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Illinois governor touts budget savings ahead of main event

Illinois expects $750 million in budgetary relief over the next three years through consolidation measures, healthcare savings from new labor contracts, interest savings on overdue bills, and improved collections announced by Gov. J.B. Pritzker ahead of his fiscal 2021 budget address.

“For the coming year, our efficiencies and initiatives will yield at least $225 million in savings and will put the state in a position to save more than $750 million over the next three years,” Pritzker said at a news conference Friday.

The majority of projected savings next year — about $175 million — is expected to come from healthcare plan changes in new contracts with 20 of 33 bargaining units. The three-year savings tab is $650 million.

“For the coming year, our efficiencies and initiatives will yield at least $225 million in savings and will put the state in a position to save more than $750 million over the next three years,” Illinois Gov. J.B. Pritzker said.

Improved revenue collections next year will generate $15 million and another $25 million will come from interest savings by paying certain overdue medical bills down more quickly with interfund borrowing balances available.

Further savings are expected from the consolidation of some services and the administration is considering a merger of the Department of Labor and Department of Employment Securities. Additionally, a review is underway of the state’s 700 boards and commission with an eye on identifying duplicative services that could generate further savings.

Pritzker, who took office last year, will unveil his proposed fiscal 2021 budget on Wednesday.

The Democrat’s first budget received Republican votes in the House. Pritzker and his legislative backers labeled it as balanced, but market participants were critical of its failure to do address the state’s massive pension tab or bill backlog that stands at $6.5 billion.

Market participants did praise the end to political discord that prevailed during most of former Gov. Bruce Rauner’s tenure and a billion dollar April tax windfall prompted Pritzker to drop a controversial proposal to push out the state’ pension funding schedule that threatened the state’s ratings.

The state’s five-year forecast released annually in the fall warned that absent new revenue or deep spending cuts, Illinois’ structural deficit could swell to more than $3 billion in five years, driving the state's unpaid bill backlog up to a record $19 billion.

Deficits of $1.8 billion are projected in fiscal 2021, $2.4 billion in fiscal 2022, $2.9 billion in fiscal 2023, $3.1 billion in fiscal 2024, and $3.2 billion in fiscal 2025. The financial forecast did not reflect revenue expected from the sale of legalized recreational cannabis that began in January.

The state operates on a roughly $40 billion general fund that is pressured by rising pension contributions and education tabs. Pritzker is banking on passage of a constitutional amendment on the November ballot allowing the state to move to a progressive income tax rate structure from the current flat tax.

A proposed rate structure that raises rates on top earners would generate about $3 billion annually in new tax revenue. If it fails, Pritzker has warned of deep budget cuts of 15%. “Without structural changes like the Fair Tax, Illinois will continue to struggle to make ends meet, pay our bills on time and deliver vital services, like public education and public safety,” Pritzker said when the forecast was released.

Rating agencies have warned that movement is needed toward structural balance and any material hike in the backlog could trigger downgrades. With two ratings on the final notch above junk, a third only one notch higher, the state has little room to falter if it wants to keep investment-grade ratings.

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