Pritzker’s budget message: Pass graduated income tax or lose $1.4B for schools, health care, public safety
In a sense, Pritzker is proposing two budgets — one Republicans and Democrats alike would call balanced. But there’s another — included in the 2021 budget book and discussed in lawmaker briefings — that includes the fictional world of a graduated income tax.
For nearly two years during his campaign for governor, J.B. Pritzker pointed the finger at then Gov. Bruce Rauner for holding the state’s budget hostage for the Republican’s “Turnaround Agenda.”
Now, the Democratic governor is doing a turnaround of his own — and Republicans are accusing him of taking a my-way-or-the-highway approach.
Pritzker’s second-year budget includes putting nearly $1.4 billion in reserves, including funding for education — unless his preferred graduated income tax amendment passes this November.
In a sense, there are two budgets — one Republicans and Democrats alike would call balanced. But there’s another — included in the 2021 budget book and discussed in lawmaker briefings — that includes the uncertain world of a graduated income tax.
“This budget responsibly holds roughly $1.4 billion in reserve until we know the outcome in November. Because this reserve is so large, it inevitably cuts into some of the things that we all hold most dear: increased funding for K-12 education, universities and community colleges, public safety and other key investments,” Pritzker said in his speech. “But as important as these investments are, we cannot responsibly spend for these priorities until we know with certainty what the state’s revenue picture will be.”
It includes putting $150 million in reserves, instead of toward the school funding formula, which is designed to help make up for disparities in funding from local property taxes. In total, Pritzker’s plan included a $353 million increase in funding from last year’s budget, with $50 million of that going towards property tax relief grants. The reserve includes $150 million of that $353 million.
Senior administration officials Wednesday morning said the budget is balanced without including the $1.4 billion in reserves. The real world budget includes $40.69 billion in revenue and $42 billion in spending. But the budget states that if the graduated income tax does not pass, certain appropriations will not take effect, and other transfer and borrowing will be used to maintain a “balanced state budget.”
This year’s budget would hold $150 million, and give schools $200 million, unless the graduated income tax passes. The governor’s administration Wednesday said the school funding formula included a “target” of $350 million a year towards education, not a requirement.
Rauner in 2017 signed the school funding measure intended to put new money for education into the state’s poorest and neediest districts — and to try to ease the state’s reliance on local property taxes to pay for schools. The system had enabled wealthier communities to pump more money into public education while poor districts fall further behind.
Since the 2017 school funding bill passed, the state has allocated $350 million in education money for both the 2018 and 2019 budgets. For the 2020 budget, which ends on July 1, the amount was $375 million. This year, it’s down to $200 million without the tax shift.
Other budgetary reserves include holding $55.6 million, which would have been a 5% increase for operational expenses for public universities; $14.9 million for community college operating grants; $40.3 million for school district mandated categorical lines; $27 million for College Illinois! and $20 million for school maintenance capital program. That’s a total of $307.8 million.
The reserves also include $482 million towards healthcare and human services; $602 million for public safety and $3.5 million for an Illinois State Police cadet class.
A footnote on the reserve page refers to an allocation of $100 million for pensions and $50 million toward the Budget Stabilization Fund, the state’s rainy day fund, would also be on reserve.
The inclusion of the tax is not a huge surprise. Last year, the Governor’s Office of Management and Budget report concluded there are “few alternatives” if the “Fair Tax” amendment isn’t enacted, including a 15% cut to essential services such as education funding and public safety. Or “the state would need to raise taxes on all households — not just the wealthiest Illinoisans — by 20 percent under the existing flat tax,” the governor’s office said.
Quentin Fulks, Pritzker’s former deputy campaign manager, said in a statement for the pro-graduated income tax ballot initiative committee Vote Yes for Fairness, that if the tax doesn’t pass, “it’s likely that next year’s budget would either raise taxes on all Illinoisans by 20% or significantly slash spending on education, health care, public safety, and other critical services.”
The other side of the token, the Vote No on the Blank Check Amendment committee, said the governor’s budget “was a push for more spending, a massive tax increase and drastic to cuts to vital public services if he doesn’t get his way,” according to the group’s chairman Greg Baise.
Illinois House Republican Leader Jim Durkin, R-Western Springs, said the governor’s inclusion of the graduated income tax was “dangling, ‘If we don’t past this, Oh boy, look what’s going to happen.’ And that’s not the correct way to go about it. We got it done last year.”
Durkin agreed with the Governor’s positive outlook on the state’s financial future, but argued that was all the more reason to not raise taxes.
“We are able to meet our obligations without having to go back to the pockets of taxpayers,” Durkin said.
Illinois Senate Republican Leader Bill Brady, R-Bloomington, said he wants this year’s budget process to emulate last year’s by “working collaboratively.”
“The Governor’s proposed budget does not live within our means, and is a spending plan full of false promises that relies on him getting his tax increase,” Brady said in a statement.
In his speech Pritzker called out those who are “trying to separate Chicago from the rest of Illinois, whether rhetorically or literally” declaring “we are one Illinois,” which was met with a standing ovation with the exception of a few Republican lawmakers.
Democratic leaders and lawmakers were a little more cautious — and praised investments in the Department of Children and Family Services and education. They also warned that Pritzker’s proposal is just that, a proposal, and there will be tinkering — including finding ways to fully fund the school funding formula without that reserve money.
Illinois Senate President Don Harmon, D-Oak Park, called it a “budget based in reality.”
“I think the governor has outlined a very real budget that is a unique budget for a unique year. Mid way through this fiscal year the voters are going to tell us what our available resources are,” Harmon said. “So he’s laid out a budget plan that either accounts for those resources or not having those resources. And certainly we would want to invest more in education and higher education and human resources if those resources were available.”
House Majority Leader Greg Harris, D-Chicago, acknowledged it will be a tough budget year.
“The governor’s budget proposal is an important starting point in a process that will require many tough decisions,” Harris said in a statement.
State Sen. Kimberly Lightford, chair of the Illinois Legislative Black Caucus, said she was pleased with the governor’s budget, especially when it came to increased spending for DCFS and fulfilling the promise on the state’s pension obligations.
“It was really amazing to hear the governor say that he was going to protect retirees,” the Maywood Democrat said.
If the graduated income tax passes in November 2020, the rates would go into effect on Jan. 1, 2021, and would provide a half year of revenue to the state for the fiscal year 2021, the report notes. The governor’s office estimated the tax change to generate about $3.6 billion in the first year after implementation.
Pritzker in June signed legislation that included the graduated income tax rates, setting the stage for an amped up public awareness campaign via two dark money groups.
To go into effect, the graduated tax requires a change in the state constitution. The Legislature passed a voter referendum that will appear on the ballot next November.
The income tax measure the governor signed would tax income between $250,000 and $500,000 at 7.75%. Income from $500,000 to $1 million would be taxed 7.85%, and income over $1 million would be taxed 7.99%. Senate Democrats changed up the governor’s rate plan slightly in separating rates for single and joint filers, an issue many brought up when Pritzker unveiled his preferred rates. The corporate tax rate within the package was also raised to 7.99%.
Besides the graduated income tax inclusion in the budget, Pritzker’s proposal also includes a $147 million increase in funding for DCFS to boost staffing and increase support for investigations. Democrats and Republicans both applauded that bump for the embattled agency.
There’s also a $150 million surplus, which would go towards the state’s bill backlog. Other notable budget increases include $426 million for the state’s Medicaid program; a $100 million increase in the Department of Human Services Childcare Program; and an additional $97 million for the Illinois Department on Aging.