While lawmakers are working on crafting a budget that’s due in May, a credit rating agency said the governor’s proposed spending plan won’t reduce the state’s pension liabilities, even if voters approve a progressive income tax plan in November.
Fitch Ratings released its official assessment of Gov. J.B. Pritzker’s budget proposal last week, dicing up his decision to hold $1.4 billion in reserve should the progressive income tax amendment fail.
The rating agency said that, even if voters approve the proposed progressive income tax, the added revenue would not be enough to make a dent in Illinois pension debt.
“Fitch believes the supplemental annual pension contributions of $100 million-$200 million proposed by the governor if the income tax amendment passes would be helpful,” Fitch analysts wrote in the report. “But on their own, they would not materially affect Fitch’s view that the state’s budget remains structurally unbalanced given the sizable gap between actual contributions and the [actuarially determined contribution].”
Illinois has, by Fitch’s estimation, $200 billion in long-term liabilities, pensions accounting for 80 percent of that.
Opponents of the progressive income tax said it brings into question how soon it would be before lawmakers use any newly granted taxing power to raise rates or change the income brackets to bring in more revenue.
“Governor Pritzker has said that his proposed tax increase will help solve the state’s financial problems. The Fitch Ratings report tells a different story,” said Jared Carl, president of the Illinois Business Alliance, a nonprofit opposed to the amendment. “Regardless of the outcome of the vote on Pritzker’s tax increase, pension contributions will remain a point of structural weakness.”
The Fitch report said the ballot initiative’s failure could squeeze Illinois’ local governments and school districts.
“Under the governor’s budget proposal, failure of the income tax amendment would trigger fiscal actions that could exacerbate the state’s structural budget challenges and pressure local governments, particularly school districts,” the report said.
This possibility was criticized last Monday by Brad Cole of the Illinois Municipal League, who said communities are concerned.
About $73 million would be withheld from the Local Government Distributive Funds and $25 million in state sales taxes that go to local governments. For schools, $150 million in K-12 funding, $70 million in college funding are in limbo. $300 million in corporate income tax refunds would also be held.
Pritzker’s office didn’t respond to requests for comment on the report.