Gov. J.B. Pritzker on Wednesday delivered a staunch defense of his handling of the COVID-19 pandemic and a rebuke to Republicans who fought his graduated-rate income tax in a budget address that proposed $1 billion in cuts to business tax breaks backed by the GOP and its allies.

The Democratic governor’s $41.6 billion budget blueprint contains no new tax increases and avoids major service cuts. Instead, it relies heavily on ending the business tax breaks, extending repayment of state borrowing, shifting earmarked revenues to the state’s general bank account and using existing federal COVID-19 relief funding to pare down a budget deficit of more than $2.6 billion.

Pritzker’s combined budget and State of the State speech, prerecorded in a new COVID-19 vaccination site at the Illinois State Fairgrounds in Springfield, sets the stage for a critical year for the governor as he heads toward an expected 2022 reelection campaign. His oversight of pandemic restrictions and the distribution of vaccines and jobless benefits is expected to be a central theme.

Despite a statewide COVID-19 death toll topping 20,000, the first-term governor has faced an increasingly restless audience of voters and lawmakers over his pandemic restrictions. He sought to portray himself as an empathetic voice for residents enduring restrictions that have led to canceled public gatherings, shuttered businesses, closed schools and unshared grief over the loss of family members.

“All of this was in the pursuit of one goal and one goal only — saving as many lives as possible,” Pritzker said of his pandemic restrictions.

“We are all struggling right now,” he said, adding that “it’s OK to admit being overwhelmed.”

“At its core, our pandemic response is focused on saving lives and protecting working families. We’ve helped keep tens of thousands of families from losing their homes, kept them fed and ensured their children had a safe place to go each day,” he said. “This pandemic isn’t over yet, so that remains our guiding light for this fiscal 2022 budget proposal.”

The governor quickly shifted into attacking Republicans nationally and on the local level over their response to the pandemic, though the Illinois GOP holds no statewide offices and is in a super-minority in the General Assembly, leaving Democrats in control to act without their input.

Pritzker assailed “right-wing carnival barkers” for opposing federal aid to make up for revenue losses to the states as well as other Republicans who “have encouraged businesses to defy health guidelines, spread conspiracy theories about COVID deaths and fought mask guidelines tooth and nail.”

“In essence, they eliminated the fire department, burned down the house and poured gas on the flames — and now they’re asking why we’re not doing more to prevent fires,” Pritzker said of Republicans. “In a normal year, I might have more patience for their hypocrisy. But this is not a normal year.”

After voters on Nov. 3 overwhelmingly defeated his plan to replace the state’s constitutionally mandated flat-rate income tax with a graduated-rate tax based on income, Pritzker was quick to blame Republicans and their business allies for the loss and said the onus was on them to propose cuts to deal with the revenue shortfall and job losses caused by the pandemic.

GOP leaders never responded in an effort to make Pritzker own the budget and the state’s significant fiscal problems. Instead, they asked for a list of proposed budget cuts the governor ordered agencies to come up with.

“Apparently their idea of bipartisanship ends when hard choices must be made,” Pritzker said in his speech.

In an acknowledgment of voter distrust of state government that was a major factor in his tax plan’s defeat, Pritzker proposed no increase to the 4.95% general income tax rate, something he had threatened would happen if his tax change wasn’t enacted. His proposal also included none of the significant cuts on social services spending that he warned would ensue.

Instead, he chose to seek $932 million through paring business tax exemptions, some of which were part of a bipartisan agreement with Republicans that led to the state’s 2019 budget agreement.

Republicans and business groups accused Pritzker of seeking political payback over the loss of his proposed tax-rate amendment.

House Republican leader Jim Durkin of Western Springs took Pritzker’s proposal to close so-called loopholes as a personal affront that goes back to the 2019 deal, when House Republicans delivered votes for the first-year governor’s budget and capital plan.

“None of these items are loopholes. They are incentives to grow jobs and educate children,” Durkin said.

“Loopholes, on the other hand, are what tycoons use to avoid paying taxes in Illinois, like parking money in the Cayman Islands or using questionable property tax exemptions,” he said, making note of personal tax practices for which the billionaire governor previously has been criticized.

While Pritzker seems eager to blame Republicans for the failure of the graduated income tax proposal, Durkin said, it was rejected by a “tri-partisan effort” of Republicans, Democrats and independents.

“It’s time for the General Assembly to bring the governor back to reality,” he said.

While unions and Democrats generally supported Pritzker’s call on curbing business tax breaks, Mark Denzler, CEO and president of the Illinois Manufacturers’ Association, called them “unacceptable,” particularly after the effort businesses made to assist health care workers and the public with pandemic-related products.

The business tax changes include reversing a phaseout of the state’s corporate franchise tax, eliminating an additional tax credit for companies receiving other state incentives that create construction jobs, capping the discount retailers get for collecting state sales tax, limiting accelerated depreciation under a federal tax change and accelerating the already scheduled expiration of a tax exemption for biodiesel fuels.

It also would reduce the tax break for a program popular with Republicans that allows taxpayers who donate to private school scholarship funds to get a credit on their income taxes.

Besides curbing business tax breaks, Pritzker’s budget proposal is heavily reliant on extending repayment of state borrowing, shifting earmarked revenues to the state’s general bank account and using existing federal COVID-19 relief funding to pare down a budget deficit without enacting major cuts to services.

Pritzker’s plans to shift dedicated tax revenues and close or reduce business tax breaks amount to nearly $1.5 billion in new revenue — roughly the equivalent of the $1.4 billion in new tax dollars he had hoped to achieve for the first half of this year from the graduated-rate income tax.

Among the dedicated revenues that would be shifted to general government operations are a 10% share of state income taxes that local governments are due to receive. The loss of an estimated $152 million statewide “will exacerbate the current challenges communities face” due to COVID-19, said Brad Cole, executive director of the Illinois Municipal League.

Democratic state Sen. Dave Koehler of Peoria said the cut to cities “does not make sense,” adding, “I feel that this will be a highly contested topic during negotiations.”

Pritzker’s office contended some business tax changes he is proposing would help offset the cut to local governments.

Another proposed shift is moving $152 million in sales tax income from mass transit agencies to the state’s general checkbook. Officials for the Regional Transportation Authority had no comment on the proposal.

The governor also would shift an estimated $100 million in revenue generated by new cigarette taxes approved in 2019 as part of his $45 billion “Rebuild Illinois” infrastructure plan to the general fund for one year.

“I had bolder plans for our state budget than what I am going to present to you today. It would be a lie to suggest otherwise,” Pritzker said. “But as all our families have had to make hard choices over the last year, so too does state government. And right now, we need to pass a balanced budget that finds the right equilibrium between tightening our belts and preventing more hardships for Illinoisans already carrying a heavy load.”

Overall, agency spending for the budget year that begins July 1 is roughly level with the current budget year with several key social service categories buttressed by already authorized federal COVID-19 relief programs that are providing nearly $10 billion to the state for this budget year and next.

Many rank-and-file Democrats offered lukewarm responses to Pritzker’s proposal, calling his spending plan a “baseline,” “not perfect” and a “starting point for negotiations” with the General Assembly, which must approve a budget.

For grade and high schools, state revenues are being supplemented by more than $2.8 billion in federal pandemic relief dollars, though for the second year in a row the state would forgo its promised $350 million annual general funds increase called for in a 2017 rewrite of the state school aid funding formula.

That was a point of contention for many Democrats, including members of the Illinois Legislative Black Caucus, and a point acknowledged by Senate President Don Harmon of Oak Park.

“If there’s a central truth about Senate Democrats, it’s that we are always interested in finding resources for education, and I don’t suspect this year will be any different,” he said.

Of the $1.7 billion in funding for the Illinois Department of Public Health, the point agency for COVID-19 testing and vaccinations, Pritzker said all but $148 million would come from federal sources. The funding would go toward efforts to “begin the process of updating and modernizing” IDPH’s disease tracking and vaccination program.

Several lawmakers have been critical of the agency’s lack of progress in tracking COVID-19 among various communities and population groups.

The Illinois Department of Employment Security, under fire for its inability to handle record numbers of pandemic-induced jobless claims, would get an additional $60 million in federal funds this year for work that includes establishing new call center response positions as well as $70 million in federal funds next budget year that include increased staff.

While Pritzker is pushing the new Democratic-controlled White House and Congress to deliver billions of dollars in state and local assistance to Illinois despite Republican resistance, the governor did not build federal funding into his budget plan. He assailed Republicans for opposing unrestricted federal aid to Illinois.

“For decades, Illinois has been forced to send billions more tax dollars every year to the federal government than we receive back from them in support of our citizens. Federal spending is rigged against Illinois. We’ve been subsidizing public services for other states like Iowa, Kentucky, Indiana and Missouri,” Pritzker said.

“You deserve better. I’m fighting for better. Congress must act decisively and I urge every Illinoisan to add their voice to this demand,” he said. “So far, not a single Republican congressman from Illinois has supported you getting back what you paid for. If not in a national crisis, when will they stand up for us? Now is the time.”

Responding to Republic criticisms that pandemic relief funds would amount to a federal bailout of the state, Pritzker said any forthcoming federal aid would be used to pay down borrowing and the state’s bill backlog, with any leftover dollars used for economic development and job growth.

Pritzker’s speech comes against a backdrop of serious financial challenges for Illinois, starting with the worst-in-the-nation $141 billion unfunded public employee pension debt. His proposal would cover the state’s required pension contribution totaling nearly $9.4 billion.

For the current budget year, the state has nearly $5 billion in unpaid bills and $4.3 billion in short-term borrowing, including $2.8 billion from the Federal Reserve that must be repaid over three years.

Pritzker announced in December that he would act unilaterally to make $700 million in cuts, largely low-hanging fruit, through freezing hiring and grants, though some of the proposed savings require negotiations with state employee unions.

The governor made his speech as the 2022 race for governor has already started to shape up. Earlier this week, former state Sen. Paul Schimpf of Waterloo announced his candidacy for the GOP nomination and state Sen. Darren Bailey of Xenia is expected to announce next week. Several other Republicans also are exploring a run, including suburban businessman Gary Rabine.

dpetrella@chicagotribune.com