SPRINGFIELD — Backers of a graduated income tax constitutional amendment conceded defeat Wednesday for Gov. J.B. Pritzker’s marquee policy proposal which was projected to bring in more than $3 billion annually to state coffers.
With 98 percent of precincts reporting, voters had rejected the amendment by a 55 percent to 45 percent margin. The Associated Press called the race for the “No” camp, as a large number of outstanding mail ballots were almost certainly not enough to make up for the deficit of approximately 500,000 votes.
In his daily COVID-19 briefing in Chicago Wednesday, an agitated Pritzker lashed out against the Republican Party, warned of cuts to public safety and human services and said several other options were on the table for addressing state budget deficits that have been ongoing for decades.
“Illinois’ fiscal problems haven’t gone away. We now sit at a crossroads,” Pritzker said. “Our state finances still require fundamental structural change. In the coming days I’ll be talking with the leaders in the General Assembly about our path forward. But here’s what we know for sure: I promised to be a governor who balances the budget and pays the bills that my predecessor left behind. I promised to make sure that our kids get a good education, that we invest in job creation and that we build a better future for Illinois. There will be cuts, and they will be painful.”
The failure of the amendment marks the end of a fight led by Pritzker which began legislatively in April 2019 and even before that politically when Pritzker was running for governor in 2017 and 2018.
Pritzker spent $58 million of his own personal fortune to promote the amendment, while billionaire Republican donor Ken Griffin, the state’s wealthiest person and founder of the hedge fund Citadel, dropped more than $53 million into an effort to defeat the tax change.
The governor had billed the graduated income tax proposal – which would have imposed higher tax rates on higher income earners – as the best of three options, the others being a 20 percent increase to the state’s flat tax or 15 percent across-the-board cuts to state spending.
But he has also frequently warned that discretionary spending has already been reduced drastically in several areas in recent years due to a two-year state budget impasse in which the state racked up a $16 billion backlog of unpaid bills. As of Nov. 4, the Illinois Comptroller’s office estimated that backlog at $8.3 billion.
“My predecessor, Gov. Rauner, tried to drag the state underwater with painful and draconian cuts that in the end were blocked by both Republicans and Democrats,” Pritzker said Tuesday. “His approach devastated higher education, child care, human services, and hollowed out state agencies like those that manage public health and unemployment benefits, all while adding billions of dollars of debt on to our bill backlog.”
The impasse occurred beginning in July 2015, lasting 736 days, after lawmakers allowed a temporary income tax hike to expire which decreased the individual income tax rate from 5 percent to 3.75 percent. That reduced state revenues by about $4.5 billion, but in the absence of a state budget targeting cuts in spending for two years afterward, the state continued to spend at a rate far outpacing revenues. As a result, many agencies, public schools and universities all eventually saw drastic drops in funding as obligated state expenditures took precedence.
“If you set aside federally protected programs, court ordered obligations and our bond and pension debt, we would have to reduce discretionary spending in our state by approximately 15 percent,” the governor said. “That’s 15 percent fewer state troopers. That’s 15 percent fewer students going to college, 15 percent fewer working parents receiving child care assistance and 15 percent less money for your local public schools, which likely means that your property taxes will increase.
“You could call this the Republican approach option to raise revenue within our current regressive flat tax system and impose a higher flat tax which falls disproportionately on the working poor and the middle class.”
Complicating matters is a global pandemic that has ripped a hole in state finances. Even before COVID-19 redefined the state’s revenue picture, Pritzker had pegged the state’s structural, year-after-year budget deficit at about $3.2 billion. Considering lost revenues due to COVID-19 and associated economic restrictions, that deficit could exceed $7 billion with the graduated tax’s failure, Pritzker predicted in April.
In September, Pritzker directed state agency directors to prepare for cuts of up to 5 percent for the current fiscal year and 10 percent next fiscal year, which begins July 1.
On Sept. 24, Lt. Gov. Juliana Stratton said lawmakers “will be forced to consider raising income taxes on all Illinois residents by at least 20 percent, regardless of their level of income” if the graduated income tax fails. That would push the current tax rate to about 6 percent, and would require a simple majority vote in a Legislature dominated by Democrats as well as a signature from the governor.
The state’s path forward could include some combination of cuts and tax increases, as well as borrowing from the federal government’s Municipal Liquidity Facility program which was authorized in the state’s budget for fiscal year 2021.
“Everything is on the table,” Pritzker said.