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Civic Federation Commends State's Improved Financial Condition, Urges Cautious Spending and a Sustainable Tax Plan to Prevent Future Structural Deficit

Posted on May 14, 2024

In its analysis of the State of Illinois FY2025 Proposed Budget, the Civic Federation finds the State has reached a more stable financial condition due to higher-than-expected revenue growth and prudent fiscal management. With revenue growth slowing, however, the Federation recommends the State develop a plan to optimize its spending and modernize its tax structure.

CHICAGO — The Civic Federation today released its analysis of the State of Illinois FY2025 proposed budget, finding the State remains in an improved financial shape due to strong revenue performance and effective management. However, the Federation recommends the State exercise caution in spending in FY2025 as its revenue growth is slowing and advises the State to look toward developing a plan for a modernized, sustainable tax structure to meet its long-term needs.

The State ended each of the past four fiscal years with budget surpluses, in part due to its passage of budgets with greater structural balance than in previous years. The Civic Federation supports the State’s prudent financial decisions including paying off outstanding debt, building up reserves in its Budget Stabilization Fund, increasing contributions to its Pension Stabilization Fund and getting on a normal bill payment schedule. Building off that success, the proposed FY2025 budget demonstrates the State’s commitment to working toward solutions to reach 100% funding of its pension funds while also continuing to reevaluate its Tier 2 pension plans to ensure they meet Federal safe harbor rules. The Civic Federation also supports some of the State’s long-term investments as outlined in the proposed budget, including an increase to the Evidence-Based Funding (EBF) formula for P-12 education.

“The State’s comeback from the significant financial challenges it faced prior to and during the pandemic is laudable,” said Civic Federation President Joe Ferguson. “Now that the State’s finances are more stable, it should begin building towards a sustainable future conducive with economic growth. In addition to addressing its pension funding shortfalls, the State should focus on building more substantial reserves and steer away from dependence on short-term solutions for future budget gaps.”

FY2025 marks the first year the State has had a budget deficit to close since the start of the pandemic. Projections show a deceleration in the State’s revenue growth along with growing spending needs will lead to FY2025’s expenditures exceeding its revenues and result in a deficit of $970 million. The Governor’s FY2025 proposed budget includes tax changes and enhancements that, if approved by the General Assembly, would close the budget deficit.

“The devil is in the details now to ensure critical progress isn’t lost as the state works to address its projected deficit,” Ferguson said. “It is imperative that the State’s spending be optimized for efficiency and effectiveness across all agencies and programmatic priorities. While the Civic Federation understands the need for revenue enhancements and supports the Governor’s proposed tax plans as a short-term solution, we also strongly urge the State to develop both spending plans and a tax structure that are sustainable for taxpayers long term given the State’s already high tax burden.”

The Federation commends the Governor’s recent decision to advise the State’s agency leadership to prepare for a budget with $800 million less in revenue in the event his proposed tax increases fail to pass in the General Assembly. This proactive planning for either financial outcome will help ensure the state’s ability to achieve a structurally balanced budget for FY2025.

The Civic Federation’s full analysis highlights several aspects of the budget proposal as well as recommendations to the Governor and General Assembly as they work to pass a final budget.

Among the issues the Federation supports are:

  • The State’s improved financial condition;
  • Making statutorily required pension payments;
  • Proposal for a 100% pension funding goal; and
  • Proposal to evaluate Tier 2 pensions.

The Federation’s concerns include:

  • Spending pressure points in the FY2025 budget;
  • Proposed revenue enhancements;
  • The effect of the permanent elimination of the grocery sales tax on local governments; and
  • The combined fiscal and operational crisis facing the public transit systems in Northeastern Illinois.

The Civic Federation offers the following recommendations:

  • Develop a long-term financial plan;
  • Review and evaluate the effectiveness of all existing tax treatments;
  • Develop a tax structure for a sustainable future;
  • Identify additional offsetting revenue sources for local governments if the grocery tax is eliminated;
  • Sustain a rainy day fund that meets best practice standards; and
  • Reform the governance and funding structure of public transit in Northeastern Illinois.