Politics |

Gov. J.B. Pritzker’s budget includes almost $900 million in tax hikes — but a break on groceries

SPRINGFIELD — Gov. J.B. Pritzker on Wednesday unveiled a $52.7 billion election-year budget the second-term Democrat said required making “some hard choices” despite proposed additional spending in several areas, from early childhood education to Chicago’s ongoing migrant crisis.

Facing a tighter budget outlook after years of strong revenue performance and multiple credit upgrades, Pritzker is relying on more than $800 million in tax increases that would largely fall on businesses to bring his spending plan into balance. But he also proposes raising taxes on individuals by reducing the standard exemption for state personal income taxes, which would raise an estimated $93 million by increasing tax bills for Illinois residents.

At the same time, the governor is attempting to position himself on the side of everyday taxpayers with plans to eliminate the 1% sales tax on groceries and create a state child tax credit for low- and moderate-income families, ideas that could potentially garner bipartisan support.

Separate from the budget, he threw down the gauntlet against the health insurance industry with a sweeping plan to prevent companies from dictating coverage decisions, among other consumer protections. He promised to expend political capital to fight practices including prior authorization, in which patients must get permission from insurers before receiving certain types of care.

“There should never be an instance where an insurance company employee can deny coverage for something as serious as open heart surgery,” Pritzker said.

In his sixth budget proposal, Pritzker also laid out a long-term plan to manage the state’s massive pension debt by increasing the funding target to 100% from 90% and extending the payment deadline by three years, to 2048. The change would not affect the state’s pension payment for the coming year, totaling $10.1 billion from general funds, or roughly 19% of the operating budget.

Acknowledging his spending plan represents the beginning of negotiations with the Democratic-controlled legislature, Pritzker said his proposal “is balanced, and it builds upon all of the progress we have made, paying our pensions in full, investing more in our public schools, social service agencies and health care while addressing the immediate and unique needs of the coming fiscal year.”

“Now, I expect that some of you will want to spend more, and some of you will claim that you want to spend less. Know this: I am always open to good ideas that members of both parties have to more efficiently and effectively fulfill our obligations,” Pritzker said. “My one line in the sand is that I will only sign a budget that is responsibly balanced and that does not diminish or derail the improving credit standing we have achieved for the last five years.”

Pritzker’s speech included rhetoric that reflects his efforts to increase his footprint on the national political stage, from acting as a surrogate for President Joe Biden’s reelection effort to looking at his own potential future in the White House by playing host to this summer’s Democratic National Convention in Chicago.

Countering the common GOP narrative that Illinois is hemorrhaging residents and jobs, he encouraged Illinoisans to “not let the doom grifters steal your optimism about what’s ahead for Illinois. Our future is bright, and opportunity lies ahead.”

What was left unmentioned in his roughly hourlong budget and State of the State address to the Illinois General Assembly was that his proposal would address projected deficits resulting from slowed revenue growth in part by more than doubling the tax on sports wagers — paid by sportsbooks out of their post-payout revenue — raising it to 35% from 15%. The change would generate an estimated $200 million in additional revenue.

The governor also proposes extending a cap on losses large corporations can write off on their state income taxes, which he estimates would generate another $526 million in annual revenue. The current annual cap of $100,000 is set to expire Dec. 31, but Pritzker proposes allowing it to continue while raising the limit to $500,000.

Pritzker is proposing a permanent repeal of the 1% sales tax on groceries, which he and the legislature previously suspended for one year in 2022, when the governor was running for reelection. But this time around, the state would not make up the lost revenue for local governments, which receive all of the grocery tax revenue.

Lastly, Pritzker is dusting off a previous unsuccessful plan to limit the tax discount retailers receive for collecting sales tax, which his office estimates would generate another $101 million annually.

His plan would free up another $175 million for day-to-day state operations by using money from the road fund rather than sales tax revenue to pay for mass transit.

Overall, Pritzker’s proposal for the fiscal year that begins July 1 would raise spending from the state’s general fund by $2.3 billion over the budget lawmakers approved last May, a 4.6% increase.

In a speech that focused more heavily on policy than politics, Pritzker aimed his sharpest partisan barbs at Republicans over the ongoing migrant crisis. More than 35,000 asylum-seekers have arrived in Illinois, mainly in Chicago, from the southern border since August 2022, straining state and city resources as well as the relationship between the governor’s office and Chicago Mayor Brandon Johnson.

The governor reiterated his pledge to spend $182 million on the migrant response in the coming year, part of an agreement with Cook County Board President Toni Preckwinkle in which the county would contribute another $70 million. After committing in private to seek $70 million from the City Council, according to the governor’s office, Johnson has resisted making such a promise publicly.

During a post-City Council news conference Wednesday after the governor’s speech, Johnson again would not say whether the city had identified how to pay for its share.

“There are other operational aspects of this mission that we have to keep in the forefront before we make an absolute determination of what we will ultimately have to be responsible for financially,” Johnson said.

With an eye on the November presidential election, Pritzker aimed his rebukes beyond the state’s borders, particularly attacking Texas Gov. Greg Abbott, who has sent many of the migrants to Chicago.

Quoting a Georgia governor’s vow at a Ku Klux Klan rally a century ago to “build a wall of steel, a wall as high as Heaven,” Pritzker said, “It could have been a social media post by Donald Trump last week.”

He lashed out at congressional Republicans for recently rejecting compromise border-security legislation backed by Biden, Senate Democrats and negotiated with Republican leaders in the U.S. Senate.

“Why did this happen? Why did every single Republican run away from something they claimed they desperately want? Because Donald Trump told them to, and they’re afraid of him,” Pritzker said, drawing jeers from GOP lawmakers in the Illinois House chamber.

Biden, Pritzker said, “has been a very good president who has rescued the economy and protected freedom.” But he also echoed his call for the White House and federal government “to step up” and manage migrant arrivals and “not leave it to the governor of Texas who has no goal but to sow chaos and destruction.”

“Children, pregnant women, and the elderly have been sent here in the dead of night, left far from our designated welcome centers, in freezing temperatures, wearing flip-flops and T-shirts. Think about that the next time a politician from Texas wants to lecture you about being a good Christian,” Pritzker said.

House GOP leader Tony McCombie of Savanna bristled at Pritzker’s criticisms over the migrant issue.

“Is the governor running for president this cycle or next?” she said. “To bring in the federal government and all of that into the House is just silly.”

Sen. Sue Rezin of Morris, a deputy leader for the Republicans, said Pritzker’s proposal for additional funding for migrants could “throw our budget out of whack.”  She also said she feared the governor’s proposed tax increases would have an adverse impact on “the people who really are just coming out of the pandemic, small businesses” and “families that are finally getting their footings.”

Still, there could be some common ground for Republicans, with Rezin applauding the governor’s plan to repeal the grocery tax and the proposal to increase the state’s capacity for child care.

The migrant response is just one area in which the governor is proposing additional spending.

Taking a cue from Cook County, the governor’s proposal for the state’s Department of Healthcare and Family Services includes $10 million for a program to erase medical debt. That investment would erase a total of $1 billion in debt for more
than 300,000 Illinois households, according to the governor’s estimates.

The Cook County debt initiative was on track to wipe out bills for around 73,000 residents as of last year. It was targeted at lower income residents and those who had medical debt that was 5% or more of their household income.

The governor maintained his focus on early childhood education and care with proposals including funding for an additional 5,000 slots in so-called “preschool deserts,” his office said.

The early childhood investments also include $13 million for Pritzker’s push to roll all early childhood services into a new state agency, the Department of Early Childhood.

A proposal for a new child tax credit, meanwhile, would mean an income tax credit for “working families” with kids under age 3. The plan would cost an estimated $12 million annually.

“I think that we have an opportunity to make it a bold and ambitious child tax credit that will really put a dent in child poverty,” said Sen. Mike Simmons, a Chicago Democrat who has proposed a larger child tax credit. “And so, for the next few months that will be my North Star in negotiations.”

The budget details unveiled Wednesday indicate the governor won’t seek more than the state’s minimum obligation of increasing education funding for kindergarten through high school by at least $350 million annually, despite Pritzker’s frequent comments about the importance of state investments in education.

Advocates have argued that larger annual increases are necessary for the state to meet its goal of providing adequate resources for public schools under a 2017 rewrite of the state’s education funding formula.

“We are already behind in what’s necessary to make sure that our schools in the state of Illinois are fully funded,” said Rep. Will Davis, a Homewood Democrat who helped craft the funding overhaul. “That number should have been at least $550 million.”

The governor’s plan includes another $45 million to address the state’s teacher shortage and an increase of more than $30 million in support for state colleges and universities. The higher education increase would amount to a 2% across-the-board hike.

Pritzker’s administration also proposed a $50 million increase in funding for the Home Illinois program, which addresses the prevention of and response to homelessness and expands housing support and job opportunities for those affected.

The Home Illinois program is administered by the Department of Human Services, and the Pritzker administration said the budget proposal includes “record funding” for human services programs and “support for our social safety network.”

Pritzker said Home Illinois program has sustained and created thousands of shelter beds for Illinoisans in need since 2021.

“We provided housing and services to young adults aging out of foster care who were at-risk of becoming unhoused, and we gave one-time financial support to working Illinoisans who, due to an acute crisis, fell behind on their rent and risked losing their home or their apartment,” Pritzker said, emphasizing that proposed funding for the program would go toward Black people disproportionately affected by homelessness.

His budget also includes $440 million from the general fund for a Department of Healthcare and Family Services program that provides state-funded health insurance to adult immigrants who are in the country without legal permission, down from $550 million budgeted for the current year. That program, which does not cover asylum-seekers, became a flashpoint in last year’s budget negotiations.

The governor’s budget proposal also would provide an additional $76.2 million for the embattled Department of Children and Family Services under its new director, Heidi Mueller. The plan would include funding for 392 additional workers to support DCFS caseloads and a one-time investment of $100 million for capital grants that would help increase the capacity for youth placement “in the most clinically appropriate settings,” according to the governor’s office.

The governor sought to cast a positive tone about the struggling child welfare agency, which has gone through more than a dozen directors in the last two decades in Democratic and Republican administrations. Since becoming governor in 2019, Pritzker has been regularly targeted by Republicans over problems at the agency.

“The people who work at DCFS are witness to trauma and heartbreak every single day. They are rarely lauded for their successes, and most often used as a convenient punching bag for larger societal issues,” Pritzker said.

Pritzker’s proposed tax increases are sure to face strong pushback from business interests in the state.

The Illinois Chamber of Commerce said in a statement that it was “disappointed” with the proposals to continue capping the write-off for net operating losses and limit on sales tax discount for retailers, describing the former as “forced borrowing of funds from Illinois businesses to finance government” and the latter as “a stealth tax increase on our retail sector.”

Local governments will also oppose eliminating the sales tax on groceries because it will divert revenue from their coffers.

“This loss in revenue is entirely borne by local governments and is clearly punitive toward municipalities,” Illinois Municipal League CEO Brad Cole said in a statement. “Does anybody think this is a good time to cut the city of Chicago’s revenues by tens of millions of dollars a year?”

Tribune reporters Rick Pearson and Alice Yin contributed from Chicago.