By Stephen S. Morrill, Principal of Morrill & Fiedler LLC (M&F), with contributions by Curt Fiedler
On Wednesday, February 20, Governor Pritzker delivered his inaugural budget address. According to the Office of Management and Budget (OMB), Governor Pritzker’s Fiscal Year 2020 (FY20) budget totals $77 Billion in spending including state and federal funds – of that, the FY20 budget estimates receiving $38.9 billion in general state taxes and spending $38.75 billion. According to the OMB’s budget outline, the FY20 budget spends $1.49 billion more than the FY19 budget – an increase of 4%. The Governor outlined his FY20 spending priorities, including:
- $100 million increase in early childhood block grant
- $375 million for K-12 education
- $2 million to fund AP testing fees for high school students
- $52.2 million increase for public universities and $13.9 million for community colleges
- $30 million increase for Child Care Assistance Program
- $250 million for homelessness prevention
- $65 million for support services for seniors
- $2 million for community-based violence prevention programs
- $46.2 million to maintain Joliet and Elgin treatment centers
To pay for the increased state spending, Pritzker outlined how he plans to increase state revenues by $1.1 billion, including:
- Sports betting ($212 million)
- Recreational marijuana ($170 million)
- Statewide plastic-bag tax ($20 million)
- State vaping tax ($10 million)
- Cigarette tax hike from $1.98 to $2.30 ($55 million)
- New tax on medical care organization (MCO) assessment ($390 million)
- Closing corporate tax loopholes ($94 million)
- Phasing out private-school scholarship credit ($6 million)
- New progressive tax rates for video gaming ($89 million)
- Placing a cap on retailers discount ($75 million)
According to OMB’s budget summary, without the additional revenue identified above, the alternative would be to reduce state operational spending by 4% in order to have a balanced state budget.
Governor Pritzker also indicated that he will partially address the State’s pension funding issue in the FY20 budget advocating the General Assembly pass legislation to reduce pension costs, including: (a) issuing $2 billion in pension obligation bonds; (b) extending the “pension ramp” by seven years (from 2045 to 2052); and (c) selling state assets and use one-time and ongoing revenues for pension liabilities. Governor Pritzker stated in his speech that the long-term solution to the State’s funding issues is to restructure its income tax by approving a new graduated income tax, and dedicate a significant portion of that new revenue to provide additional funding for pensions. Both Democrat legislative leaders have announced support for the passage of a constitutional amendment during the 2019 spring session to have citizens vote on whether to change the Illinois Constitution in favor of a graduated income tax structure.
The full FY20 budget was filed this week in the House by Majority Leader Greg Harris – filed as 78 separate appropriations bills (HB 3717 through HB 3795; including bills for the expected capital infrastructure program). The filing of separate budget bills for each agency is a customary practice for legislative budget hearings; however, it is more likely the FY20 budget will be condensed into three to five total budget bills (appropriation of funds and implementation bills).
Not included in Governor Pritzker’s address was any indication of what revenues will be identified and used to pay for the envisioned $36 billion capital construction program. On Thursday, February 21, the Senate Transportation Committee held a subject matter hearing to take testimony on the State’s current infrastructure needs. Within that testimony, it was determined that the State currently has $39 billion for “horizontal” infrastructure needs (roads, bridges and transit – not including airports, locks, and dams) and $23.9 billion in “vertical’ infrastructure needs for maintenance and repairs of state agencies buildings and fleets – totaling a minimum of $53 billion in identified capital infrastructure projects. It is rumored that the Governor is currently looking at the following funding options: (a) increasing the motor fuel tax; (b) increasing license and user fees; (c) creating a new “mileage” tax; (d) imposing user tax on electric vehicles; (e) broadening the state sales tax to apply to certain services – while also lowering the rate; or (f) a combination thereof.