Pensions

On June 6, 2024, Governor Pritzker signed into law the General Fund budget for FY 2025 (the “FY 2025 Enacted GF Budget”).  The FY 2025 GF Enacted Budget makes two things clear about the state’s finances.  First, the General Fund continues to be in better fiscal condition than it historically has been over the last three decades. That’s the good news. Second, the state’s structural fiscal problems, which were partially redressed by revenue enhancements passed over the last three fiscal years, as well as somewhat masked by one-time federal financial assistance provided during the pandemic and the strong economic growth that followed, are re-emerging. And that’s the bad news.

Overall, the state’s fiscal condition has improved significantly since Governor Pritzker first took office in 2019. Back then, Pritzker inherited an $8 billion backlog of unpaid bills from Governor Rauner’s Administration.  A budget hole of that size meant roughly 30 percent of all General Fund expenditures during Rauner’s final year as governor constituted deficit spending. Unfortunately, that deficit under Rauner was also nothing new. For more than two decades prior to Pritzker’s inauguration, Illinois had failed to produce anything close to a balanced budget in its General Fund.  

Governor Pritzker started changing that narrative by being a responsible fiscal steward of the state’s finances. Yes, over the past few years Illinois received significant pandemic-related financial support from the federal government, totaling some $6.4 billion, that helped shore up the General Fund during the pandemic.   The state also realized around $4.3 billion in unexpected revenue growth in FY 2024.  This was primarily due to a combination of factors including the robust economic recovery that followed the pandemic, and corporations taking advantage of a 40 year high in inflation to price gouge and thereby generate record profits. The FY 2025 Enacted GF Budget analysis takes an in depth look at Illinois’ revenue and spending in the General Fund for the current fiscal year.

On February 21, 2024, Governor Pritzker announced his proposed General Fund budget for FY 2025 (the “FY 2025 GF Budget Proposal”).  The FY 2025 GF Budget Proposal makes two things clear about the state’s finances.  First, the General Fund is the healthiest fiscal condition it has been in for decades. That’s the good news. Second, the state’s structural fiscal problems, which were somewhat masked by one-time federal financial assistance provided during the pandemic, as well as the strong economic growth that followed, are re-emerging. And that’s the bad news.

Overall, the state’s fiscal condition has definitively changed for the better since Governor Pritzker was first sworn into office in 2019. In 2019, Pritzker inherited an $8 billion backlog of unpaid bills from Governor Rauner’s Administration. A budget hole of that size meant roughly 30 percent of all General Fund expenditures during Rauner’s final year as governor constituted deficit spending. Unfortunately, that deficit under Rauner was also nothing new. For more than two decades prior to Pritzker’s inauguration, Illinois had failed to produce anything close to a balanced budget in its General Fund.

Governor Pritzker changed all that by being a responsible fiscal steward of the state’s finances. Yes, over the past few years Illinois received significant pandemic-related financial support from the federal government, totaling some $4.95 billion, that helped shore up the General Fund during the pandemic. The state also realized around $4.3 billion in unexpected revenue growth in FY 2023. This was primarily due to a combination of factors including the robust economic recovery that followed the pandemic, and corporations taking advantage of a 40‑year high in inflation to price gouge, and thereby generate record profits. The FY 2025 Proposed GF Budget analysis takes an in depth look at Illinois’ revenue and spending in the General Fund for the upcoming fiscal year.

On June 7, 2023, Governor Pritzker signed the General Fund Budget for FY 2024 into law (the “FY 2024 Enacted GF Budget”). This budget was markedly different than any previous one proposed by Pritzker and passed by the General Assembly—or any other Illinois governor and General Assembly dating back to Jim Edgar in the mid-1990s, for one, simple reason: Illinois’ General Fund is in the healthiest fiscal condition it has been for decades.

In fact, when it comes to the health of the state’s General Fund, things have changed dramatically since Governor Pritzker was first sworn into office. Back then in 2019, Governor Pritzker inherited an $8 billion backlog of unpaid bills from Governor Rauner’s Administration. That was significant, as it meant roughly 30 percent of all General Fund expenditures during Rauner’s final year as governor constituted deficit spending. Unfortunately, that was also nothing new, as Illinois had failed to produce anything close to a balanced budget in its General Fund at any time over the prior two decades plus.

Many of the structural fiscal flaws that created years of deficits remain in place. Which means Illinois decision-makers have the rare opportunity to consider reforming the state’s fiscal system not during a crisis—but while the General Fund is on an upward trajectory, with an eye toward building the capacity needed to sustain investments in core services over the long haul. The FY 2024 Enacted GF Budget analysis takes an in depth look at Illinois’ revenue and spending in the General Fund for the current fiscal year.

On February 15, 2023, Governor Pritzker delivered the first budget address of his second term to the 103^rd General Assembly. This budget address was markedly different than any previous one delivered by Pritzker—or any other Illinois governor dating back to Jim Edgar in the mid-1990s. The reason: Illinois’ General Fund is in the healthiest fiscal condition it has been for decades.

Things have definitely changed since Governor Pritzker was first sworn into office in 2019. Back then, he inherited an $8 billion backlog of unpaid bills from Governor Rauner’s Administration. A budget hole of that size meant roughly 30 percent of all General Fund expenditures during Rauner’s final year as governor constituted deficit spending. Unfortunately, that was also nothing new, as Illinois had failed to produce anything close to a balanced budget in its General Fund for well over two decades prior.

Yes, over the past few years Illinois received significant pandemic-related financial support from the feds, totaling some $8.4 billion, that shored up the General Fund during the pandemic. The state also realized around $4.9 billion in unexpected revenue growth last fiscal year.

Still, the Pritzker Administration did not cave into political pressure to use either the one-time federal aid, or the unexpected, one-time bump in revenue, to fund a Christmas tree full of goodies. Instead, Pritzker’s Administration leveraged this fiscal largesse to help pay down the state’s bill backlog, pre-pay $700 million in pension debt, deposit over $4 billion into the state’s Unemployment Insurance Trust Fund, and invest close to $2 billion in Illinois’ Rainy Day Fund, so that it now sits at a historically high level—after being reduced to zero by Governor Rauner.

Due to Illinois’ long-term, structural fiscal challenges, citizens of Illinois have grown accustomed to General Fund budgets that are focused on cutting, or limiting the cuts to, core services. Which is truly unfortunate, given that 95 percent of all General Fund expenditures on services go to the four core areas of Education, Healthcare, Human Services, and Public Safety. However, this past April, the Illinois General assembly passed a General Fund budget for FY 2023 (the “FY 2023 Enacted GF Budget”) that was notably different from the vast majority of budgets passed into law over the last twenty-some odd years. That is because, rather than focus on cuts, the FY 2023 Enacted GF Budget calls for increasing year-to-year spending in every one of those four core service areas. This counters a trend of imposing real, inflation-adjusted cuts to all or most core services that goes all the way back to FY 2000. Moreover, the FY 2023 Enacted GF Budget--when considered in combination with the supplemental appropriations that were passed covering certain aspects of the FY 2022 Enacted General Fund Budget (the “FY 2022 Enacted GF Budget”)—includes a commitment to being fiscally responsible that is far more substantive than rhetorical. This also stands in stark contrast to most General Fund budgets enacted over the last two decades, which on the whole paid lip-service to being responsible—without implementing initiatives that strengthened Illinois’ fiscal system in any meaningful way.

The primary reason for the both the year-to-year spending increases, as well as the newly found focus on being fiscally responsible, came down to one simple factor—unanticipated revenue growth. Initially, General Fund revenue for FY 2022, which ended on June 30^th of this year, was pegged at $44.37 billion. Now estimates are that it will hit $49.2 billion, which is not only significantly more than was originally anticipated, but created an “on-budget” surplus for FY 2022 of $4.8 billion.

And while that is certainly good news—it does not tell the whole story about the state’s fiscal condition. That is because an “on-budget” surplus simply means current-year revenue will exceed current-year spending. It does not factor in any “accumulated deficit”—read that as unpaid bills—that are scheduled to carry forward from a prior fiscal year into the next succeeding fiscal year.

In February, Governor Pritzker put a General Fund budget proposal on the table for FY 2023 (the “FY 2023 GF Budget Proposal”) that was notably different from the vast majority of such proposals made by various governors over the last twenty-some odd years. For instance, it was significantly more upbeat than the typical General Fund budget proposal we are used to getting in this state.

Indeed, due to Illinois’ long-term, structural fiscal challenges, General Fund budgets over the last couple of decades have for the most part been far more focused on limiting the cuts to core services, rather than optimistic about investing in our future. Which is truly unfortunate, given that 95 percent of all General Fund expenditures on services in Illinois go to the four core areas of education, healthcare, human services, and public safety.

Rather than focus on cuts, the FY 2023 GF Budget Proposal calls for making a year-to-year increase in spending on every one of those four core service areas. This counters a trend of imposing real, inflation-adjusted spending cuts on core services that goes all the way back to FY 2000.

Moreover, the FY 2023 GF Budget Proposal includes a commitment to being fiscally responsible that is far more substantive than rhetorical. This also stands in stark contrast to most General Fund budgets proposed over the last two decades, which on the whole paid lip-service to being responsible—without actually implementing initiatives that strengthened Illinois’ fiscal system in any meaningful way.

As it turns out, the primary reason for both the governor’s optimism, and focus on being fiscally responsible, came down to one simple factor—unanticipated revenue growth. Initially, General Fund revenue for FY 2022, which is the state’s current fiscal year, was pegged at $44.39 billion. Now estimates are it will hit $47.79 billion, creating an “on-budget” surplus of $3.4 billion.

Read more about the about the impact of the “on-budget” surplus and the FY 2023 spending plan to get Illinois’ fiscal house back in order.

This past Spring when the General Assembly and Governor were developing a General Fund budget for Fiscal Year (“FY”) 2022, there was a significant amount of new revenue on the table. For instance, Illinois state government received around $11 billion in federal aid for General Fund use under the American Rescue Plan Act of 2021 (“ARPA”). ARPA came on the heels of various other federal relief initiatives that passed in 2020—most notably the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Despite both record federal assistance and a boost in state-based revenue, Illinois’ long-term fiscal challenges are significant. Unfortunately, in addition to being significant, the state’s fiscal shortcomings are also nothing new. And in FY 2025, Illinois will no longer have federal pandemic relief aid to support its General Fund. The revenue shortfall, however, will be more significant than that because of the structural deficit in the state’s General Fund. A structural deficit exists when annual revenue growth is not sufficient to cover the cost of providing the same level of public services from one fiscal year into the next, adjusting solely for changes in inflation and population, and assuming a normal economy.

At the time of the initial FY 2022 General Fund budget proposal that Governor Pritzker made back in February, CTBA described the budget as “sobering,” because it would have constituted a year-to-year cut in real spending on education, healthcare, human services, and public safety, given that 95 cents of every dollar of General Fund spending goes to those four, core service areas.

However, things significantly changed a month later on March 11, 2021, when President Joe Biden secured passage of the American Rescue Plan Act (“ARPA”). ARPA came on the heels of various other federal relief initiatives that passed in 2020—most notably the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). When considered together with ARPA, nearly $12 billion in federal relief funding has been designated to cover state-level spending on core public services in Illinois over fiscal years 2021, 2022, 2023, and 2024.

Meanwhile, in addition to receiving this significant and somewhat unexpected federal financial support, Illinois enacted state legislation that will generate an estimated $655 million in new General Fund revenue annually beginning in FY 2022, through elimination of various tax expenditures that had primarily benefited corporations.

Yet, despite obtaining the aforesaid new federal and state funding, the FY 2022 Enacted General Fund Budget that passed into law (“P.A. 102-0017”) increases overall net spending on core services in FY 2022 by just $586 million over FY 2021 levels, in nominal, non-inflation-adjusted dollars. That is notable for one simple reason: the total year-to-year increase in General Fund spending is less in nominal dollars than the $655 million in new recurring revenue the state raised by eliminating the aforesaid tax expenditures—and is significantly less than the $3.8 billion in federal relief funding the state utilized in FY 2022. Indeed, after adjusting for inflation, total net General Fund spending on services in FY 2022 is scheduled to be only $24 million—or 0.1 percent—more in real terms than it was in FY 2021. 

The FY 2022 Proposed General Fund Budget (the “FY 2022 GF Proposal”) makes one fact abundantly clear: spending on services is not driving the state’s fiscal problems.  After acknowledging bolder plans for the upcoming fiscal year, Governor Pritzker ultimately proposed spending $27.748 billion on public services, which is roughly the same in nominal dollars as FY 2021. After adjusting for inflation, however, the total amount of spending on services proposed for FY 2022 would be $434 million less in real terms than in FY 2021.

Which means the often repeated contention that Illinois’s fiscal problems are caused by profligate spending on services is simply not supported by the data. Indeed, quite the contrary is true. As Governor Pritzker noted during his budget address: “Illinois state government already spends less money per person than the majority of states in the nation.”

Big picture, Illinois’ ongoing disinvestment in General Fund services is harming communities across the state for one simple reason: over 95 percent of all such spending goes to the four, core areas of Education (including Early Childhood, K-12, and Higher Education), Healthcare, Human Services, and Public Safety.

So what drove Illinois to embark on its long-term course of disinvesting in core, General Fund services? A structural deficit caused by flawed tax policy that generates inadequate revenue growth over-time; and the unaffordable back-loaded schedule for repaying the debt the state owes to its five public pension systems.

Of course, a portion of the state’s deficit problems will resolve themselves once the revenue shortfalls caused by the pandemic end. That said, the crux of Illinois’ fiscal problems have nothing to do with COVID-19, and everything to do with the long-term, structural deficit driven by the state’s flawed tax policy.

Do you still have questions about Illinois’ proposed amendment to the Illinois Constitution, often referred to as the “Fair Tax”? Over the past several months, the Center for Tax and Budget Accountability (“CTBA”) has been compiling some of the most frequently asked questions about the Fair Tax and has created this FAQ to help voters understand this ballot initiative.