May 13, 2021
Watchdog urges Illinois officials to reject no-longer-needed proposed tax treatment changes
(CHICAGO)—In a report released today, the Civic Federation offered its general support for Governor JB Pritzker’s proposed FY2022 budget. The reasonable one-year proposal holds most areas of agency spending flat at a time of uncertain revenues, makes the full statutorily required pension payment and appropriately shifts some capital funds to the operating budget for one year.
Governor Pritzker unveiled his spending plan earlier this year, before billions of dollars in funding were made available to the State of Illinois and local governments as part of the federal American Rescue Plan Act (ARPA). To balance the budget at that time, the Governor urged the General Assembly to implement $932 million in corporate tax treatment changes.
“Fortunately for the State of Illinois, more than eight billion dollars in federal funding will soon be deposited in its coffers, which will give officials a little breathing room as budget negotiations continue in the coming weeks,” said Civic Federation President Laurence Msall. “Given the increased flexibility, the proposed business tax changes should be excluded from the enacted budget. Increasing taxes during a recession can easily exacerbate the negative impacts of the recession and hamper the economic recovery.”
Because Illinois has a long, bipartisan fiscal tradition of proposing gimmicky budgets during economically difficult times, the Federation was pleased that Governor Pritzker’s initial proposal largely broke with that tradition to hold most agency spending flat and not rely on dubious revenues. The federal stimulus should therefore be used responsibly rather than reversing the Administration’s efforts to balance the budget.
“Not to spoil the potential eight-billion-dollar spending party before it gets started, but these funds absolutely should not be used to create new multiyear programs or new areas of ongoing spending obligations,” said Msall.
Little information about how the bulk of Illinois’ ARPA funding would be spent has yet been made public. Governor Pritzker, Illinois Senate President Don Harmon and Illinois House Speaker Chris Welch previously expressed plans to prioritize paying off $2.0 billion borrowed from the Federal Reserve under the provisions of an earlier stimulus package. Following guidance issued this week by the U.S. Department of Treasury, it is now unclear if the State can pay any debt service with the proceeds. The Office of Illinois Comptroller Susana Mendoza has asked the Treasury for additional direction.
“The Civic Federation eagerly awaits additional detail on how the federal ARPA funds can and will be used by the State,” said Msall. “No matter the permitted uses, the State must seize this opportunity to work on its long-term plan so that it will not enter future economic crises in the worst shape of any state in the nation.”
In order to achieve fiscal stability, a comprehensive, long-term plan would aim to ensure annual budgets are balanced, eliminate the bill backlog, assist struggling local governments, set aside adequate reserves and address long-term, structural challenges such as unfunded pension liabilities and infrastructure needs.