By Karen Pierog
CHICAGO (Reuters) – Illinois’ new governor, J.B. Pritzker, on Wednesday proposed a nearly $39 billion fiscal 2020 general funds budget that he said will serve as a bridge to “a stable fiscal future” for the financially shaky state until it can change its income tax system.
When he took office on Jan. 14, the billionaire political newcomer promised to pass a balanced budget for the fiscal year that begins on July 1. Earlier this month, his administration warned that the fiscal 2020 budget deficit was $3.2 billion, $440 million higher than projected by former Republican Governor Bruce Rauner in November.
A two-year budget impasse between Rauner and Democrats who control the legislature, along with a huge unfunded pension liability and chronic structural budget deficits, led to downgrades that pushed Illinois’ credit ratings to a notch or two above the junk level.
In his first budget address on Wednesday, Democrat Pritzker said his proposal would act as a bridge until the state can replace its flat income tax with graduated rates. The change requires the legislature to put a constitutional amendment on the ballot that must be approved by voters.
“The state needs a fair tax and I am going to be relentless in pursuing one over the next two years,” the governor said in the address to the legislature.
Democratic lawmakers gave generally positive reviews to the budget, which increases funding in areas including education and human services. Republican leaders questioned a dearth of spending cuts.
“We cannot tax, borrow and spend our way out of this deficit as the governor has proposed,” House Republican Leader Jim Durkin said in a statement.
Pritzker’s immediate plans for $1.1 billion in estimated new revenue include $170 million from legalizing recreational marijuana, $200 million from sports betting, and about $390 million from a new tax on health insurers to help cover Medicaid costs.
The governor called for extending by seven years an existing 50-year payment plan to get pensions 90 percent funded by 2045 – a move that would reduce the state’s fiscal 2020 payment to its five retirement systems by more than $800 million. His plan for tackling a $133.5 billion unfunded liability also includes continuing a voluntary pension benefit buyout program and using state assets to boost pension funding.
The state would also sell $2 billion of taxable pension bonds in March 2020, payable solely with income tax revenue in an effort to earn higher credit ratings.
A tentative debt issuance schedule released with the budget included selling $1 billion of general obligation bonds this year to fund the pension buyout program and $1.5 billion of GO bonds in June to reduce Illinois’ unpaid bill backlog, which totaled $8 billion on Wednesday.
On Tuesday, Fitch Ratings said resolution of its negative outlook on Illinois’ BBB rating “hinges on the state’s ability to address structural budgetary issues in the current year and fiscal 2020, and demonstrate progress toward more sustainable fiscal management.”
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Source: Investing.com
