Illinois Plans to Cut More Than $700 Million from Budget

(Bloomberg) -- Illinois must freeze hiring, reduce grant funding and potentially furlough state workers to cut its fiscal 2021 budget by $711 million, Governor J.B. Pritzker announced on Tuesday.

The cuts come as Covid-19 has hit businesses from restaurants to conventions and will cost the state more than $4 billion in revenue over two fiscal years, according to Pritzker. That means services will be slower and potentially lower at a time when health and economic assistance needs are greater amid the pandemic-spurred recession.

“This is going to be tough,” Pritzker said during his daily press conference. “It pains me to pursue these actions.”

The cuts would hit a variety of executive agencies including human services, corrections, public safety, commerce and economic opportunity and agriculture. The state is talking with with unions to identify $75 million in personnel cost cuts, which could include furlough days, according to the state.

“Undoubtedly our state faces a severe fiscal crisis and action is urgently needed,” Roberta Lynch, executive director of AFSCME Council 31, said in an emailed statement. “However, it is grossly unjust to suggest that front line state employees who have already sacrificed so much in our current public health crisis should bear an outsized share of the burden of fixing the state’s fiscal crisis as well.”

Pritzker is trying to close a $3.9 billion budget gap, which includes the hit from Covid-19 and the state’s structural gap, after voters last month rejected a proposal he championed to replace the state’s flat income-tax rate with a graduated levy on higher earners to increase revenue. The cuts also come amid signals from Congress that the next stimulus package may not include more aid for state and local governments.

In addition to the cuts, Illinois also is selling $2 billion of debt to the Federal Reserve’s Municipal Liquidity Facility to make up for revenue losses, the second time that the cash-strapped state has tapped the central bank’s $500 billion lending program.

The Illinois debt has a 3.42% coupon and matures in 2023 and the sale is expected to close by the end of the week, Carol Knowles, a spokeswoman for the Governor’s Office of Management and Budget, said in an email on Tuesday. Illinois, the only state to tap the emergency loan program, previously sold $1.2 billion in debt to the Fed and has paid some of that off.

Illinois’s budget woes existed before Covid-19 but have been exacerbated by the pandemic. The state has a bond rating just one step above junk, as well as persistent budget deficits projected to last through fiscal 2026 and a $141 billion unfunded pension liability and a $7.9 billion bill backlog.

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