Budgetary experts say Illinois is in for some real pain when lawmakers get around to crafting a budget for the coming fiscal year that will be marred by low revenue and higher bills due to the economic fallout over COVID-19 shutdowns.
Gov. J.B. Pritzker’s office revised its revenue estimate for the remainder of the current fiscal year and the one that begins in July. A predicted $2.7 billion shortfall from the current year will roll into next year’s budget that Pritzker says will hinge on his progressive tax proposal passing ballot muster in November.
“If PA 101-0008 takes effect, the budget gap is approximately $6.2 billion,” the report released Wednesday reads. “If the graduated income tax structure in PA 101-0008 does not go into effect, the estimated budget gap is approximately $7.4 billion.”
For comparison, the budget impasse between Gov. Bruce Rauner and the Democratic-controlled legislature in 2017 left the state with a $6.2 billion shortfall.
Kurt Thurmaier, Distinguished Engagement professor and chair of the Department of Public Administration at Northern Illinois University, said it’s still too early to tell just how deep the state’s budget hole will be by the time it begins on July 1.
“We still don’t know how bad it’s actually going to be,” he said. “There’s no rainy day fund. There’s no surplus that they can pull on.”
Center for Tax and Budget Accountability Executive Director Ralph Martire said the state has a number of options to free up cash, some better than others, but there will undoubtedly be reductions that could be significant, “untenable” if the projected $7.4 billion deficit becomes a reality.
“[Cuts] are going to come from education, social services and public safety,” he said, adding that the state’s not likely to cut health care costs during a pandemic. “If we borrow money and spend it on Medicaid then we don’t have to make this or that cut to higher ed or to social services but if they don’t, they are going to have to cut those areas.”
Martire said the time was right to reamortize the state’s pension debt and then issue bonds to pay for it, opening up state funds.
“It’s freeing up tax revenue to fund services and we’re at historically low rates for bonds,” he said, adding that pension obligation bonds have had positive returns.
Illinois has the lowest bond rating in the nation and would pay a higher interest rate on those government loans than any other state in the country, regardless of how low interest rates currently are. Fitch downgraded the state’s Issuer Default Rating to “BBB-” from “BBB” Thursday.
Others say the only way to properly address the state’s pension debt is a constitutional amendment allowing for alterations to the current public retirement agreements. Reamortization, experts at the nonprofit Wirepoints say, only pushes the state’s pension obligations off to the next generation.
Martire expects some help from the federal government but not to the extent of the rumored $500 billion package.
Martire and Thurmaier both talked up Pritzker’s progressive tax proposal that will be on the November ballot, saying it will bring billions of dollars more into state coffers without taxing the majority of Illinoisans. Martire did worry that the estimated $3.6 billion that the enacted rates, should the ballot initiative pass muster, would be far less due to the recession brought on by the COVID-19 pandemic.
Business leaders say the progressive tax measure is a mistake even in normal times, but would be especially harmful to small businesses who have been shuttered during the COVID-19 restrictions.
Pritzker’s office now estimates that the progressive income tax rates passed last year and contingent on the ballot initiative passing would now only bring in $1.2 billion.