Ahead of Budget Address, A Look at Fiscal Pressures Facing Illinois

If Gov. J.B. Pritzker had his way, things would be a lot different heading into Wednesday, when he’s set to give a combined state budget and state of the state address—remotely, for the first time due to the pandemic.

In Pritzker’s ideal, alternate reality, he’d have another $3 billion to work with, thanks to Illinois’ wealthiest individuals paying more in income taxes.

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Instead, last November, Illinois voters soundly rejected his proposed constitutional amendment that would move Illinois to a graduated income tax structure.

The day after the Nov. 3 election, Pritzker said that vote would have budgetary consequences.

“There will be cuts and they will be painful,” he said.

Laurence Msall, the head of the nonpartisan Civic Federation, says Pritzker is in the “inevitable” and “un-enviable” position of looking at having to make some $3 billion in reductions, as the administration estimates a deficit that size for fiscal year 2022, which begins in July.

However, in a light-on-details framework released by the Pritzker administration earlier in February, the governor’s staff said: “With the COVID-19 pandemic creating massive new hardship for families, small businesses and the most vulnerable, the Governor will be proposing a budget that protects hardworking families from additional hardship – with no tax increase. Vital services such as IDPH (Illinois Department of Public Health), DCFS (Department of Children and Family Services), IDES  (Illinois Department of Employment Security) and others will be strengthened.”

Msall says Illinois is treading water, with its current, fiscal 2021 pandemic-era budget cobbled together in the spring.

“The state still has over $7 billion in unpaid bills, it has $3 billion in debt to the federal government it has to pay back in a couple of years, the economy has not really reopened and so even though there’s been some positive in the higher-end income groups’ revenue growth, the overall economy is challenging and people are hurting and the state of Illinois has a lot of debt, including a lot of pension debt,” Msall said.

Msall said the state’s annual required pension payment is set to rise by $600 million—adding additional pressure given that in the tidbits the Pritzker administration recently released about what’s in store the governor has said he will keep total spending flat.

Illinois Collaboration on Youth CEO Andrea Durbin says talk of spending reductions comes when the state must recognize the increased demand for human services, and should prioritize communities hardest hit by the pandemic, “including Black, Brown and rural communities,” and should “reflect the needs of those who’ve been disproportionally impacted by the long-term systemic racism that I think we’re as a society really starting to reckon with.”

Durbin says spending reductions often aren’t what they seem on paper.

She says saving money on one need — like “essential services, including services that address the social determinants of health, economic support and family well being”— often shoves it to another line item, adding cost down the road.

“This is not the time to be cutting those things, but this is the time to be investing in that,” Durbin said. “It appears to me that we haven’t learned the lessons of the budget impasse, that we haven’t understood that all our fates are tied together and to me the pandemic has even more than the budget impasse did. No person has been protected from the coronavirus; all of us are at risk when anybody is at risk.”

Among other information Pritzker’s office has released is that he plans to close what the administration describes as $900 million in corporate loopholes, but there are no details as to what tax breaks are on the list.

Business groups and Republican legislators say that would hurt Illinois’ finances in the long term.

“Those are job creation mechanisms that were passed by the legislature over the years,” House Minority Leader Jim Durkin said. “What the Democrats call ‘loopholes’ we look at (closing) those as tax increase, but we also believe that that is a disincentives for businesses to remain in Illinois, to grow, and to keep employees employed.”

Pritzker also plans to redirect revenue from a tax on cigarettes, such that instead of using it as planned on infrastructure projects, the cigarette tax money would go to the general fund to be used on operational expenses.

And while he can’t bank on it until it’s a sure deal, Pritzker surely is hoping that the federal government is going to come through with money for states and local governments to help buttress budgets that universally have taken a hit because of the pandemic.

Should that come through, it’s no panacea, Msall warns.

“Even if the federal government comes forward under the best case scenario right now of $7.5 billion in new revenue support for the state of Illinois as part of the new (president Joe) Biden and new federal Congress relief package, it’s short-term money. It’s going to be spent and then there is going to be again a structural hole,” he said.

One possible way to begin to fill that hole: Taking the suggestion of the Center for Tax and Budget Accountability — a major proponent of the graduated income tax. The CTBA released a report Tuesday that recommended a workaround to achieving a graduated tax structure and raising approximately $3 billion in annual revenue by raising the 4.95% flat income tax by one percentage point and then giving lower-income households tax credits. 

It’s an idea, but for now Pritzker has said his proposal will include no tax increase.

The administration is able to do so in part because the office estimates the deficit, originally projected at $5.5 billion, is $3 billion for fiscal 2022, thanks in part to higher-than-anticipated revenues even during the COVID-19 shutdowns.

Oddly, that’s in part because of high unemployment and the related COVID-19 bumps in benefits.

According to the Commission on Government Forecasting and Accountability’s latest, January report, jobless rates see-sawed in the past year.

“Illinois reached a historically low unemployment rate in February 2020 with a seasonally adjusted rate of 3.4%. That status abruptly changed with the onset of the COVID-19 virus. Within two months, Illinois went to a historic high rate of 17.2% in April 2020.”

The latest, December figures show Illinois’ unemployment rate to be 7.6%, still higher than the national average.

Elevated payouts in unemployment added to Illinois’ bottom line.

“The taxation of unemployment benefits has undoubtedly minimized the impact on Illinois’ tax revenues, acting like a buoy and keeping withholding tax receipts at levels higher than otherwise would be expected given the jobless rate,” the COGFA report reads.

Follow Amanda Vinicky on Twitter: @AmandaVinicky

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