Civic Federation urges 'cautious' state spending, warns of 'looming fiscal crisis' for transit agencies

Ashlee Rezin/Sun-Times

As state lawmakers work to finalize a budget and revenue package, the Civic Federation on Tuesday urged the state to be more cautious in its spending levels and warned that the CTA, Metra and Pace are "fast approaching a looming fiscal crisis."

The watchdog group also urged Gov. J.B. Pritzker and lawmakers to develop a more sustainable tax structure and pension plan to prevent future crises.

Those transit agencies face an estimated $730 million deficit beginning 2026 after federal funds are depleted, the group warned.

"The Illinois General Assembly must take action to significantly reform the governance structure and funding of the Chicago region's transit systems in order to ensure the economic sustainability of the region," the group wrote in the report.

The fiscal year beginning on July 1 marks the first time the state has had a budget deficit since the start of the pandemic, the Civic Federation said in a 62-page analysis. And while they note Gov. J.B. Pritzker's $800 million in tax changes and enhancements would help close the deficit, "we note that further tax increases could prove unsustainable for taxpayers given the State's already high tax burden."

Pritzker in February unveiled a $52.7 billion budget that includes the blueprint for a pension overhaul, about $182 million in funding to care for newly arriving migrants and $800 million plus in tax increases mostly targeting large businesses.

Lawmakers have a self-imposed May 24 adjournment date, but are likely to extend budget negotiations into the final week of May. Meanwhile, Pritzker last week warned agency leadership teams to prepare for a budget with $800 million less in revenue — in case the proposed tax increases didn't pass.

Pritzker's plan extends a limit on the amount of operating losses corporations can write off on their income taxes. That maneuver would generate another $526 million for the state, the governor’s office estimates.

The governor also wants to more than double the state tax on sports betting revenue collected by sportsbooks — from 15% to 35%. The proposal is sure to draw pushback from a rapidly expanding industry that raked in more than $1 billion in 2023. The governor’s team predicts such a hike could pump an additional $200 million into state coffers.

And he wants to lower the tax discount retailers receive for collecting sales taxes, a measure his office says would net the state an additional $101 million. In his budget speech, Pritzker also said he wants to permanently eliminate the 1% grocery tax.

The Civic Federation said it supports some of the state's long-term investments in its budget proposal, including an increase to the evidence-based funding school formula and increased appropriations to the Monetary Award Program (MAP) grants for college students. It also supports the state's efforts to fund the migrant crisis.

"However, the Governor and the Illinois General Assembly will need to balance these and other important programs against other competing priorities, particularly should the proposed tax revenues not be approved," the watchdog group warned.

The group said the governor's proposed budget improves the state's financial condition, makes statutorily required pension payments and includes a proposal for a new pension funding plan.

But it is concerned about proposed revenue enhancements, the effects of the elimination of a grocery sales tax on local governments and the combined fiscal and operational crises facing the public transit systems in northern Illinois.

Its recommendations include developing a tax structure for a "sustainable future"; identifying offsetting revenue sources in case the grocery tax fails; sustaining a rainy day fund that "meets best practice standards"; and reforming the governance and structure of public transit in northeastern Illinois. The Civic Federation said it supports a plan that would create the Metropolitan Mobility Authority to oversee all public transit operations — and provide an additional $1.5 billion in annual funding for public transportation.

The Civic Federation credits Pritzker for paying down $11 billion in debt in fiscal years 2022 through 2024 — which has led to credit rating agency upgrades. It has also paid down $16.7 billion in backlogged bills that accumulated during the budget impasse under former Gov. Bruce Rauner.

The group also credits Pritzker for including the statutorily required pension payment for next year, but also warns that "pensions will remain a significant burden on future State budgets for the next two decades absent creative approaches to shore up funding and reduce liabilities."