SPRINGFIELD — Gov. JB Pritzker outlined a $41.6 billion budget proposal Wednesday that would hold most state agencies at flat funding levels, but which relies heavily on changes to the state’s corporate tax structure that lawmakers have not yet approved.
The budget proposal, which is only the governor’s request for lawmakers in the General Assembly, does not call for income tax increases. Over the next four months, lawmakers will work on an operating budget of their own to send to the governor which may or may not address all of his requests.
It also does not rely on any federal funding increases that have not yet been passed into law, although a federal Medicaid reimbursement rate increase that is already in place does account for a $638 million reduction to the state’s expenditures.
It was Pritzker’s third budget message since taking office in 2019. And unlike others that were delivered from the House chamber in the Capitol, this year’s message was delivered remotely through a prerecorded video due to the ongoing COVID-19 pandemic. The address, which was as combined 2021 State of the State and Budget Address, was recorded at the Illinois State Fairgrounds, which now serves as a COVID-19 vaccination site.
In his speech, Pritzker had harsh rhetoric for “far right” Republicans at all levels of government, describing them as “carnival barkers” for lobbying against federal relief to states and for defying health guidelines. He also once again made note of the two-year budget impasse presided over by former Gov. Bruce Rauner, a Republican, calling it a “self-inflicted” period of suffering which saw the state’s backlog of unpaid bills balloon to over $16 billion.
Pritzker said in the past 20 years, as pension payments have become an increasing burden on state finances, Illinois’ number of government employees has shrunk by 30%, the Illinois State Police force has shrunk by 40% and the Illinois Environmental Protection Agency work force shrunk by 60%.
“If there is anything the last year should have taught us, it is that we need a reliably well-funded government,” he said. “Many on the far right have made their name in politics by touting cuts to unemployment programs and health insurance coverage. They called anyone who sought unemployment benefits ‘takers.’ They demonize state employees. And they fought unrelentingly to eliminate any state or federal funds designed to make health care more accessible, equitable and fair.”
The budget proposed for fiscal year 2022 relies on more than $900 million in corporate tax changes that will require action from the General Assembly. Those include a reversal of previous General Assembly action to repeal the corporate franchise tax, a cap on net operating losses for the fiscal year that would allow for $314 million in savings and a cap on a retailer’s discount to $1000 per month, and other changes.
“While the governor has focused on increasing taxes, he should focus on spending in this $41 billion budget,” said State Rep. Patrick Windhorst (R-Metropolis). “More than a year ago, Gov. Pritzker ordered his Deputy Gov. Dan Hines and state agency directors to produce a list of across-the-board cuts. House Republicans have demanded to see the list of cuts. To my knowledge, no one has ever seen that list of cuts, yet the governor called on Republicans in the super minority to produce our list of cuts.”
Republicans and business groups lambasted the governor’s plan as a tax increase on businesses and a betrayal of a bipartisan compromise budget which members of both parties celebrated in Pritzker’s first year.
Windhorst, who represents the 118th District, said Pritzker’s FY 2022 budget proposal unfairly punishes small businesses
“This address was the most partisan I’ve heard the governor give to date. The governor blaming Republicans for Illinois’ economic woes is designed to mislead and deflect responsibility, especially considering that the Democrats control the entirety of state government and the governor has been operating the government by executive order for nearly a year,” Windhorst said. “In 2019, many House Republican members supported key economic reforms and business incentives that resulted in increased private investment in our state. The governor’s proposed FY 22 budget goes back on the agreement to support these programs. The kind of programs that spur the economic activity the governor said is key to solving our state’s fiscal challenges. The governor instead has proposed a $900 million increase in taxes on small businesses. Gov. Pritzker may call these incentives for economic growth ‘loopholes,’ but in reality, he is proposing a massive tax hike on small businesses when they can least afford it.”
State Sen. Dale Fowler (R-Harrisburg) said the “budget proposal is out-of-balance and does nothing to help businesses and job creators of this state who continue to struggle day-to-day. This year has been devastating for so many of our residents, with the pandemic taking a monumental toll on Illinois’ communities, schools and businesses. Now is the time in which our state needs responsible leadership the most, and that begins with embracing real structural reforms that help our economy begin the road to recovery.
“Illinois needs a budget that fights for our business community and works to create economic opportunity,” Fowler continued. “Especially here in southern Illinois, where the backbone of our business community is locally-owned, small businesses, we have to be committed to providing relief and assistance to those who were hit hardest by repeated shutdowns and rigid restrictions.”
Republican House Minority Leader Jim Durkin, of Western Springs, accused the governor of seeking “payback” in his effort to repeal some corporate tax incentives passed by lawmakers in 2019, alleging that it was in response to the November failure of the graduated income tax.
Senate Minority Leader Dan McConchie (R-Hawthorn Woods) called the budget an attempt to “move money around” and raise corporate taxes.
While the governor characterized his corporate tax changes of closing “corporate loopholes,” Republicans characterized it as an elimination of important incentives aimed at keeping job creators in the state.
Illinois Chamber of Commerce President and CEO Todd Maisch characterized the tax changes as “a massive tax increase.”
“We understand that the state has fiscal problems to address, however, the governor’s plan will have a long-term negative impact on job creation and tax revenues for the state as it produces an unfair increase on taxpayers after they resoundingly defeated the graduated income tax,” Maisch said in an email statement. “This not only will expand what will get taxed, but will also reduce key tax credits for vital sectors of the economy.”
Much of Pritzker’s speech was dedicated to demonstrating the toll of the pandemic both on society and state finances.
“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,” Pritzker said. “But as all our families have had to make hard choices over the last year, so too does state government.”
Senior budget officials, in a briefing before the address was streamed, noted the governor will still seek to decouple the state tax code from changes allowed in the federal Coronavirus Aid Relief and Economic Security, or CARES, Act. That change would keep revenues flat from a year ago by providing that the CARES Act cuts passed last year would not automatically reduce Illinois state tax burdens for businesses.
The measure failed in the lame duck session as Republicans blasted it as a more than $500 million tax increase on businesses, but Democrats at the time said it was a way to prevent revenue loss by maintaining the status quo.
Total revenues for the year represent a 4.1% decrease from a year ago, due in large part to $2 billion in borrowing from the federal Municipal Liquidity Facility program, $690 million of which is due in fiscal year 2022 but will be prepaid in fiscal year 2021, according to budget officials. Another $1.2 billion in MLF borrowing from June 2020 is also due to be repaid in the current fiscal year.
K-12 education funding from the state will remain flat from a year ago, the second straight year the state would forgo that added $350 million called for in state law each year as part of an evidence-based funding formula.
The budget proposal also eliminates a 48-month deadline for repaying interfund borrowing, which alleviates $276 million of pressure in the current fiscal year by allowing the state to repay fund borrowing on an extended deadline.
The budget calls for a full pension payment and increases funding for the Department of Children and Family Services by 7.9%. Pritzker also asked lawmakers to pass a standalone bill increasing spending for the Illinois Department of Employment Security by $60 million in federal funds for the current fiscal year and called for an added $73 million for the current fiscal year in federal funds.
Higher education would see funding levels maintained and Monetary Award Program grants for college students would increase by $28 million, per the governor’s request.
Pritzker’s budget proposal also calls for an 8% reduction, or $638 million, in Medicaid expenses. That’s because the federal government has increased its share of Medicaid funding by 6.2 percentage points through the end of 2021 as part of its pandemic response plan.
Local governments also would see a cut in financial assistance they get from the state. The Local Government Distributive Fund, or LGDF, which gives local governments a share of the income tax revenue the state collects, would only be funded at 90%, but officials in the governor’s office said they expect that cut to be offset by gains they municipalities would realize through the closing of corporate tax loopholes.
Budget officials also claimed the budget shortfall for the current fiscal year has been addressed through the federal borrowing, $700 million in operational cuts and revenues performing better than projections. The state is now projecting a surplus of $77 million for the current fiscal year, along with the ability to prepay some of the Municipal Liquidity Facility borrowing from the previous fiscal year.
“The Constitution calls on the governor to present a truly balanced budget,” Windhorst said. “The FY 22 budget proposed by Gov. Pritzker relies on federal government money that may or may not come. That is the tactic used to pass last year’s budget and call it, ‘balanced.’ The Democrats’ recent practice of relying on revenues that have not yet passed and a bailout from Washington, D.C., that never came resulted in a widening of our budget deficit. Democrats control every single lever of power in Illinois’ government. It would help all of our citizens if they would learn their lesson, stop spending money we don’t have and make the tough choices that are necessary to balance the budget.”