Pritzker proposes over $2B in spending growth, backed by tax increases for corporations, sportsbooks

[February 22, 2024]  By JERRY NOWICKI
Capitol News Illinois
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SPRINGFIELD – Gov. JB Pritzker on Wednesday proposed growing state spending by over $2 billion in the upcoming fiscal year while making a handful of corporate, sports wagering and other tax changes to pay for the increase.

Pritzker’s plan, laid out to lawmakers during his annual budget address, does not alter or increase state income tax rates. But it would more than double the tax rate paid by sportsbooks on gross revenues and extend an existing cap on operating losses businesses can claim on taxes.

Those two changes would raise about $726 million in revenue, erasing much of what had been projected as an $891 million deficit for the upcoming fiscal year.

In total, Pritzker’s budget anticipates $52.9 billion in general revenue and $52.7 billion in spending for the state’s main discretionary spending account in the fiscal year that begins July 1. The proposal now goes to lawmakers, beginning the annual negotiating process that generally concludes in May.

“Now, I expect that some of you will want to spend more, and some of you will claim you want to spend less,” Pritzker said in his speech to lawmakers in the House chamber. “Know this: I am always open to good ideas that members of both parties have to more efficiently and effectively fulfill our obligations.”

The governor’s budget office is also projecting current-year revenues will come in $199 million above previous estimates. The state expects the current fiscal year to end with $52.2 billion in total revenues, far outpacing the $50.4 billion in authorized spending in last year’s budget.

When including a proposed $1.2 billion supplemental spending plan for the current year, next year’s budget proposal would spend about $750 million more than the current year.

Revenue changes

Pritzker’s spending plan calls for a total of about $1 billion in revenue he proposes generating in the upcoming fiscal year through changes in the tax code or state operations.

That includes $526 million by extending a cap on the amount of net operating losses that corporations can claim on taxes. Lawmakers created a $100,000 cap on such deductions in 2020, but it was set to expire in the 2025 tax year.

The proposal seeks to extend it while expanding the claimable losses to $500,000. The governor’s office estimated that over 90 percent of losses claimed by corporations will not be impacted.

Another major change would increase the sports gambling tax to 35 percent from 15 percent. That tax is applied to the total profits collected by sportsbooks and will bring in about $200 million, according to the governor’s office.

Since sports gambling revenues were originally earmarked for infrastructure projects, the governor’s office proposes dedicating the first 15 percent for that purpose while allocating the rest to the general revenue fund.

Other revenue changes include raising $101 million by capping a sales tax credit retailers are allowed to claim. Retailers receive a discount of 1.75 percent of the sales tax they collect as reimbursement for their efforts in collecting them. The governor’s change would allow retailers to claim a maximum of $1,000 per month. The change would generate another $85 million for local governments as well.

That proposal drew rebuke from groups such as the Illinois Chamber of Commerce and the Illinois Retail Merchants Association.

The governor’s office also proposed freeing up another $175 million in the general revenue fund by transferring some payments to public transit agencies to the road fund, which is separate from the state’s main discretionary spending account.

Since the road fund generally goes to infrastructure projects, that proposal was especially panned by the Transportation for Illinois Coalition, which is made up of several union, infrastructure and business groups.

The governor also proposed permanently eliminating the state’s 1 percent grocery tax. His office didn’t give further details, but when a one-year reprieve from the tax was passed in 2022, the state estimated it would save Illinois shoppers about $400 million. Because local governments receive those tax revenues, the state reimbursed them over two fiscal years. But neither the governor nor any budget documents outlined such a plan Wednesday.

This year’s budget proposal leaves in place a statutory inflationary increase to the state’s standard deduction for the 2024 tax year but limits its increase. According to budget documents, the standard deduction – a specific dollar amount used to reduce a taxpayer’s adjusted gross income – will be capped at $2,550 as proposed by the governor. Capping the inflationary growth at one year instead of two would create $93 million in revenue, according to budget documents.

Republicans generally criticized the budget for relying on the revenue proposals which are not yet contained in law, criticizing the governor for taxing businesses to provide the revenues for his new spending proposals.

Education, human services funding

As he has done in previous years, Pritzker called for sizeable increases in education funding. But those proposed increases are substantially smaller than many advocates had hoped.

“Every single year I have been governor, we have increased our investments in education, because a quality education is the foundation of a good life and the cornerstone of a strong society,” Pritzker said.

For Pre-K-12 education, Pritzker proposed a roughly $450 million increase, or about 4.3 percent above current year spending. That’s about $200 million less than the Illinois State Board of Education had requested.

Included in Pritzker’s plan is a $350 million increase in Evidence-Based Funding, a program enacted in 2017 that adds new state money each year to the funding formula, focusing that money on the districts that need it most.

Governor J.B. Pritzker arrives to deliver his State of the State and budget address before the General Assembly at the Illinois State Capitol, Wednesday, Feb. 21, 2024. (Brian Cassella/Chicago Tribune/pool)

His plan also includes an additional $150 million to fund the second year of his “Smart Start Illinois” initiative to expand access to early childhood education. That program helped add more than 5,800 preschool seats in Illinois in its first year, with a goal of increasing by 20,000 over four years.

The budget proposal also includes an additional $10 million for career and technical education programs, as well as $13 million to fund a new state agency for early childhood department.

Noticeably absent from his proposal, however, is the $35 million that ISBE had requested for educational programs that target new migrant students and their families who have been arriving in Illinois.

For higher education, Pritzker’s proposed budget calls for a 2 percent increase, or $30.6 million, in operating expenses for public universities and community colleges, significantly less than the 5 percent increase the Illinois Board of Higher Education had requested.

Pritzker also proposed a $10 million increase in the Monetary Award Program, or MAP grants, the state’s basic needs-based financial aid program. That would bring the total amount available under that program to $711 million. IBHE had requested a $50 million increase.

Funding for homeless prevention programs would grow to $250 million under the plan, a $50 million increase. Funding for the state’s Department of Children and Family Services is slated to increase by $76 million, a sum that will allow the department hire an additional 392 positions aimed at reducing caseloads.

Migrant, noncitizen programs

Pritzker had previously said he would ask lawmakers to dedicate $182 million to address the influx of migrants from border states, particularly Texas. That sum was included in his proposal.

“I won’t pretend any of this is easy, but it would be irresponsible to do anything but come here, lay out the scope of the challenge, tell you what I think we need to do, and then work with you to make it happen,” Pritzker said of the state’s migrant response.

The governor’s office is proposing to cut $110 million in general revenue funding for a pair of health care programs for noncitizens that became a lightning rod last year amid quickly rising costs. But when combined with other funding sources, including a $100 million federal match for emergency services, the total grows to $629 million, outpacing last year’s general revenue allocation of $550 million.

The Health Benefits for Immigrant Seniors and Adults programs provide state-funded health care to low-income noncitizens who are in Illinois without legal permission or who have green cards and are on a waiting period. That group is separate from many of the migrants being flown or bused to Illinois from Texas. Individuals seeking asylum in the U.S. more likely qualify for other preexisting state or federal benefits.

Amid controversy last year as cost estimates continued to rise, lawmakers allocated $550 million in general revenue to the programs and gave Pritzker the authority to cap enrollment and put other cost-saving measures in place, including copays.

The Healthy Illinois Coalition – a group of health care and immigrant advocates – issued a statement applauding the funding proposal.

“We recognize the real fiscal challenges facing the state, but urge both the General Assembly and the governor to pass a FY25 budget that fully funds the existing HBIA and HBIS programs as they currently exist in statute, with no caps and no co-pays,” Healthy Illinois Campaign Director Tovia Siegel said in a statement.

The programs remain a contention for Republicans including Senate Minority Leader John Curran, of Downers Grove, who referred to Pritzker’s policies as making Illinois a “noncitizen welfare state.”

In December, the state’s Department of Healthcare and Family Services, which oversees the programs, projected their total cost for the current year – including revenues outside of the general revenue fund – at about $773 million. That estimate, however, had been on a general downward trajectory over several months.

Pension changes

The spending plan includes fully funding the state’s $10.1 billion required pension payment in the upcoming fiscal year. But the governor also proposed altering the state’s so-called “pension ramp” in a way his administration hopes will be viewed positively by credit ratings agencies.

The proposal includes increasing the target funding percentage for pension funds to 100 percent, up from 90 percent, while adding another three years for the ramp to reach that point. The fully funded goal would be moved to fiscal year 2048, from FY 2045.

It would also call for increasing pension payments in 2030 and 2033 when outstanding general obligation debts are retired.

Eric Kim, head of state government ratings at Fitch Ratings, issued a statement Wednesday noting the plan “could help reduce risks associated with the state’s pension obligations and improve credit quality.”

“Ultimately, any rating implications will be based on Fitch’s review of the enacted budget and any related legislation, which could look materially different than the Governor’s proposals,” he said in the statement.

Editor’s note: Peter Hancock contributed to this story, which has been updated with more information from an initial version. 

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