Illinois' proposed budget gets Chicago Civic Federation's support
Illinois Gov. J.B. Pritzker’s proposed fiscal 2020 budget won a tepid endorsement from a prominent civic research group that expressed relief that the administration shelved a $1.1 billion pension contribution cut in the wake of a $1.5 billion April windfall in revenues.
The Chicago Civic Federation’s Institute for Illinois’ Fiscal Sustainability called the budget a workable short-term plan while also raising concerns about revenue projections that rely on the uncertain passage of various measures and the adequacy of the governor’s long-term plans to tackle a $6 billion unpaid bill backlog and $133.7 billion of unfunded pension liabilities.
“As proposed, the budget represents a relatively rickety financial bridge — though it has been significantly strengthened in recent days,” federation president Laurence Msall said, referring to last week's announcement that the administration no longer seeks to push out the current pension payment schedule by seven years for near-term budget relief.
“The General Assembly is approaching the deadline to pass several components upon which this budget and the governor’s long-term plan” rely and “revenue projections attached to many of the proposals remain uncertain,” Msall warned.
The governor has pitched the budget as a “bridge” plan to see the state through fiscal 2020 after which he hopes voters will have approved a shift to a graduated income tax rate structure from the current flat tax rate. It would generate more than $3 billion under his proposed rate structure.
The Senate has passed legislation putting such a constitutional amendment on the ballot but the House has not, and the Democratic governor has seen some push back from his members. The legislature has not yet passed sports betting, or legalized recreational marijuana, or adopted other new or increased taxes proposed by Pritzker and the session is set to adjourn at the end of May.
“Accordingly, we encourage the governor and General Assembly to develop a comprehensive Plan B that does not involve shorting the state’s pensions or running up the backlog of bills,” Msall said.
The backlog is at risk of rising if the state fails to raise all of the projected revenue needed to erase a $3.2 billion deficit in the roughly $39 billion general fund.
The $1.5 billion windfall of tax collections last month prompted the state to revise fiscal 2019 and 2020 projections so that the current year’s $1.6 billion shortfall is erased and the state believes it can make the full $9.1 billion fiscal 2020 pension contribution.
The fiscal 2019 red ink and pension re-amortization had raised red flags for the watchdog group and rating agencies so the latest developments are viewed as easing near-term pressure on the state’s weak ratings that are one-to-two notches above junk.
“Initially the Civic Federation would not have been able to support the budget proposal due to its recommended seven-year extension of the statutory pension funding schedule…because it would have further jeopardized the financial condition of Illinois’ severely underfunded retirement systems,” the report read.
Relying too heavily on stronger revenue performance going forward is also risky, the federation warned, because the April figures were driven by non-wage growth with much of it stemming from the federal tax law changes.
The state also dropped a proposed $2 billion pension obligation bond plan. “The significantly strong-than-expected revenues in April will allow us to meet the current funding commitment to the retirement systems without additional borrowing,” said spokeswoman Carol Knowles.
If resurrected, the federation said it would oppose the borrowing as it would have minimal impact on pension funding while exposing the state to interest rate risk and reducing capacity to borrow for other purposes.
The federation reiterated its support for a broader income tax that would tax some retirement income, all of which is now exempt. That could generate more than $2.5 billion annually in coming years. The federation also urged the state to pass only the proposed maintenance capital budget for $3.7 billion and spend the summer developing a sustainable financing plan. Lawmakers rushing to craft a plan and pass it before the end of session.
The federation report put one-time revenue sources at $525 million including $350 million from not yet approved licenses tied to legalized sports wagering and recreational marijuana. d