(Bloomberg) -- Illinois Governor J.B. Pritzker's proposed budget for the coming fiscal year offers taxpayers some relief from levies on groceries, gasoline and property as they confront the highest inflation in four decades and as he faces re-election in November.
The billionaire first-term Democrat is calling for a one-year suspension of a grocery tax worth $360 million, a gasoline-tax freeze for another $135 million and a one-time property-tax rebate for eligible homeowners that would amount to $475 million.
“The higher cost of even basic necessities is making it harder to make ends meet,” Pritzker said Wednesday during an address from the state Capitol building in Springfield. “Government ought to do more to ease the pain and put more money in the pockets of hardworking Illinoisans.”
He proposed a $45.4 billion budget on Wednesday for the year that starts July 1, a drop of 3.4% from this fiscal year. A projected general-fund surplus of $458 million, more than half of which will be used to build up the state's rainy-day account, contrasts with a $406 million deficit that the Governor's Office of Management and Budget had forecast in November.
Pritzker released the spending plan amid a rebounding economy and higher-than-expected tax collections, welcome developments that are tempered by inflation. The windfall from federal aid has helped fuel the economic recovery for the worst-rated U.S. state.
Pritzker, however, pushed back on suggestions by critics that the improvements in the state's finances are because of federal aid, adding that projections for back-to-back surpluses would exist even without it. He said his administration has worked with other elected officials in Illinois since he took office to reduce liabilities, look for efficiencies and upgrade ways to track expenditures.
The governor's budget proposal highlights Illinois's improved financial standing. The state received its first credit upgrades in two decades last year amid higher tax revenue and billions of dollars in pandemic-era federal aid. It also repaid early the full $3.2 billion borrowed from the Federal Reserve's Municipal Liquidity Facility in 2020, when stay-at-home orders and business closures contributed to falling revenue. The state has reduced its unpaid bill backlog to about $2.8 billion from more than $6 billion at the start of 2020.
- Pritzker's plan projects fiscal 2023 general funds revenue of $45.8 billion, a 1% decrease from fiscal 2022's revised estimate
- The budget proposes a full payment of pension contributions of about $9.63 billion, plus an additional contribution of $200 million in fiscal 2023
- Illinois has a $130 billion unfunded pension liability across its five retirement systems
- The governor also wants to include a $279 million contribution to the Budget Stabilization Fund after a $600 million contribution in fiscal 2022
- His budget pushes the fiscal 2022 revenue forecast higher, putting it on track for a $1.7 billion surplus
Illinois's Pritzker to Float $1 Billion in Tax Cuts for 2023
The back-to-back surpluses and contributions to the rainy-day fund are a turnaround from this time last year, when Pritzker laid out a plan full of painful choices, hiring freezes and reduced spending for many areas other than education and vital services. That budget counted on $655 million in higher revenue by closing what Pritzker at the time called “unaffordable corporate loopholes.”
Illinois received more than $8 billion from President Joe Biden's American Rescue Plan Act, and the state will get about $26 billion collectively, including those rescue funds, over several years from pandemic-related federal packages, according to bond documents. The funds have helped pay for Covid-19 mitigation measures, provided support for businesses hit by the pandemic and replaced billions of dollars in lost tax revenue.
The governor must now negotiate with the Democrat-controlled Illinois legislature to pass a budget.
“As we start our budget discussions for the upcoming fiscal year, I am heartened by the Governor's proposal as a first step towards a budget that continues to demonstrate stability and the responsible management of resources entrusted to us by Illinois taxpayers,” state Senator Elgie R. Sims Jr., who has been a key budget negotiator for Senate Democrats, said in an emailed statement.
Budget ‘Gimmicks'
But Republicans, including those in the Illinois General Assembly and opponents trying to unseat him in November, panned Pritzker's proposals as “gimmicks.”
“The governor's budget address is always a wish-list, and this year it's clear that the governor wishes to be re-elected,” Illinois House Republican Leader Jim Durkin said in an emailed statement. “The budget laid out by Governor Pritzker today is packed with gimmicks and one-time tricks, but no structural reforms.
Durkin said the governor should work to fix property taxes and tackle crime.
“It is no surprise that the Tax-Hiker-In-Chief is attempting to rewrite history today to mislead Illinois voters in an election year with gimmicks that rely on a disappearing federal bailout,” Republican gubernatorial candidate and Aurora Mayor Richard Irvin said in an emailed statement.
Municipal-bond investors are watching this budget cycle and also looking for signals about how the state's finances will fare after federal aid dries up. While higher pension and rainy-day contributions highlight improvements to the state's financial management, its response if the recovery doesn't match higher forecasts next year will be a focus, said Dora Lee, director of research for Belle Haven Investments, which holds Illinois debt as part of $15 billion in muni assets.
“Long-term, we'll be looking how the state handles the funding cliff when the additional pandemic aid runs out,” Lee said.
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