Democratic Gov. J.B. Pritzker says the state faces a ballooning budget deficit and bill backlog over the next five years and said new revenue sources are being explored because cuts alone cannot resolve Illinois government’s structural spending imbalance.
Still smarting over the loss of his proposed graduated-rate income tax amendment and the revenue that would go with it, Pritzker restated expectations of a $3.9 billion deficit for the budget year that ends on June 30. A forecast from his budget office project deficits of $4.8 billion in the budget year that starts in July and continuing in the $4 billion range annually, including $4.2 billion for the 2026 budget year.
At the same time, the projected backlog of bills for payments owed to state vendors, expected to reach $10.16 billion on June 30, will almost triple to $33.16 billion in the 2026 budget year, according to the most recent five-year forecast from the governor’s budget office.
That would double the bill backlog record set in 2017 amid the two-year period Illinois went without a budget during the tenure of one-term Republican Gov. Bruce Rauner.
During the same time period, statutory pension obligations owed by the state to public employees will increase from $8.624 billion this budget year to $10.59 billion in the 2026 budget year. Illinois has the nation’s most severely underfunded public employee pension system.
The budget forecasts are based on current law and do not reflect the potential for federal pandemic assistance to state and local governments, which have seen revenue downfalls due to business restrictions and job losses.
Democrats pushing such relief in the U.S. House have been rebuffed by Republicans who control the U.S. Senate. It is uncertain if the ascension of presumptive President-elect Joe Biden may change the dynamics of the stalemate after the Democrat’s inauguration on Jan. 20.
In putting the state budget together, Illinois lawmakers authorized the borrowing of up to $5 billion from the Federal Reserve under its own COVID-19 relief regulations. Pritzker’s projections did not include any borrowing from the Fed and warned that a required three-year repayment would exacerbate the projected long-term deficits. But the report said borrowing from the Fed remains among the options.
“A structural deficit of the size that Illinois is facing cannot be addressed by spending cuts alone,” the governor’s budget forecast said.
“The governor believes that support for quality education, access to health care, and sufficient social services for when people need a helping hand to get back on their feet are all part of the essential functions of state government,” the report said. “However, along with servicing our debt and meeting our pension obligations, these costs make up over 75% of the budget. Across-the-board cuts to state government spending means these areas will not go untouched.”
Pritzker noted that his agency directors already have been asked to come up with 5% cuts in their current-year budgets — something that would translate to 10% cuts across a full year.
But the report said Pritzker believes “revenue adjustments need to be considered as well.” It said Pritzker will work with lawmakers to “identify corporate and business tax loopholes that can be closed and tax adjustments that can be made that will minimize the impact to lower- and middle-class families while ensuring that Illinois can meet its financial responsibilities.”
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Pritzker had counted on voter ratification of his proposed constitutional amendment that would have allowed Illinois to move from its currently mandated flat-rate income tax to a graduated-rate tax with a levy that increases along with wealth. A tax schedule that would have gone into effect Jan. 1 if the amendment passed would have raised an estimated $1.27 billion for the current budget year and $3.4 billion over the course of a year.
Supporters of the proposal warned that rejection of the amendment could lead to a 20% increase in the state’s current 4.95% personal income tax rate, taking it to 5.95%.
“Looking ahead to the fiscal year 2022 budget and recognizing that Illinois continues to face significant financial challenges, there are limited ways to address the structural deficit of the state budget in the absence of the tax rate structure flexibility that would have been provided under the changes in the proposed constitutional amendment,” the report said.
Pritzker had wanted lawmakers to consider the budget when they were scheduled to return to Springfield on Tuesday for their fall session. But Democratic leaders who control the General Assembly canceled the session due to spiking cases of the coronavirus throughout the state. Instead, Pritzker said he would reach out to legislative leaders in both parties to discuss budget alternatives.
“While we didn’t anticipate a pandemic, we must now grapple with the economic hardship it has created while also preserving the vital state services Illinoisans rely on,” Pritzker said in a statement. “I am committed to ensuring the state of Illinois returns to the path of fiscal stability we began to pave last year, while managing through this unexpected economic crisis responsibly.”