Illinois Democrats still at odds over tax hike proposals as budget talks again head into overtime

SPRINGFIELD — Despite their iron-clad control in Springfield, Illinois Democrats for the second straight year will be unable to meet a self-imposed deadline for approving a state spending plan as Gov. J.B. Pritzker faces pushback from his own party on more than $900 million in tax hikes that he says are needed to balance his proposed $52.7 billion election-year budget.

With the state facing a tighter financial outlook than in recent years, when revenues have routinely outperformed projections, a budget agreement had yet to surface as of Thursday evening. That doesn’t leave enough time for the House and Senate both to approve a spending plan before Friday, when the spring session was scheduled to end.

Negotiations for the budget year that begins July 1 have been rocky as some Democrats have expressed reluctance to accept at least some of the tax increases proposed by Pritzker, which include hikes for sportsbooks, retailers and corporations.

Without the benefit of unanticipated revenue windfalls to look forward to and billions of dollars in federal coronavirus relief money already allocated to one-time expenditures from past years, some lawmakers are pushing for a more cautious approach going forward.

“I’m afraid that we’re making decisions now, today, that are going to complicate things next year. So rather than using all these revenue enhancements this year, I’ve suggested, maybe use one or two, make some cuts, and save some of those tools for next year when you know we’re going to have to come up with additional revenue,” Democratic state Rep. Fred Crespo of Hoffman Estates said.

One point of contention has been Pritzker’s plan to raise the taxes on sports wagers — paid by sportsbooks out of their post-payout revenue — to as much as 35% from 15%. The Pritzker administration projects the change would generate an estimated $200 million in additional revenue. The governor has emphasized that the tax on sports betting would be on companies such as DraftKings and FanDuel, not “against sports bettors themselves.”

Pritzker on Thursday sought to downplay the resistance he’s met from fellow Democrats, instead attributing the pushback to sports betting companies, which through a coalition have hired a stable of high-powered statehouse lobbyists to advance their cause with lawmakers.

Sportsbooks “have made literally tens of millions of dollars from the state of Illinois, and all we’re asking is that they pay a little more of their fair share,” Pritzker, who signed a measure legalizing sports betting during his first year in office in 2019, said Thursday at an unrelated event in Pontoon Beach in the Metro East area of Illinois outside St. Louis.

Metro East is home to two entertainment venues that both recently changed their names to reflect the importance of sports wagering to their business: DraftKings at Casino Queen in East St. Louis and FanDuel Sportsbook & Horse Racing in Collinsville, formerly Fairmount Park.

State Sen. Christopher Belt, a Democrat from nearby Swansea, raised concerns that the proposed tax increases would have a negative impact on East St. Louis, a blighted community that depends on the casino as an economic driver. Belt said the casino contributes a sizable percentage of the city’s general revenue fund.

“Any hit from the casinos plays over directly to the city of East St. Louis. Then that impacts public safety. That impacts everything. And so, I would love to see another alternative,” Belt said.

But Belt also disagrees with budget cuts as an alternative to the tax increases on sports betting, a suggestion made earlier this month by Deputy Gov. Andy Manar in a memo to the heads of state agencies. Manar cautioned that if the tax hikes don’t make it through the legislature,  the departments should prepare for $800 million in cuts to various state services.

“This is why we’re burning the midnight oil,” Belt said. “And again, it’s the governor’s proposal. So he’s open, probably, to maybe suitable alternatives and that’s what we’re looking for now.”

Rep. Jay Hoffman, who is part of House Speaker Emanuel “Chris” Welch’s Democratic leadership team, echoed Belt’s concerns, saying the casino and racetrack have been able to stay above water thanks to DraftKings and FanDuel. Hoffman worried a tax increase could have a negative trickle-down effect on the operations of the venues.

“For me, it’s really a local issue because those entities that have a bunch of employees; they were able to stay afloat by hosting FanDuel and DraftKings,” said Hoffman, also of Swansea. “In order to ensure that the hundreds of people who work at Fairmount racetrack, and everything from training the horses to cleaning up after the horses to working in concession stands … in order to make sure that they keep employed, I think it’s difficult to vote for the tax increase.”

But the opposition doesn’t just come from downstate. Democratic Rep. Curtis Tarver of Chicago also said Thursday he doesn’t like the proposal to hike taxes on the relatively new business of legal sports betting.

“For an industry to be in its nascence and to have a business model that increases the taxes by 100% in four years isn’t a good signal to other businesses that might want to come to Illinois,” Tarver said.

Rep. Marcus Evans of Chicago, who is also part of House Democratic leadership, however, said he doesn’t think higher taxes would adversely affect the sports books.

“Some people just say the taxes may be too high, but on the East Coast the taxes are a lot higher. And I think people are still going to bet,” Evans said.

The sports betting tax in New York state is 51%, for example.

“So I don’t think that the taxes that have been proposed are that onerous,” Evans said. “I think people want to sports bet, so I don’t anticipate sports betting to go away because of higher taxes.”

The Sports Betting Alliance, which represents sportsbooks, takes the opposite view, arguing that Illinois’ lower tax rate allows the companies to offer better odds and promotions that draw gamblers away from illegal bookies.

Rep. Will Guzzardi, a Chicago progressive who is part of House Democrats’ working group on budgetary matters, acknowledged a diversity of opinions in his caucus about how the state should generate revenue but believes “there aren’t that many sticking points left” before a budget agreement can be reached.

While lobbyists for sportsbooks made compelling points, “someone’s going to have to wind up paying more” as the legislature funds its priorities, Guzzardi said.

“Better it be the most profitable corporations in the state than working people,” he said.

Crespo, the Hoffman Estates Democrat, said he and other moderates in the House have “embraced the idea of maybe a revenue enhancement or two,” though he declined to comment on specifics of which of Pritzker’s proposals were likely to earn their support.

As for places to trim spending, Crespo suggested eliminating coverage of weight loss drugs including Ozempic for state workers — a provision quietly added to the budget last year — as one option.

Also on the table is a proposal from Pritzker that would extend a cap on losses large corporations can write off on their state income taxes, which the governor estimates would bring in $526 million in revenue.

Pritzker has also resurrected a previously unsuccessful plan to limit the tax that discount retailers receive for collecting sales tax, which his office estimates would generate another $101 million. And the governor has proposed raising taxes on individuals by reducing the standard exemption for state personal income taxes, which would raise an estimated $93 million by increasing tax bills for Illinois residents.

Despite it becoming evident that lawmakers will miss their self-imposed deadline to pass the budget, Sen. Robert Peters, a Chicago Democrat, expressed confidence that the new budget would include funding for a number of issues important to Illinois residents.

“Currently, violence prevention work is very important, small business support, our hospitals, particularly when it comes to Medicaid,” said Peters, whose district boundaries include a swath of the South Side and the downtown area. “And it seems like we’re in a good spot here.”

Like almost everyone outside the Democratic caucus, including the press and the public, House Republicans were still waiting Thursday to see the Democrats’ spending plan.

House GOP leader Tony McCombie of Savanna, who’s complained that her caucus has not been included in budget discussions with House Democratic leadership, said she and her team would rather see “structural reform” in the tax policies rather than tax increases.

One piece of Pritzker’s plan that appears almost certain to be included in the final budget package is a proposal to eliminate the 1% sales tax on groceries. The state can permanently abolish the tax — which it temporarily suspended amid record inflation in the 2022 election year — without hurting its finances because the money all goes to local governments.

While McCombie supports the concept, she and other Republicans have expressed concerns about how municipalities will make up the difference.

With the GOP calling for local governments to get some kind of public reimbursement for any resulting tax burden, McCombie suggested the state could figure out how to alter the gasoline tax, which is used to pay for road projects, so that municipalities would potentially take less money out of their general revenue funds to pay for that construction.

She also suggested the towns could be dependent on more money that could be set aside from the portion of the state income tax that goes to municipalities.

“We have had a couple of conversations with the governor’s staff, so that’s good. As for us, we haven’t shared our priorities,” McCombie said. “We’re a little gun shy when it comes to putting all our cards on the table because then there’s things that maybe we won’t get funded. I hate to say that people play politics with the budget, but they play politics with the budget.”