Illinois Governor Calls for ‘Fairer’ Taxes to Bolster State

(Bloomberg) -- Illinois Governor J.B. Pritzker plans to focus on education, job training, infrastructure and what he calls a “fairer” tax system to help improve the fate of the worst-rated state.

Pritzker, whose state faces a mountain of pension debt and unpaid bills, also told lawmakers during his “State of the State” address that he wants to work with local governments to help lower property taxes.

The billionaire, first-term governor also plans to work with legislators in the coming months to push for improvements in the criminal justice system and legislation to reduce carbon pollution, promote renewable energy and the use of electricity for transportation.

“Our state has challenges. We inherited a mess that was years in the making, and it had bipartisan roots,” Pritzker said during his speech in the state capital of Springfield on Wednesday. “The last year has shown what we can do when we roll up our sleeves and work together to restore stability to our state.”

Pritzker has gotten credit during his first year in office for passing a budget on time and securing new revenue such as a higher gas levy to fund the first capital plan in a decade and legalizing recreational adult-use marijuana. His proposal for a progressive income tax will go before voters on the November ballot. Looking ahead, Illinois’s investors have said they want stable, on-time balanced budgets and adequate pension payments.

“The Illinois governor faces the same overriding question as a year ago: How can the state address its mammoth unfunded pension liabilities and keep delivering core services at the desired level, long term?” Ted Hampton, an analyst for Moody’s Investors Service, said in an email before the speech. “So any steps toward substantial and recurring revenue increases certainly could help support Illinois’ credit.”

The state has more than $6 billion of unpaid bills, $137 billion of unfunded pension liabilities and the lowest credit rating of any U.S. state. Pritzker has proposed enacting a graduated income tax, instituting higher levies on higher earners. Voters in November would have to approve a constitutional amendment to do away with Illinois’s flat income levy.

“If the fair tax becomes enacted, it will help us set the path forward on how we want to govern the state in terms of finances,” said Representative Mike Zalewski, who heads the Illinois House Revenue Committee. “It’s important.”

Some recent steps by the state and investor demand for bonds offering higher yield have cut the penalty Illinois pays on debt, but it is still the highest among states tracked by Bloomberg.

“Even the credit rating agencies and financial analysts described a distinct improvement in our fiscal stability, and investors took notice and lowered our state’s borrowing rate,” Pritzker said in his address.

The speech on Wednesday and Pritzker’s budget address next month will serve as reminders to voters of the importance of the tax proposal, said Dora Lee, director of research at Belle Haven Investments, which manages about $11 billion of municipal assets including Illinois debt.

“The upcoming income tax referendum could potentially be a turning point for the state and to the governor’s pension reform plan,” Lee said. “It’s vital that he continues to make the case to voters over the next several months.”

Approval of the graduated income levy could bring in $3.6 billion in additional tax revenue in a full year by raising levies on those who earn more than $250,000, according to the governor’s office. Currently, the rate for all taxpayers is 4.95%.

In addition to addressing the state’s financial challenges, Pritzker also highlighted a “need to pass real, lasting ethics reform this legislative session.”

“And now we have to work together to confront a scourge that has been plaguing our political system for far too long,” Pritzker said. “We must root out the purveyors of greed and corruption — in both parties — whose presence infects the bloodstream of government. It’s no longer enough to sit idle while under-the-table deals, extortion, or bribery persist.”

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net

To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, Michael B. Marois

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