CTBA
CTBA’s Budget Blog
8 min readFeb 8, 2022

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Getting Illinois’ Fiscal House in Order — CTBA’s Response to the FY 2023 Proposed General Fund Budget

Governor Pritzker’s State of the State/Budget Address delivered on February 2, 2022, focused on a message of healing and economic recovery. Words that frankly many needed to hear after two long years of hardship caused by the COVID-19 pandemic. Acknowledging that millions in the state have suffered, and countless frontline workers have sacrificed, the governor not only highlighted the role state and local governments have taken to help, but made it a point of emphasis to stress “that the measure of any society is how willing we are to care for those who need us.”

Of course, for the public sector to play a positive role in countering societal hardships — whether those hardships are short-term, like those caused by the pandemic, or long-term, like chronic poverty or structural racism — it needs the fiscal capacity to do so. And when it came to discussing the state’s fiscal capacity, Governor Pritzker’s address struck a distinctly more positive tone about Illinois’ fiscal future than what many expected — or has frankly been the norm for the past three decades. As it turns out, much of the governor’s optimism was warranted — at least for the current (FY 2022) and next (FY 2023) fiscal years.

For starters, Governor Pritzker projected that the state’s General Fund will end its current fiscal year (FY 2022) with an on-budget surplus of almost $1.8 billion. An on-budget surplus simply means that the revenue projected for a fiscal year will exceed the expenditures scheduled for that fiscal year. But any on-budget accounting of the General Fund does not provide a complete picture of its fiscal condition. That is because an on-budget analysis only considers current year items — it does not include any accumulated deficit that remained at the end of the prior fiscal year, and hence carries forward into the next fiscal year. The accumulated General Fund deficit that existed at the end of FY 2021 — and hence carried forward into FY 2022, was around $6.4 billion.

That said, generating an on-budget surplus is an unquestionably positive outcome that will permit the state to begin reducing its accumulated General Fund deficit, and thereby enhance its fiscal condition in a meaningful way.

Better than originally anticipated revenue growth is the primary reason Illinois’ General Fund is projected to have an on-budget surplus in FY 2022. When the enacted General Fund Budget for FY 2022 passed last Spring, total revenue for the year from all sources was projected to be $44.368 billion. In the FY 2023 General Fund budget proposal the governor just put on the table, that revenue estimate was increased to $47.793 billion — a bump of just over $3.4 billion from the initial estimate.

In the keeping with the spirit of measuring society by “how willing we are to care for those who need us,” Governor Pritzker has proposed using just over $1.6 billion of the $3.4 billion in unanticipated FY 2022 revenue growth to fund the following supplemental appropriations for the year:

(i) an additional appropriation of $898 million to eliminate the unpaid bills currently owed under the state’s employee/retiree health insurance program;

(ii) an additional $230 million appropriation to College Illinois! to cover long-term obligations of the program; and

(iii) a total of $487 million in additional appropriations to cover various Healthcare, Human Services, Public Safety, and Education programs.

Notably, $1.128 billion — or over 70 percent — of the $1.6 billion in supplemental appropriations the governor proposes for FY 2022 do not constitute new spending, but rather payment of obligations the state has already accrued. Which in addition to being good public policy generally, also happens to be responsible fiscal policy, specifically.

The theme of fiscal responsibility is echoed in a number of the governor’s other proposals. For instance, he suggests utilizing a portion of the remaining $1.8 billion on-budget surplus projected for FY 2022 to pre-pay “unfunded liabilities” — read that as debt service — Illinois owes to its five public employee pensions systems. The Governor estimates this prepayment will save taxpayers around $1.8 billion in interest costs over time. That savings comes from a doubly beneficial compounding impact. On the one hand, if the proposal passes there’d be $500 million less in debt owed to the pensions that would bear compounding interest annually, on the other hand, there’d be an additional $500 million in pension assets that would create a compounding annual return for the systems. Under this proposal, $300 million of the pension prepayment will come from the FY 2022 on-budget surplus, while $200 million will come from FY 2023 appropriations.

Another fiscally responsible proposal the governor put on the table involved increasing the amount deposited in the state’s “Budget Stabilization Fund” — which is commonly referred to as its “Rainy Day Fund.” As the name implies, Rainy Day Funds are supposed to help tide a state fiscal system over unexpected financial challenges that arise from time-to-time. Nationwide, states with Rainy-Day funds average depositing enough revenue therein to cover about 20 days of operations.

Illinois’ Rainy Day Fund was created in 2001, and by the end of the second straight General Fund budget impasse under former Governor Rauner in FY 2017, it had been completely depleted. Since then, Illinois has lacked the fiscal capacity to replenish it. As of FY 2021, Illinois was the only state to have no available money in its Rainy Day Fund. That is obviously something other than best fiscal practices. Hence Governor Pritzker proposed depositing $600 million of the FY 2022 $1.8 billion on-budget revenue surplus into Illinois’ Rainy Day Fund. He then wants to enhance that deposit by almost $279 million in FY 2023, with a General Fund transfer of $200 million, along with a $79 million transfer from Illinois’ cannabis tax.

And while even a well-capitalized Rainy Day Fund would not have covered all the unanticipated costs of dealing with the pandemic, having a decent one would have helped. Instead, Illinois initially had to respond to those fiscal challenges by relying on Interfund Borrowing — that is borrowing from state-level special funds established to cover everything from environmental protection to housing and economic development — and on borrowing from the federal government. That said, once again the Pritzker Administration opted to be fiscally responsible by repaying the $3.2 billion Illinois borrowed from the federal government in full as of January 31, 2022, two years ahead of schedule, saving the state $82 million in interest. The governor also announced that by the end of FY 2023, all COVID-related Interfund Borrowing will be repaid in full.

Finally, recognizing the economic challenges the pandemic — and current jump in inflation — have caused for families, Governor Pritzker proposed using a portion of the FY 2022 General Fund on-budget surplus to provide tax relief to Illinoisians. This tax relief comes in a couple of forms. First, he wants to create a temporary pause in the automatic gas tax increase that is tied to inflation. And while the proceeds from that increase cover needed capital improvements statewide, the Governor’s Office of Management and Budget (“GOMB”) projects that the lost revenue will not diminish the state’s capacity to make those investments on time, as currently scheduled.

Second, the governor has proposed to eliminate the local sales tax on groceries of one percent. Since this is a tax that solely benefits local governments across Illinois, the governor also has proposed using $175 million of the FY 2022 on-budget surplus to reimburse local governments fully for the projected loss in revenue this tax relief will cost them in FY 2022. His FY 2023 General Fund proposal includes utilizing $185 million to reimburse local governments for the revenue loss this temporary sales tax suspension will cost them in that fiscal year.

Third, the governor proposed to provide property tax relief to homeowners in the form of a rebate. Under this proposal, homeowners who qualify will receive a rebate in the amount of five percent of their property tax bill, up to a maximum rebate of $300. GOMB estimates this program will cost $425 million in FY 2022, all of which will be covered by the on-budget surplus for that year. Meanwhile, the FY 2023 General Fund Budget proposal includes an additional appropriation of $50 million to cover the final anticipated costs of the property tax rebate initiative.

While the proposed grocery sales tax and gasoline tax relief will alleviate some of the tax burden faced by families hurt by the pandemic and inflation, some of that tax relief will also benefit wealthy taxpayers who are not likely to have been harmed economically. For instance, the grocery tax relief will help low-income families buying bread, and upper-income families buying caviar. If decision-makers want a more effective way to ensure the full dollar value of the tax relief being provided by the state gets to those who need it most, the tax relief should be targeted to low- and middle-income households. Doing so would have the concomitant benefit of making the overall Illinois tax system less regressive — that less unfair to low and middle-income families. That is a great policy outcome, given that Illinois is currently the 8th most regressive, unfair taxing state in America.

Fortunately, there is a bill that has been proposed that would create the type of tax relief that is targeted to those who need it most and make the state’s tax system fairer: HB 4920/SB 3774. That bill would both expand the benefits currently provided under the state’s existing Earned Income Tax Credit; as well as create a new, state-level Child Tax Credit. The initiatives in HB 4920/SB 3774 would help alleviate poverty, and provide additional income to low- and middle-income households, all while making tax incidence fairer. For more information about HB 4920/SB 3774, read CTBA’s latest report.

Going forward, the FY 2023 proposed General Fund Budget calls for an increased, year-to-year investment in each of the four core services of Education, Healthcare, Human Services, and Public Safety, that collectively account for over 95 cents of every dollar the state spends on public services through its General Fund. That is also sound public policy, given that Illinois is both a relatively low spending state — ranking 34th in per capita state General Fund spending on services nationally — and has been cutting its spending on those four core services in real, inflation-adjusted terms for over two decades.

Some highlights of the General Fund spending proposed for FY 2023 include some steps forward on education. Specifically, the governor proposes:

(i) increasing the year-to-year appropriation for K-12 education under the Evidence-Based Funding formula (“EBF”) by $350 million, the minimum targeted increase under that statute; and

(ii) increasing the year-to-year appropriation for the state’s Monetary Award Program — or “MAP” — by $122 million. This boost in funding for MAP grants counters a decades-long trend of underfunding this crucial needs-based grant. Given the strong correlation between post-secondary educational attainment and economic mobility for low-income families in general, and families of color in particular, this enhanced investment is a step forward in building an Illinois that creates more equitable opportunities for all its residents.

CTBA will issue a full report highlighting the important revenue and spending trends that are contained in the FY 2023 General Fund Budget proposal made by the Pritzker Administration in the next couple of weeks. Until then it appears at first glance that the FY 2023 General Fund Budget proposal Governor Pritzker put on the table is consistent in large part with his desire to get Illinois’ fiscal house in order, while ensuring the state has the capacity to invest adequately in the four core public services that create opportunity throughout the state.

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The Center for Tax and Budget Accountability is a non-partisan think tank that promotes social and economic justice through data-driven policy.