No tax hike in slimmer Illinois budget, but it closes some corporate tax loopholes

SPRINGFIELD - Gov. J.B. Pritzker on Wednesday presented a slimmer state budget that would not increase income taxes but would rely on federal COVID-19 relief, transfers from other funds and the elimination of hundreds of millions of dollars of corporate tax breaks.

Largely because of the pandemic, Pritzker proposed a $41.6 billion operating budget for the fiscal year that begins July 1 - a 4.2% decrease from its predecessor.

"I had bolder plans for our state budget than what I am going to present to you today ...," said Pritzker, beginning his third year in office. "But as all our families have had to make hard choices over the last year, so too does state government."

Opponents have reason for skepticism. The proposal is a far cry from the dire predictions doled out last fall by members of the administration who were campaigning for Pritzker's top priority - a graduated income tax that hit the wealthy harder. The administration claimed that without the amendment, which was defeated handily, state spending would demand a tax hike on all payers or across-the-board reductions of up to 20%.

Nonetheless, the blueprint - which on paper turns what was projected in November to be a $3.9 billion deficit in fiscal 2022 into a $122 million surplus - relies on transfers from other state accounts, federal pandemic relief money that is still under debate in Congress, and significant adjustments to Illinois fiscal policy that must withstand legislative scrutiny.

Republicans argued that it was a shell game to shield what really is a budget out of balance by $1.7 billion.

"He has put us on track to just continue to move money around and raise taxes on businesses and blue collar workers in the manufacturing sector here in Illinois," said Senate Republican Leader Dan McConchie of Hawthorn Woods. "The governor continues to show just how out of touch he is with everyone else when we all have to balance our own budgets."

Funding for elementary and secondary education is flat and would not get the $350 million annual boost pledged in a 2017 school-funding overhaul. But Pritzker aides said education spending would be supplemented by expected federal dollars from a COVID-19 relief package before Congress.

The plan also depends on getting $932 million extra by ending tax breaks for corporations or by "decoupling" from federal tax breaks in those areas. This includes $30 million from reinstating the corporate franchise tax, which Pritzker eliminated in his 2019 budget. A $100,000 cap on the corporate net operating loss deduction would be set for three years.

Officials said the cap would not affect 80% of corporations with net operating loss deductions but would generate $314 million in revenue for the state.

House Republican Leader Jim Durkin of Western Springs contended the governor has reneged on a deal the two struck about corporate tax breaks necessary to spur economic growth.

But business groups joined Republicans in lambasting the governor's plan.

Illinois Chamber of Commerce President and CEO Todd Maisch characterized the tax changes as "a massive tax increase."

"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 a statement. "This not only will expand what will get taxed, but will also reduce key tax credits for vital sectors of the economy."

Cigarette tax revenue intended to finance the ongoing $45 billion Rebuild Illinois capital construction plan would be diverted to general spending for a year. Municipalities' share of state income taxes would be prorated at 90%, but Pritzker aides say cities and counties would make up some of that with more money after the corporate tax-break closures.

Some of the money-shuffling would increase money for human service agencies called upon during the pandemic. He asked the General Assembly to take immediate action to provide an additional $60 million to bolster the unemployment insurance program, which was walloped by pandemic job losses. And he was seeking a $28 million increase in the needs-based Monetary Award Program so more low-income students can go to college.

Spending pressure would be eased dramatically were it not for a budget albatross that predates the pandemic: State-employee pension contributions. No longer able to skip annual contributions in the woefully underfunded program, a bruising $9.4 billion goes toward retirement funds.

Democrats lauded the governor for responsibly funding basic needs - including the crucial if unglamorous pension payment - without socking individuals with higher taxes.

"He was able to provide a blueprint for a balanced budget ... without raising taxes on working and middle-class families," Des Plaines Democratic Sen. Laura Murphy said. "In fact, he's really making a concerted effort to address spending, so that the state of Illinois is going to spend within the means that the taxpayers have provided."

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.

The governor delivered his combined State of the State and budget address from the Illinois State Fairgrounds. There, he awakened the echoes of the field hospital set up in 1918 to care for overflow victims of the influenza pandemic that started that year; it is now one of the state's largest coronavirus vaccination sites.

• Capitol News Illinois and the Chicago Sun-Times contributed to this report.