Revenue

Despite the elimination of the accumulated deficit and a projected FY 2026 General Fund (FY 2026 GF Budget) surplus of $370 million, the enacted budget relies on $1.1 billion in manufactured, one-time, and recurring revenue enhancements to sustain its funding levels. The total net appropriation of $55.2 billion dedicates $15.9 billion (28.7%) to Hard Costs, including the back-loaded $11 billion pension contribution. After adjusting for inflation, the minimal nominal increase in appropriations translates to continued real disinvestment in core current services, with overall real spending on those services projected to be 14.3% less than it was in FY 2000. This fiscal strain, exacerbated by a state tax policy that consistently fails to generate adequate structural revenue growth, leaves the state unable to fund the cost of maintaining current service levels over time. Moreover, without significant tax and pension reform, the long-term structural deficit will be severely widened by federal H.R. 1 ("BBB") legislation, which will impose billions in new costs on the state by reducing federal Medicaid and SNAP support starting in FY 2027.

The aggregate Personal Property Replacement Tax ("PPRT") revenue for all school districts has had an unprecedented surge once again in FY 2024, following the notable increase in FY 2023, outlined in Volume II of this Report, "CPPRT and K-12 Education Funding in Illinois." Between FY 2022 and FY 2024, PPRT has hit a record increase of 255 percent. While that revenue is a welcome addition to school district resources, it is projected that it will decline back to its historical levels in the FY 2025 EBF calculations. This Report takes a look at how the Personal Property Replacement Tax is a relatively odd revenue source that allocates revenue to school districts in accordance with their respective collections of Personal Property Tax revenue in either 1976 or 1977 and how this revenue source has impacted Adequacy Gaps and therefore New Tier Funding across the state.

Between FY 2022 and FY 2023, aggregate Personal Property Replacement Tax ("PPRT")revenue for all school districts increased by a record 76 percent. As things stand today, more record growth in PPRT revenue is projected for FY 2024. That revenue is a welcome addition to school district resources, however, if the projections for FY 2024 prove to be accurate, it will mean that collectively over the FY 2020 through FY 2024 sequence, the statewide Adequacy Gap under the Evidence Based Funding formula was reduced at a significantly faster rate because the local revenue increased at a faster rate over this time period compared to the increase in state-based revenue (new Tier funding).

CTBA’s most recent report highlights how the Personal Property Replacement Tax is a relatively odd revenue source that allocates revenue to school districts in accordance with their respective collections of Personal Property Tax revenue in either 1976 or 1977 and how this revenue source has big impacts on Illinois education policy,  

Part of the federal economic stimulus created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, involved increasing the tax relief businesses could claim under the existing net operating loss and excess business loss tax breaks. Among other things, the Cares Act made these tax cuts retroactive, meaning businesses can claim losses and reduce their tax liability for years in which the pandemic had no impact on their profitability.

Because the Illinois income tax code is predicated on federal law, whenever Congress increases existing tax relief already received by businesses at the federal level, that tax relief automatically applies under Illinois law, resulting in a concomitant reduction in tax revenue for the state. According to State Representative Mike Zalewski, this change in federal law could result in Illinois losing anywhere from $500 million to $1 billion in tax revenue this year, unless Illinois “decouples” from the federal change, as requested by the Pritzker Administration.  The following Issue Brief provides CTBA’s reasoning for supporting decoupling from Federal CARES Act Tax Breaks.