The Illinois budget that JB Pritzker wants to build

Updated June 5, 2019

The Illinois House Revenue & Finance Committee approved, on Monday, a proposed constitutional amendment that would change the state’s flat tax to one that is graduated, a campaign issue from the newly inaugurated Gov. J.B. Pritzker, and was passed mostly by the supermajority from the Democrats.

This supermajority developed last year under the aegis of Speaker of the House, Michael Madigan giving the necessary 71 votes needed, according to state law, for the change. And, as planned, will place a full floor vote with the result of a referendum placed on voter ballots in 2020, giving plenty of time to handle the voices of naysayers.

The news came as a relief to the new governor, but also brought forth some expected blowback from the right-leaning Illinois Policy, a group that largely staffed the later years of the Rauner administration.

They noted that the 9-6 vote would “scrap taxpayers’ sole protection against endless income tax hikes,” and echoing Rauner, they emphasized that “If state lawmakers truly wished to amplify voters’ voices, popular ideas such as term limits, redistricting reform and pension reform would similarly be on the table. These were left unmentioned by progressive income tax proponents in testimony.”

Seizing the soft underbelly of possible opposition, they also reported that, “state Reps. Jonathan Carroll, D-Northbrook, and Sam Yingling, D-Grayslake, were the latest lawmakers in the House Democratic caucus to declare their opposition to Pritzker’s tax plan. Carroll cast a “yes” vote on the amendment in committee, noting that he thought an issue of this magnitude deserved debate in front of the full House. He expressed he still had serious reservations about the proposal, and as a result his vote should not be taken as an indication of a “yes” vote on the House floor.”

Chicago Tribune columnist Eric Zorn said last September, “It’s a popular idea. A Paul Simon Public Policy Institute poll last February found 72 percent of 1,001 registered Illinois voters backed such a change, and 76 percent supported an extra 3 percent tax on all income over $1 million a year,” but expressed some doubts about the details and the devil within the plan. And, there are some within the system that would have to be adjusted to create the fairness that Pritzker wants, such as deductions for lowered income earners to balance,  for example those that rent versus those that own.

With the Senate already approving, most lawmakers, despite the two defections, feel that the proposal may come to fruition with the referendum.

It’s worth noting that “Illinois, Indiana, Massachusetts, Michigan, Pennsylvania and Utah are the only other states with similar plans. As of 2012, the rates ranged from 3.07 percent in Pennsylvania to 5.3 percent in Massachusetts.”

This is just part of Pritzker’s tackling of the financial plan, and the budget remains the number one priority with the state mired in pension debt with a ballooning figure of $134 billion dollars.

The tax plan aside, Pritzker feels that his budget is  “a bridge to a stable fiscal future,” and “To get to fiscal stability and eliminate our structural deficit, there is no quick fix,” Pritzker said. “It took decades to get us into this mess. It will take at least several years to get us out of it.”

After the initial budget speech, Crain’s columnist Greg Hinz reported that “with operating expenditures totaling $39 billion—will close a $3.2 billion gap through a combination of taxes from new items such as legalized marijuana sales and sports betting; a delay in making some pension payments; and a slower increase in spending than some progressives have wanted. Combined with a new assessment on Medicaid providers that will be doubled with a federal match, the 2020 budget will have $1.1 billion in new revenues.”

Senate President John Cullerton, said “The budget is “creative and aggressive” in moving to solve problems, he said. And it’s “filled with ideas—real, doable constitutional ideas. Now, whether or not they happen remains to be seen. That’s what the legislative process is for."

Minority leader Bill Brady said , at the time, that Pritzker's initial budget speech,“We heard a lot in his speech about more spending, more tax increases and concepts tried in the past. And while we as legislators now begin digging into the details, I have grave concerns about the pension plan and I remain opposed to a graduated income tax.”

Also balking on the proposals “was the Civic Committee of the Commercial Club, which apparently didn’t like the governor’s rejection of its proposal to raise income taxes across the board and start taxing retirement income. “The proposed budget does not go far enough to address Illinois’ fiscal problems,” it said.

Cheering the governor on was “Illinois Comptroller and Chicago mayoral candidate Susana Mendoza [who] applauded Pritzker for “taking critical steps toward fixing our state’s finances and making much-needed investments. . . .By finding new revenue solutions like a progressive income tax and marijuana legislation, I’m confident we can begin fixing the structural deficit we face.”

“Fair Economy Illinois expressed disappointment that Pritzker didn’t close some “corporate tax loopholes” to get more money for social spending now. “We are counting on Gov. Pritzker to keep his campaign pledge to implement a progressive income tax . . . but our social service providers, public schools and universities, and roads and bridges need major investments this year. . . .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.”

Most problematic was the suggested pension holiday, something that Chicagoans are familiar with under Mayor Daley, but now, hearing it on the state level, has sounded some alarms, and the figure of $1.1 billion has them ringing - but the governor responded by saying,” It really is designed to bend the cost curve going forward so that we’re not just in a straight line for a $9 billion payment to a $19 billion payment in… 2045 and then 2046 it’s like a billion and a half dollars.”

Critics say that “The real problem. . . is the ramp’s last ten years or so. Pritzker can’t “bend” that curve by lowering payments up front. That’s a preposterous thing to say. He’ll either make the curve worse or prolong the state’s fiscal agony or both.”

That point seems to be justifiable in light of how pensions operate and seems to be close to fuzzy math, but then St. Theresa said the road to hell was often paved with good intentions, and while Illinois saw what hell was like under former governor, Bruce Rauner, the fallout that emerges might not be hotter than some think.

With one eye on heaven, and another on hell, Pritzker decided that the former was more preferable and changed his mind, and “Due to a variety of factors, including changes that resulted from the recent federal tax overhaul, the state’s individual and corporate income tax revenue in April was more than $1 billion higher than what came in during the same month a year ago, according to a letter Illinois Department of Revenue Director David Harris and Pritzker budget director Alexis Sturm sent to legislative leaders.

The tax windfall, coupled with other revenue collected throughout the year, will be enough to cover most of the state’s projected $1.6 billion deficit for the current budget year, according to Harris’ letter.”

Handling the financial crisis is easiest the most daunting of the new governor and the change of mind, as well of financial hearts, provides a glimpse of the ongoing struggle.

Part of that struggle is to see if the proposed bond sale of $2 billion, to supplement not cover pension payments, is “doable”, coupled with some fast-talking by Pritzker to sell the public on changing from a flat to a graduated tax for the state.

Some observers, bankers and academics have been reluctant to give a full-throated defense of the bonds, even with the endorsement by deputy governor, Dan Hynes.

Bloomberg interviewed “Thad Calabrese, a professor at New York University who studies pension bonds, said the danger is that politicians will use them to avoid necessary but politically difficult decisions, like tax increases or budget cuts. "There’s going to have to be some actual sacrifice.”

Update: In a 38-17 vote the Illinois State Senate, on May 29th, approved, after only 40 minutes of debate, legalization of recreational marijuana after amendments were made for drug-free workplaces, limiting home grown plants to those with medicinal needs, and establishment of a task force headed by the Illinois State Police for the establishment of best practices, and clemency from the governor's office for use over the 30 gram limit, and 30-500 grams to the State's Attorney's Office to vacate the conviction.

The bill was sponsored by Sen. Heather Steans (D-Chicago) who had ushered in the legislation to remedy the red ink of state coffers, and provide relief to communities of color, who under the previous policy, had been decimated with incarcerations and convictions.The amount of new revenue was adjusted downward to $57 million for the first year of income, beginning Jan 1, 2020, with 35 percent going to general revenue, and 25 percent to communities that were negatively affected by the previous policy. Also added was a social equity clause designed to bring technical assistance, and other forms to minority ownership and management of what is sure to be a multi-million business