May 11, 2023
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Click here to read the press release for this analysis.
EXECUTIVE SUMMARY
The Governor’s proposed FY2024 budget reflects the State’s continued recovery from the pandemic recession. Since FY2021 State budgets have had year-end surpluses, much of which the State has directed toward several priorities strongly supported by the Civic Federation, such as paying down debt, increasing reserves and making supplemental pension payments. The State remains in a stronger position than it has been in for many years, as recognized by several credit rating upgrades between FY2022 and FY2023. However, the Federation has some concerns regarding the sustainability of the large increases in recurring agency spending proposed in this budget.
The State of Illinois entered the COVID-19 pandemic with the lowest credit rating of all states, chronic budget deficits, a severely underfunded pension system and no rainy day fund—each of which put the State in a worse condition to address the economic disruptions caused by the pandemic. However, through federal support provided to the national economy, states and local governments mitigated the impact of the pandemic recession and helped spur an increase in State revenues as the economy improved. With an increasing rainy day fund and fewer liabilities outstanding thanks to smart choices about how to spend unexpected revenue growth, the State is in a much better position to weather future economic instability and support future growth.
The Civic Federation therefore supports the Governor’s recommended budget for FY2024. The Federation supports some of the State’s long-term investments included in the budget, such as increased appropriations to the Monetary Award Program (MAP) grants for college students and to the Evidence-Based Funding (EBF) formula, which supports P-12 education. Others, such as increases to Medicaid, are substantially related to federal policy changes and therefore unavoidable. However, the Civic Federation urges caution related to the size of the increase in agency spending of $2.7 billion, or 8.3%, from the prior year. These agency spending increases must be evaluated with a focus on whether they will be sustainable over the long term, particularly in the context of states across the country seeing weakening revenue projections for FY2024.1
The Civic Federation also continues to have concerns regarding the State’s long-term fiscal challenges, which require the development of a long-term financial plan. Despite Illinois’ improved financial condition, strong economic rebound and the alleviated pressure from chronic deficits and backlogged bills, the Federal Reserve Bank and many economists anticipate a national recession in the coming fiscal year.2 Additionally, the inflationary burden for states and taxpayers remains high and budget shortfalls are projected to return to the state budget in coming years.3 And, ever-looming is the State’s massive unfunded pension burden, which puts pressure on the State budget and limits other priority areas of spending. The State should establish a long-term vision to sustain its stronger financial position and ensure future long-term stability.
The Civic Federation offers the following key findings on the governor’s recommended FY2024 State Budget:
- The $49.6 billion General Funds operating budget is $50 million, or 0.1%, below estimated FY2023 spending of nearly $49.7 billion.
- Agency spending (excluding group insurance payments, pension contributions, required transfers for debt service and other purposes) will increase in FY2024 by $2.7 billion, or 8.3%, from the FY2023 adopted budget. When including FY2023 proposed supplemental appropriations of $2.3 billion (described below), agency spending will increase by $435 million, or 1.2%, from the prior year.
- The State is projected to end FY2024 with a $165 million surplus after a proposed $138 million contribution to the rainy day fund.
- General Funds revenues are budgeted at $49.9 billion for FY2024, a decrease of $652 million, or 1.3%, from $50.6 billion in FY2023.
- The revenue estimates for both FY2023 and FY2024 were significantly revised upward by the Governor’s Office of Management and Budget (GOMB) twice—in November 2022 and again in February 2023 in the Governor’s FY2024 budget proposal. Projected General Funds revenues for FY2024 increased by $2.3 billion from the State’s expectations in November 2022. Year-end FY2023 revenue projections made in the Governor’s proposed FY2024 budget increased by $4.9 billion from the FY2023 budget adopted in June 2022. However, an update from GOMB in May 2023 revised the year-end FY2023 revenue projection downward by $616 million, or 1.2%, to approximately $50 billion.
- A report by the Illinois General Assembly’s Commission on Government Forecasting and Accountability (COGFA) released in May 2023 projects that year-end FY2023 revenues will be $51.2 billion, which is above the Governor’s projections but $728 million less than earlier COGFA revenue projections released in March.
- COGFA also updated its FY2024 revenue estimates in March 2023 to include data from January and February that came in after the Governor’s budget was released. COGFA’s FY2024 estimates are higher than the Governor’s by $466 million.
- The budget fully satisfies the State’s 50-year pension funding plan by making the statutorily required pension contribution of $9.8 billion in FY2024. The FY2024 budget also proposes an additional supplemental pension contribution of $200 million in FY2023. In total, the State has contributed $700 million in supplemental pension contributions above the statutorily required contributions between FY2022 and FY2023.
- The FY2024 budget includes several updates to the FY2023 budget:
- FY2023 expenditures include $2.3 billion in proposed supplemental agency appropriations:
- $1.8 billion payment to the Unemployment Trust Fund; and
- $490 million in proposed spring supplemental appropriations.
- Total FY2023 proposed expenditures also include an additional proposed $1.2 billion contribution to the Budget Stabilization Fund.
- FY2023 expenditures include $2.3 billion in proposed supplemental agency appropriations:
- The State will retire the remaining $450 million in Railsplitter Tobacco Settlement bonds. The original bonds were issued based on tobacco settlement revenues in the amount of $1.5 billion in 2010 to address a portion of the State’s unpaid bill backlog resulting from the Great Recession. The move will allow tobacco settlement revenues to flow through to support the State’s Medicaid program and will save interest costs.
- The overdue bill backlog of $8 billion from FY2019 has been reduced and is now on a normal payment schedule. However, as of December 31, 2022, the outstanding principal on the $6 billion in bill backlog bonds issued by the state in 2017 was $3.5 billion plus $609.1 million owed in interest, for total outstanding debt service of $4.1 billion.
- The State of Illinois received $8.3 billion in Coronavirus State Fiscal Recovery Funds and Coronavirus Capital Projects Funds within the American Rescue Plan Act. In FY2023, the State appropriated the remaining $4 billion in ARPA funds, including $2.7 billion towards the Unemployment Insurance Trust Fund.
The Civic Federation has the following recommendations on the FY2024 State Budget:
- Create a short-term plan in the event revenues do not meet forecast;
- Develop a long-term financial plan;
- Conduct a comprehensive, statewide actuarial analysis of Tier 2 Benefits before passing benefit enhancement legislation;
- Increase transparency of the Illinois General Assembly by archiving videos of committee meetings and floor debate online;
- Develop a plan for public transit in Northeastern Illinois;
- Review and evaluate the effectiveness of all existing tax treatments;
- Consolidate and streamline government in Illinois;
- Build a rainy day fund of 10% of General Funds revenues; and
- Develop a plan for Illinois’ tourism and hospitality industries.
Click here to read the full report.
Click here to read the press release for this analysis.
[1] Tim Henderson, “States Feel Budget Pinch Amid Darkening Revenue Projections,” Stateline, April 10, 2023. Available at https://stateline.org/2023/04/10/states-feel-budget-pinch-amid-darkening-revenue-projections/.
[2] Jeff Cox, “Fed Expects Banking Crisis to Cause a Recession This Year, Minutes Show,” CNBC, April 12, 2023. Available at https://www.cnbc.com/2023/04/12/fed-expects-banking-crisis-to-cause-a-recession-this-year-minutesshow.html.