The novel coronavirus has closed schools, restaurants, bars and businesses throughout the state, and on Wednesday, Gov. J.B. Pritzker revealed how the pandemic will cause a $2.7 billion shortfall this year and a $4.6 billion shortfall next year.

“This is a public health crisis – but it is accompanied by massive economic disruption that’s unprecedented in modern history,” Pritzker said. “Illinoisans are all too familiar with the pain the lack of a state budget can cause, so let me just say up front: we will not go without a state budget.”

A substantial portion of state budgets are dependent on things like taxes on income, sales and other sources, Pritzker said. “In every state, the coronavirus has substantially disrupted those revenue sources. That’s true regardless of political affiliation or how fast or slow a state’s leaders moved to implement social distancing measures.”

State economists forecast a 7% drop in state revenue for this fiscal year, resulting in a $2.7 billion budget gap, Pritzker said.

Sales taxes are projected to be about $737 million, or 8.4% lower than previous projections, according to the April 2020 revised revenue forecast by the governor’s Office of Management and Budget. “This not only reflects the effects on business closures, social-distancing behavior and event cancellations, but also the immediate effects of lost income and wealth caused by pandemic-related disruptions in labor and financial markets,” the forecast report states.

Earlier this month, the governor’s Office of Management and Budget directed agencies to put on hold all nonessential purchases and operational expenditures, freezing all nonessential travel and limiting all nonessential hiring. According to the governor’s office, those measures are expected to save at least $25 million for the state’s general funds in fiscal year 2020. This is in addition to earlier efforts to identify efficiencies and spending reductions for the FY21 budget, which were slated to save the state $750 million over the next three years, according to the governor’s office.

About $1 billion of the budget shortfall for this year is due to the extension of the April 15 deadline for filing 2019 income tax returns to July 15, according to Pritzker. “Because of the (tax deadline) extensions, those revenues will be received in FY21 instead of FY20,” he said. Working with Illinois State Comptroller Susana Mendoza and Treasurer Michael Frerichs, the state will be moving forward with the issuance of up to $1.2 billion in short-term borrowing, which will cover the $1 billion lost to the extension of the tax deadline.

The comptroller and treasurer have extended $400 million in investment borrowing agreements that were due to be repaid from the general revenue fund in March and April to July, according to the governor’s office. “In coordination with the Governor’s Office of Management and Budget, the comptroller has utilized interfund borrowing authority to transfer an additional $323 million in March and April to the general funds,” according to the forecast report.

“This is not the path that any of us would choose under normal circumstances, but it is the best path available to us in the 2 1/2 months left in this fiscal year,” Pritzker said.

While Pritzker announced the budget shortfall for FY21 will be $4.6 billion that didn’t include a few key items. When factoring in paying back the $1.2 in short-term borrowing, the budget shortfall for fiscal year 2021 is $6.2 billion. That shortfall rises to $7.4 billion if the Pritzker’s proposed graduated income tax does not pass in November.

When asked if he should rethink the graduated income tax, Pritzker said it’s already on the November ballot. “I think people will be making their own decision about it. I would argue in a way we may need it now more than ever,” he said. “This isn’t just about one year. It’s about fixing the structural deficit that exists for the state. We’re in a pandemic. We’re in an emergency. This crisis is causing a significant disruption to our fiscal year coming up, but we have many years ahead, and I think a fairer tax makes sense to me.”

Illinois GOP Chairman Tim Schneider slammed Pritzker for his comments on the graduated income tax. “It seems Gov. Pritzker has taken Rahm Emannuel's ‘never let a crisis go to waste’ adage to heart. With a global pandemic that has plunged the state's economy to depths not seen since the Great Depression, this is the worst possible time to push through a tax hike that will crush small businesses who provide so many of our jobs,” Schneider said in a statement. “Pritzker using a coronavirus briefing to campaign for the progressive income tax is inappropriate and unfortunate.”

Contact Kristen Thometz: @kristenthometz | (773) 509-5452 |  [email protected]