Budget reaction: Retailers, municipalities critical of Pritzker’s proposed tax changes

[February 23, 2024]  By ALEX ABBEDUTO, COLE LONGCOR
& JERRY NOWICKI
Capitol News Illinois
[e-mail]

SPRINGFIELD – The annual process of negotiating the state budget kicked off Wednesday with Gov. JB Pritzker proposing a $52.7 billion spending plan that includes hundreds of millions of dollars in new spending and tax increases, particularly for businesses.

The governor’s proposal to generate more than $1 billion in revenue through tax code changes – which would affect the state’s road fund, tax rates for retailers and funding to local governments – drew criticisms from industry groups such as the Illinois Retail Merchants Association, the Illinois Municipal League, and a coalition of transportation and union groups.

Republicans generally criticized the budget for relying on the revenue proposals which are not yet contained in law, faulting the governor for raising taxes to cover new spending.

Pritzker’s fellow Democrats were generally supportive of the plan, although factions of the party laid out their own priorities.

Interest groups

Some of the starkest criticisms of Pritzker’s proposal came from the advocacy groups for the organizations that will be hardest hit by his proposed revenue changes.

That includes the Illinois Municipal League, which called Pritzker’s plan to repeal a 1 percent statewide tax on grocery items “insulting,” because it does not include a corresponding reimbursement plan for local governments.

Lawmakers paused the tax for fiscal year 2023, but that move reimbursed municipalities for the $400 million not collected due to the temporary hiatus.

The IML particularly criticized this year’s proposal in light of continued underfunding of the state’s local government distributive fund. Municipalities are currently getting less than 7 percent from the state’s income tax, although last year’s budget contained a small increase. That’s less than the 10 percent cut municipalities were getting prior to the passage of a state income tax hike in 2011.

“It’s yet another cut for local revenues at the same time municipalities are given more and more unfunded mandates and less and less cooperation from the state,” IML CEO Brad Cole said in a statement.

But Pritzker’s office said municipalities seeking to replace the tax money can issue grocery taxes at the local level instead.

Pritzker’s office also pointed to another proposed change – a $1,000 monthly cap on a tax credit claimed by Illinois retailers for administering the state’s sales tax – which will generate an estimated $85 million for local governments and $101 million for the state.

But that measure drew the ire of the influential Illinois Retail Merchants Association.

“The retail discount is a partial reimbursement to the hard-working retailers across Illinois who collect sales taxes on behalf of state and local governments,” IRMA president and CEO Rob Karr said in a statement. “Contrary to claims, this proposal does not just target large retail stores but would impact retailers of all sizes, from independent grocers to the corner hardware store.”

The Transportation for Illinois Coalition, which advocates for transportation infrastructure investment, said it was “disappointed” with a separate proposal to move $175 million in public transit spending from the state’s general fund to its Road Fund – a source that’s required by law to fund transportation-related projects.

The coalition, which includes influential labor groups and trade associations among others, said the plan would “pit transportation needs against each other.” It estimated diverting the funds could cost the Road Fund $1 billion in possible improvements “over the next few years.”

Groups such as the Illinois Association of Rehabilitation Facilities and the Community Behavioral Healthcare Association also noted that while they agreed with Pritzker’s plan in some areas, it lacked specific funding for their workforces.

IARF President and CEO Josh Evans said in a statement he was “deeply concerned” that Pritzker’s plan lacked pay increases for direct service providers for people with developmental disabilities, particularly as the state is moving to end a federal consent decree that provides court oversight of its system of care.

The Community Behavioral Healthcare Association and the Illinois Health and Hospital Association both praised Pritzker’s proposed changes to the state’s insurance code, a package of proposals aimed at controlling strategies that insurers use to reduce the amount of health care patients receive.

Comptroller Mendoza

Comptroller Susana Mendoza called the governor’s plan “austere” and praised the governor’s “targeted approach” to the upcoming fiscal year 2025.

“I think this is one of the best budgets I have ever seen in my 23 years in public service,” Mendoza said. “I have been super, super critical about making sure that we don’t overspend our means but honestly this budget was pretty much flat.”

Last year’s budget allocated $50.4 billion in spending, or about 4.5 percent less than this year’s. But the governor’s proposal also included $1.2 billion in supplemental current-year spending, which would put FY25 about $750 million ahead of the previous year.

Mendoza said spending on programs including early childhood education – set for a $150 million increase – and the Department of Children and Family Services – set for a $76 million increase – are good investments. Mendoza added she supports the move to increase the pension funding goal from 90 percent to 100 percent and extend the state’s timeline for achieving that another three years, to fiscal year 2048.

“I’ve always said we should be at 100 percent funding. I think it's a wonderful idea,” Mendoza said. “It's why I believe that we need to pass my rainy-day legislation.”

Illinois Legislative Black Caucus Chair Rep. Carol Ammons, D-Urbana, leads the organization’s response to Gov. JB Pritzker’s annual budget address. (Capitol News Illinois photo by Andrew Adams)

Black Caucus

Members of the Illinois Legislative Black Caucus held their annual response under the Capitol dome, calling the governor’s budget a starting point for negotiations.

Sen. Lakesia Collins, D-Chicago, said she thinks there is much in the proposal that could help Illinois move forward – but she indicated housing people will require a greater effort by the state.

Collins said there’s “a lot of work to do.”

“We need home ownership,” Collins said. “We hear people talking about affordable housing, but it is not affordable. The average family is making $38,000 but living in a community where there’s $500,000 houses down the street – which drives up the market. We know this.”

Senator Robert Peters, D-Chicago, said members of the Black Caucus will continue to “push” and make taking care of unhoused people “more than a conversation.”

The proposed $50 million increase to “Home Illinois” – the governor’s homelessness initiative – would support court-based rental assistance, an emergency and transitional housing program, rapid rehousing, shelter diversion techniques and the conversion of temporary shelters into permanent ones.

The Black Caucus is also interested in several other social issues that could need state appropriations, including health care, violence prevention and K-12 and vocational education. Caucus members said housing and other issues disproportionately affect Black communities, but ultimately impact all Illinoisans.

Latino Caucus

Members of the Illinois Legislative Latino Caucus said they are in favor of several programs in the proposed budget, such as a new child tax credit. The credit would be available to families with children under the age of three, offering 20 percent of the taxpayer’s state portion of the earned income tax credit. The governor’s office estimated it would cost about $12 million – far below a $300 million credit sought by advocates.

But the caucus called for additional strides in funding health care.

“In order to achieve health equity in Illinois we should make additional investments in health,” Lilian Jiménez, D-Chicago, said. “I am confident that the governor is working to expand health care to all Illinoisians, and we want to make sure we’re working to ensure that Latinos including immigrants and refugees are included in that conversation.”

Pritzker’s proposed budget includes $440 million in general revenues for a program providing state-funded health care to low-income noncitizens who would qualify for Medicaid if not for their immigration status. While it’s a $110 million general revenue decrease from last year, advocates were placated by the fact that it included another $189 million in other funding, such as federal reimbursement for emergency services.

Sen. Celina Villanueva, D-Chicago, said the caucus will further advocate for violence prevention programs. Pritzker’s budget materials highlighted $112 million in cannabis revenues that go partially toward violence prevention, as well as a $30 million state contribution to the Reimagining Public Safety Act, which was previously funded with federal investments.

Republican response

The Republican response generally focused on the increase in proposed spending, particularly for programs serving noncitizens, and the tax increases needed to pay for it.

Pritzker’s plan seeks to raise $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 would cap that number at $500,000 for FY 25.

Pritzker proposed generating another $93 million by capping a standard deduction claimed by millions of Illinoisans at $2,550, rather than allowing it to increase to $2,775 as it was slated to, due to inflation.

“After last year’s session we made something very clear as a caucus – the actions taken by Democrats as it relates to an inflated budget would require tax increases,” House Republican Leader Tony McCombie said.

She said the fact that the budget requires several tax increases to meet proposed spending is proof that they were right.

“We described how the state budget was built on one-time federal revenues and it would be the taxpayers that are on the hook to cover the shortfalls when those federal dollars run out,” she said. “Now we are dealing with that aftermath.”

Her concerns echoed those of Sen. John Curran, the Senate minority leader, who described Illinois’ policies as creating “a noncitizen welfare state.”

“Our priorities are simple this year: No tax increases, fund education, pay the pension bill, and fix agency dysfunction,” McCombie said.

Members of the more conservative Freedom Caucus were also critical of the spending plan.

“We cannot support the expansion of new programs and new services when we have a massive budget hole,” Rep. Brad Halbrook, R-Shelbyville, said. “Further, we will absolutely stand against and condemn any proposed new fee or tax increase to fill this gap.”

Halbrook was particularly critical of the governor’s plan to dedicate another $182 million to services and housing programs for migrants bused or flown to the Chicago area from the nation’s southern border, particularly Texas. He did, however, say he supported the proposed elimination of the grocery tax.

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