

“What I saw at the end of the speech is that there’s more spending,” House Republican Leader Jim Durkin said. “We talk about the fiscal problems of the state, austerity, but when you’re saying we’re going to spend more from the previous year to the tune of $1.1 billion, it does make me question what the intentions of the administration are.”

There is at least one area in which Pritzker plans to cut: Background material provided by the administration indicate the new governor would trim $6 million from a program enacted under former Gov. Bruce Rauner that gives donors a credit on their income taxes for contributing to a state fund that pays for private school scholarships for low-income students.

Pritkzer would have still less to spend were it not for his proposal’s reliance on a new pension plan outlined last week by former comptroller and current Deputy Governor Dan Hynes.

Cutting away at Illinois’ gnawing $134 billion long-term pension debt means that nearly a quarter of annual operating money goes toward pension payments.

Should Pritkzer get his graduated income tax, he said he would dedicate $200 million of the revenue toward pensions. But that’s only if it passes.

Other changes call for a $2 billion pension obligation bond that could save Illinois money if done right, or end up costing the state if the markets flop.

Another idea is to move lucrative state assets – like buildings, the Lottery or even the Tollway – into the pension funds.

Also, Pritzker wants to cut $800 million in immediate pension payments by stretching out the cycle set forth in law that sets a 2045 deadline to be at 90-percent funding; Pritkzer would reset the pension ramp so payments are “more sustainable” by adding another seven years to that target. 

“Skipping pension payments, borrowing new debt, raising taxes, increasing spending – it’s clear that J.B. Pritzker is the new Rod Blagojevich,” Illinois Republican Party Chairman Tim Schneider said. “Pritzker’s unbalanced budget proposal is more of the same, failed policies that got our state into the mess it’s currently in. Illinois taxpayers cannot afford to return to the budget deficits and failed policies of the Blagojevich era. Pritzker pledged to deliver a balanced budget, and he failed.”

On the flip side, progressive groups and legislators said Pritzker did not go far enough in seeking to reap more from corporations and the wealthy, money they say could be spent on vulnerable populations.

“We are counting on Gov. Pritzker to keep his campaign pledge to implement a progressive income tax, also known as The Fair Tax, but our social service providers, public schools and universities and roads and bridges need major investments this year,” said Bea Westrate of Fair Economy Illinois in a statement. “Gov. Pritzker missed a critical opportunity to commit to closing nearly half a billion dollars in corporate tax loopholes during this legislative session. Requiring corporations to pay their fair share this year is the best down payment Gov. Pritzker can make good on his promise to make our tax system fairer. The legalization and taxing of cannabis and sports betting are simply more taxes on poor, working and middle class people. We also reject the privatization of state assets to fill budget deficits.”

Still, Republican legislative leaders signaled a willingness to work with Pritzker, as the governor and four legislative leaders had their first “leaders” meeting Wednesday morning prior to his speech.

Without his recommended changes, Pritzker said state agencies would see 4-percent across-the-board cuts.

There’s also the matter of a $900 million deficit in this fiscal year 2019 budget, which ends June 30.

Budget director Alexis Strum told reporters the administration is looking to “control costs” in state agencies, but that Pritzker may not be able to fill that gap, meaning at least part of that deficit would carry over.

Follow Amanda Vinicky on Twitter: @AmandaVinicky

Related stories:

Illinois Lawmakers Debate Financial Steps Amid Pritzker Deficit Report

Chicago’s Big-Time Business Club Calls for State Tax Increase

Lessons From the Governor Who Instituted Illinois’ First Income Tax

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