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Budget spares LGDF, pays down debt, doesn’t immediately spend all ARPA money, closes about $655 million in loopholes and spares others

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* House Majority Leader Greg Harris laid out the case for this budget proposal at a House Executive Committee hearing today. The governor, he rightly noted, wanted to cut money going into the Local Government Distributive Fund, but that was “left alone” in this budget, as well as transit funding. The state’s bill backlog, he noted, is now just $3.2 billion.

Harris also said…

We have tried to use that FY 21 money in some very strategic ways to enhance our FY 22 budget. Things like making a prepaid deposit to make one large Medicaid payment a month in advance, which would allow us to capture an additional share of the federal enhanced Medicaid model before it expires.

Harris said the budget pays down $2 billion of debt, “and we repay our interfund borrowing.”

* As far as the federal ARPA money goes, Harris said the state is “spending some of that money in early summer,” on things like violence prevention, after-school programming, youth programming, mental health, substance abuse, “things sorely needed in our communities.”

He said legislators will work through the summer to develop a “very targeted and strategic approach” for the balance of the federal money.

Capitol News Illinois…

It also calls for spending about $7.5 billion in state general revenues on Medicaid, plus another $7.4 billion for other human services; $1.9 billion for higher education; another $1.9 billion for public safety; and $1.4 billion for general services.

In addition to those regular items, Harris said, the plan calls for spending about $2.5 billion of the ARPA money Illinois expects to receive. Of that, $1.5 billion would go for things like economic recovery programs to help businesses hardest hit by the pandemic, public health, affordable housing and violence prevention programs like after-school activities, and summer youth employment.

Another $1 billion of the ARPA funds would be directed into the ongoing Rebuild Illinois capital improvements program to accelerate some of the projects slated for construction.

There’s more, but you get the idea.

* Harris also said this…

There are no tax increases in this budget

* The Illinois Chamber thinks otherwise…

Despite impressive out performance of tax revenue growth and $8.1B of federal assistance, the Democrats’ budget still punishes Illinois employers with higher taxes in order to “balance” a bloated state spending plan. We see no meaningful restraint in states spending, only more proposals that force employers to pay higher taxes or decide whether or not to continue their investment in Illinois.

The so-called “loophole” closures are nothing more than tax increases on employers that target, in particular, the manufacturing sector which has lost 50,000 jobs in the last two years. These changes make the Illinois tax code go further outside of the mainstream of state tax policy. Job creators will undoubtedly react negatively.

These tax increases, when combined with extraordinarily punitive changes to our civil liability system, increased regulation, and a potential labor drafted rewrite to the Illinois Constitution, makes the 102nd General Assembly the worst for job creation in a generation.

* Dot points from the governor’s office about what loopholes were closed…

• Cap Corporate NOL Deductions at $100,000 Per Year For the Next 3 Years (~$314M)

When a company suffers a net operating loss (NOL) in a given year, it can carry forward the NOL to future years and deduct it from otherwise taxable income. Capping the amount of NOL deductions to $100,000 will impact the wealthiest businesses, and will add $314 million in corporate income tax revenues, as well as $21 million in local taxes.

• Align Domestic & Foreign-Source Dividend Deduction (~$107M)

Under the Tax Cuts & Jobs Act (TCJA), corporations are allowed to deduct foreign-source dividends at 100% and global intangible low-taxed income (GILTI) at 50%. Aligning the tax treatment of dividends from foreign sources and GILTI to the treatment of domestic dividends will primarily impact large, multi-national corporations with foreign subsidiaries or substantial ownership interests in foreign corporations. This alignment will produce $107 million in corporate income tax revenues for the state and $7 million for local governments.

• Roll Back Trumps’ Tax Cut & Jobs Act 100% Accelerated Depreciation Deduction (~$214M)

The TCJA allows businesses to take a 100% depreciation deduction in the year of purchase for various qualifying assets. By applying the standard depreciation schedule, the state will generate $214 million in business income tax revenues and $14 million for local governments.

• Freeze Phase Out of Corporate Franchise Tax (~$20M)

Public Act 101-0009 was enacted in 2019 and began the gradual phase out of the Corporate Franchise Tax (scheduled to be fully repealed in 2024). The budget freezes the phase out of the repeal by eliminating the first $1,000 in Corporate Franchise Tax currently in place. This change will eliminate the tax burden for the smallest businesses while allowing our state to retain approximately $20 million in revenue.

That’s significantly less than the $900+ million Pritzker proposed. Biodiesel, retailers’ discount, tax credit for private schools and the Blue Collar Jobs Act were all preserved. Adding: The Manufacturers Purchase Credit was also saved

…Adding… Illinois Municipal League…

“The Local Government Distributive Fund (LGDF) serves as a financial foundation for cities, villages and towns across the state and is crucial to keeping local tax burdens as low as possible. When these dollars are reduced, local leaders are forced to make difficult decisions, which include cuts to critical services or increasing taxes and fees to ensure municipal budgets stay balanced.

“We commend Governor JB Pritzker, legislative leaders and state lawmakers for not enacting further cuts to LGDF and increasing state and local revenues by adopting various changes to the state’s tax code.

“Communities need this funding as we recover from the pandemic and economic collapse, due to public demand for even more community programs and services, said Brad Cole, IML Executive Director.

posted by Rich Miller
Monday, May 31, 21 @ 5:35 pm

Comments

The private school tax credit is almost a direct handout to the wealthy. A good lesson that tax breaks are easy to give and almost impossible to take away.

Comment by Chicagonk Monday, May 31, 21 @ 6:24 pm
When you look at the $900 million that was on the table and now what’s possible, if passed, and look at the “There are no tax increases in this budget” too, will the budget discussion now turn to both nuance and spending, not necessarily a philosophical look at the budget?

If it is nuance and it is spending, the traditional look at a budget (weighing and measuring policy by dollars actually spent) is this good news for Dems who can point to policy wins with dollars, and no “tax increases”?

Comment by Oswego Willy Monday, May 31, 21 @ 6:38 pm
Having new leadership in both Houses, this year could have been a mess. This seems like normal end of session. And the typical you dumped the 700 page budget on us at the last minute stuff, which is normal.

Best of luck to the legislative folks and their staffs tonight.

Comment by BTO2 Monday, May 31, 21 @ 7:11 pm
@OW - Glad you put tax increase in quotes because it takes strained eyes not to call this a tax increase (especially considering Illinois Democrats were calling the SALT cap from the Trump taxes a tax increase back in 2017). Taking away a tax deduction (whether a NOL or a SALT tax) either is or is not a tax increase.

Comment by Chicagonk Monday, May 31, 21 @ 7:14 pm
== The private school tax credit is almost a direct handout to the wealthy.==

Could you elaborate on that?

Comment by low level Monday, May 31, 21 @ 7:19 pm
There’s no way the Invest In Kids credit has ever hit the $75 million cap. It’s a 75% credit, so it’s not exactly a “handout” since it’s not a 100% credit. If it was such a great deal, peoole would be lining up for it each year. It applies to all non-public schools, and the state never touches the money, so I don’t see how it’s unconstitutional. The Supremes have never upheld a challenge to a scholarship tax credit, and it probably isn’t going to happen any time soon. If there are no non-parochial schools getting scholarship $, then they need to hustle and get some donors before the credit expires in a few years. I just don’t understand why anyone other than the teachers’ unions care about this credit. It has a definite sunset date and has helped some kids get a leg up on their education. There are hundreds of millions of dollars in tax changes that would hit the wealthy much harder and which don’t take away opportunities from kids. Focus on those and let this thing peter out in 2 years.

Comment by NoMoreMC Monday, May 31, 21 @ 8:54 pm
@LowLevel - I volunteer with an organization that greatly benefits from the tax credit. We tell donors that if they donate through the credit, 75% of their donation can be credited against their Illinois income taxes. Based on patterns of giving, most of the credit is used by the very wealthy. I do think the credit works to encourage more giving, but I also think a lot of the giving would still happen if the credit was 60%.

Comment by Chicagonk Monday, May 31, 21 @ 9:11 pm
Perhaps so, but does it not also enable many poor and lower middle class students to attend private and parochial schools?

Comment by low level Monday, May 31, 21 @ 9:28 pm
Not allowing Companies to write-off their losses in the year of occurrence is absurd. If they are hemorrhaging cash due to a real economic loss then they deserve their tax deduction. This attempts to encourage borrowing and debt.

The Second bullet point is precisely why Marathon Oil no longer has their International Headquarters in Illinois. I know this because my Uncle a 38 year Marathon man had to move his family to Houston Texas with dozens of other highly paid professionals when this stuff came up twenty-five years ago. Marathon got spooked and moved 200 jobs out of Illinois. There were deals on really nice two story brick houses in Crawford County 25 years ago when 2% of the employed people in the county with the highest salaries moved within 90 days of each other to flee South. Another uncle told me he now has to drive to Sullivan Indiana to go to his brother’s restaurant. He closed his restaurant in Robinson and moved it across the Wabash River to Indiana to when business dried up. It was not just the 200 jobs. Other family members moved to Houston to be close to mom and dad. Fewer people live in Crawford County now than 30 years ago but the need for government services due to alcoholism, meth and opioid pills and dearth of job creation is far greater. Crawford County never needed a Children’s home until it became a Wet County and the Marathon Corporate office moved.

Comment by Al Tuesday, Jun 1, 21 @ 6:06 am
All without a graduated income tax, schools being closed, and having to wear masks all year long. Amazing what a great State Illinois has become under the leadership of JB. Lets do it all over again starting this Fall.

Comment by Your2funny Tuesday, Jun 1, 21 @ 8:18 am