Today we will take up the space with two main topics. The first being the combined State of the State and Budget address notes from Governor Pritzker. It was certainly a different setting than usual considering the pandemic departing from a live delivery and combining two presentations into one. See below for a recap and notes along with a link to the full text. We’ll have further information tomorrow to dig into.
Additionally, you will find comments about the town hall event that President Biden held with CNN in Milwaukee. Some further insights on what has been reported over the last few weeks were covered.
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Illinois State of the State and Budget Address
Governor Pritzker proposed a $41.6 billion state budget today that recommends cuts to nearly $1 billion in business tax breaks to help balance state spending amid the ongoing pandemic. “I have always believed that our economic recovery both as a nation and as a state goes hand in hand with our recovery from the virus. I certainly had no expectation when I became governor that we would spend all of this time battling an invisible enemy together,” Pritzker said in a pre-recorded speech from the Illinois State Fairgrounds, where a new COVID-19 vaccination program is being established.
All told, Pritzker’s plan is heavily reliant on curbing business tax breaks, extending repayment of state borrowing, shifting earmarked taxes to the state’s general bank account and using existing federal COVID-19 relief funding to pare down a budget deficit of more than $2.6 billion without enacting major cuts to services.
Pritzker’s plans to shift dedicated tax revenues and close or reduce what he called business tax “loopholes” amount to nearly $1.5 billion in new revenue — roughly the equivalent of the $1.4 billion in new tax dollars he had hoped to achieve for the first half of this year through shifting the state from a flat-rate income tax to a graduated rate tax.
Pritzker proposed no increase to the 4.95% general income tax rate as he had once threatened if his tax change wasn’t enacted. His proposal also includes none of the significant cuts on social services’ spending that he warned would ensue.
Several of the tax breaks the governor proposes to pare back were part of a bipartisan 2019 budget agreement between Pritzker and Republican leaders. The third spending plan offered by Pritzker in his term in office, along with his view of the state of the state, comes at a critical time for the Democratic governor, setting the stage for an expected 2022 reelection campaign in which his pandemic restrictions are expected to become a central theme.
Overall, agency spending for the budget year that begins July 1 is roughly level with the current budget year with several key social service categories buttressed by already authorized federal COVID-19 relief programs that are providing nearly $10 billion to the state for this budget year and next.
Pritzker is also counting on the new Democratically controlled White House and Congress to deliver billions of dollars in state and local assistance to Illinois despite Republican resistance. The governor did not build federal funding into his budget plan but assailed Republicans for opposing unfettered federal aid to Illinois. “For decades, Illinois has been forced to send billions more tax dollars every year to the federal government than we receive back from them in support of our citizens. Federal spending is rigged against Illinois. We’ve been subsidizing public services for other states like Iowa, Kentucky, Indiana and Missouri,” Pritzker said.
Here are some highlights of the proposed budget:
- For grade and high schools, state revenues are being supplemented by more than $2.8 billion in federal pandemic relief dollars, though for the second year in a row the state would forego its promised $350 million annual general funds increase called for in a 2017 rewrite of the state school aid funding formula.
- Of the $1.7 billion in funding for the Illinois Department of Public Health, the point-agency for COVID-19 testing and vaccinations, Pritzker said all but $148 million would come from federal sources. The funding would go toward efforts to “begin the process of updating and modernizing” IDPH‘s disease tracking and vaccination program.
- The Illinois Department of Employment Security would get an additional $60 million in federal funds this year for work that includes establishing new call center response positions as well as $70 million in federal funds next budget year that include increased staff.
- Pritzker’s proposal to shift $565 million in existing revenue from dedicated funds to the state’s general fund includes cutting revenue that goes to local governments and mass transit by 10%.
- The governor would shift the estimated $100 million in revenue generated by new cigarette taxes approved in 2019 as part of his $45 billion “Rebuild Illinois” infrastructure plan to the general fund for one year.
- The plan also calls for redirecting $69 million in grants for parks and school maintenance to the general fund and delaying by one year a phased shift of sales taxes collected on gasoline from the general fund to the road fund.
- The administration is seeking an extension of the time that dollars borrowed from one fund for use in another must be repaid. Pritzker’s proposal also redirects some tax revenues for general purposes to achieve $565 million and wants $932 million from paring business tax exemptions.
- Business, especially large firms, are being hit with $932 million in proposed higher levies—or “closing corporate loopholes,” as the Democratic governor and aides put it. And that figure could grow.
- On the block are the following:
- the net operating loss deduction, which would be capped at $100,000 a year, bringing in an estimated $314 million in the fiscal year beginning July
- aligning tax treatment of foreign-source dividends, which many large companies earn, with the rate on domestic dividends, estimated to generate $107 million
- rolling back the corporate accelerated depreciation clause, worth $214 million a year
Officials said all three of those merely would undo changes in tax law pushed through by former Republican President Donald Trump over near-unanimous Democratic opposition in 2017. The proposed changes effectively undo those changes as they affect state taxes.
Also to go are:
- a planned acceleration in exemptions for the use of biodiesel fuel, $107 million
- a sales-tax credit manufacturers get for purchasing non-machinery items
- $30 million from the corporate franchise tax, which had been repealed, but which Pritzker wants to reinstate
In one especially notable move, Pritzker is proposing to cap the fee retailers get for collecting state sales taxes at $1,000 a month, something that would exempt many small stores, but hit large chains. And he wants to “reset” the state’s tax credit for private school scholarships at 40 percent, down from 70 percent now.
The corporate tab could grow more—hundreds of millions of dollars more—if the governor is successful in reviving his bill to decouple from a provision in the last federal COVID relief bill allowing businesses to offset losses now against profits in the past, thereby getting tax refunds.
Official Press Release from Governor’s Office
SPRINGFIELD – With the COVID-19 pandemic continuing to hurt families across Illinois, Governor JB Pritzker proposed his third balanced budget, closing nearly $1 billion in corporate tax loopholes and holding overall state spending flat, while strengthening the social safety net.
The proposed budget does not increase income taxes for hardworking Illinois families. The administration proposes significant government efficiencies, as well as strategically maximizing federal dollars and bending the cost curve of government through flat spending.
The proposed budget:
• ends $1 billion in giveaways to corporations;
• strengthens safety net services for all Illinois residents in need;
• protects education funding as the federal government directs billions to schools;
• continues investments in economic development, infrastructure and the environment;
• and creates a more equitable Illinois through criminal justice reforms.
The Governor and the administration will continue to advance long-term structural budget improvements that continue the stronger fiscal trajectory Illinois was on before the pandemic while focusing on economic recovery for the hardest hit.
Complete FY22 Budget Book: https://www2.illinois.gov/sites/budget/Pages/default.aspx
Link to the Full Text of Speech: https://jolietchamber.com/wp-content/uploads/2021/02/Gov-Pritzker-Budget-Address_StateOfState-2.17.21.pdf
Responses to Budget from Various Groups
Illinois Chamber of Commerce
Illinois Chamber President and CEO Todd Maisch released the following statement on Governor Pritzker’s Budget Address. “The Illinois Chamber is opposed to the massive tax increase proposed by the Governor’s budget plan under the guise of “closing corporate loopholes.” We
understand that the state has fiscal problems to address, however, the Governor’s plan will have a long-term negative impact on job creation and tax revenues for the state as it produces an unfair increase on taxpayers after they resoundingly defeated the graduated income tax. This not only will expand what will get taxed, but will also reduce key tax credits for vital sectors of the
“We know the administration faces a tough fiscal task. However, these tax increase proposals will only paper over our short-term problems but accelerate Illinois’ long-term economic crisis. In particular of the many problems in the Governor’s proposals, a particular concern is the elimination of the single sales factor in assessing Illinois income tax. This misguided proposal has the impact of increasing taxes on Illinois based businesses at a time we can least afford it.”
Illinois Retail Merchants Association
The Governor spent a fair amount of time attempting to leverage credit for helping employers. While we are certainly thankful for the fact the state chose to pass through a small percentage of federal monies in the form of BIG grants to a handful of the smallest of employers, he ignored the fact that while giving federal money with one hand, the state took with the other. For example, Illinois employers endured two minimum wage increases in the midst of this pandemic – not counting the one that took effect just before the pandemic broke. The minimum wage increased 33% in one year (366 days to be exact). The Governor publicly and repeatedly rejected calls to temporarily suspend the planned increases until the pandemic is over. A small step that would have certainly been justified by the historic layoffs and struggles of employers of all sizes to stay afloat – struggles that continue today.
He also then attempted to justify a further taking in his proposed budget claiming he is ‘closing corporate loopholes’. Keep in mind, a loophole is something a creative accountant/attorney found in the law to avoid a tax despite the intent of the government. With the exception of one, all the tax incentives the Governor has proposed reducing or eliminating were enacted to encourage economic growth. The one exception is the Retail Discount which state statute correctly refers to as a reimbursement. The Governor attempted to justify it by again inferring it just hits the big retailers but ignoring the fact that in other states that have taken a similar approach, they simply come back year-after-year to redefine ‘big’. IRMA issued this statement in response.
Other than reducing the retailer’s reimbursement, the other proposed tax incentives the Governor has proposed reducing or eliminating with the claimed revenue are:
· Cap NOL deductions at $100m/year. ($314 million)
· Align treatment of foreign source dividend to treatment of domestic source dividends. ($107 million)
· Roll back federal TJCA 100% accelerated depreciation. ($214 million)
· Accelerate expiration of exemption for biodiesel. ($107 million)
· Reinstate the corporate franchise tax ($30 million)
· Reset tax credit for private school scholarships at 40%. ($14 million)
· Eliminate tax credit for construction payroll. ($16 million)
· Remove production related tangible personal property from the MME sales tax exemption. ($56 million)
While claiming his primary goal is to help Illinois’ economy recover, the proposals do not match the rhetoric. Retail is the state’s second largest revenue generator and the largest for local governments. As goes retail, so goes Illinois. Anything that inhibits the ability of retailers to recover should be greeted with a great deal of skepticism.
The Governor’s proposed budget claims to be just over $1 billion in the black. It does appear to make the full pension payment but does not appear to make the $350 million in additional monies that are supposed to be made into the education funding formula each year. This will be a contentious point with many legislators.
It is important to keep in mind that this is what it is – an initial proposal. It will now be exposed to the consideration of the Illinois General Assembly – a co-equal branch of government – with their own goals and priorities. IRMA will, as it always has, work proactively with the members of the Assembly on this budget proposal and other legislative proposals.
“Illinois faces a budget crater caused by the pandemic and the defeat of the fair tax amendment that would have required the very rich to pay their share,” the We Are One Illinois union coalition—which includes AFSCME and the teacher’s unions—said in a statement. “We support Gov. Pritzker’s proposed steps to address the budget shortfall by closing tax loopholes that big corporations exploit at the expense of the people of our state, and by decoupling Illinois from unwise federal tax changes.”
Illinois Municipal League
IML said the budget would slash the share of state income tax receipts that goes to municipalities by $150 million a year. Pritzker aides reply that cities and towns overall will be better off because closing the corporate loopholes would provide locals more than $150 million a year.
Presidential Town Hall Recap
President Biden on Tuesday said Americans might return by early next year to the routines and lives they remember before COVID-19, but he conceded less than a month into his presidency that “we don’t know.” Speaking for the first time as president during a town hall event hosted by CNN in Milwaukee, Biden said he would like to see schools reopen for in-person instruction by summer, urged Americans to do everything possible to get vaccinated against COVID-19 and said he empathizes with public confusion and fear about everything from byzantine online vaccine appointment systems to shifting scientific predictions about the impact of coronavirus mutations.
“If you’re eligible and it’s available, get the vaccine,” he said, adding “thus far there is no evidence” that the Pfizer and Moderna vaccines don’t offer protection against new strains of COVID-19 first identified in the United Kingdom, South Africa, and Brazil.
Apologizing that his answers were lengthy and at times meandering, Biden digressed with quotes he attributed to his parents, Abraham Lincoln, Franklin Roosevelt, and Martin Luther King Jr. while reviving his campaign themes of honest talk, decency in governance and fact-based solutions to intractable problems.
COVID-19 is at the top of his list. “Look what we inherited,” he said about the Trump administration’s approach to the pandemic response. “We wasted so much time.” Biden told CNN’s Anderson Cooper and audience members who asked questions that he has not retreated from his plan to enact $1.9 trillion in coronavirus relief legislation and he voiced unwavering support for a $15 per hour federal minimum wage, a benchmark goal among progressives. Biden also said he “guaranteed” mom and pop small businesses that federal loan money included in his plan would benefit them rather than the large companies that qualified for Paycheck Protection Program funds last year.
Asked about other pending legislation, Biden dove into the tricky waters of immigration, hinting that he would embrace a piecemeal approach to reform. He told Cooper that he would sign a bill even if a pathway to citizenship for undocumented workers is not included, but added that the provision remains a priority for his administration.
On the world stage, Biden said the United States “must speak up on human rights” and declared that there will “be repercussions for China” regarding human rights abuses. The president said he raised human rights during his recent two-hour phone conversation with Chinese President Xi Jinping. However, Biden also noted the complexity of the issue, saying that, “I shouldn’t try to talk China policy in 10 minutes on television.”
Biden also waded into the issue of student debt, reiterating his support to forgive up to $10,000 in repayments. When pressed by one woman who insisted that the forgiveness level needs to rise to $50,000, Biden flatly told her, “I will not make that happen,” pointing to his inability to do that via executive action. The $50,000 figure is one frequently floated by Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.).
Program Notices & Reminders
Upcoming Discussions with Illinois DCEO and SBA District Office
SBA Webinar with Stephen Konkle (SBA) and Joe McKeown (DCEO)
Please join the Illinois Department of Commerce and Economic Opportunity’s Office of Regional Economic Development and special guest Stephen Konkle with the US Small Business Administration for a webinar to learn more about the US Small Business Administration’s Federal Paycheck Protection Program and several others. This federal PPP forgivable COVID-19 Relief Loan Program will help Illinois small businesses keep their employees on payroll during this unprecedented time.
Date and time: Friday, February 19, 2021 1:00 PM / Register here:
Discussion with DCEO Director, Erin Guthrie & SBA on PPP
Join this webinar to be a part of the discussion with DCEO (Department of Commerce and Economic Opportunity) Director, Erin Guthrie & the SBA (Small Business Administration) District Director, Robert Steiner on PPP (Payroll Protection Program) and other relevant topics.
Date and time: Wednesday, February 24, 2021 2:00 PM / Register here:
SBA Page Links for Direction and Questions on PPP
1st draw info: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/first-draw-ppp-loans
First draw app: https://www.sba.gov/document/sba-form-2483-paycheck-protection-program-borrower-application-form?utm_medium=email&utm_source=govdelivery
2nd draw info: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/second-draw-ppp-loans
Second draw app: https://www.sba.gov/document/sba-form-2483-sd-ppp-second-draw-borrower-application-form?utm_medium=email&utm_source=govdelivery
Finally, please join the Joliet Chamber for a virtual conference with Mayor Bob O’Dekirk as he delivers a review of 2020, updates on present City of Joliet projects, and what to expect in the future. On Tuesday, February 23rd, Mayor O’Dekirk will deliver the annual State of the City Address at 11 am. Click here to register: http://jolietchamber.chambermaster.com/events/details/2021-webinar-state-of-the-city-address-6015
Joliet Region Chamber of Commerce & Industry Staff and Board of Directors
Vice President – Government Affairs
Joliet Region Chamber of Commerce & Industry