$35B in federal aid, higher tax revenues mask Pritzker budgetary blunders

$35B in federal aid, higher tax revenues mask Pritzker budgetary blunders

While Gov. J.B. Pritzker has been in office during upgrades in the state’s credit rating and reductions in some state debts, analysis shows improvements were more luck than fiscal design.

Gov. J.B. Pritzker regularly touts his accomplishments on the Illinois state budget, but the data shows Pritzker’s experience is it’s better to be lucky than good.

Fiscal restraint and planning would make Pritzker good. Instead, higher tax collections and federal cash have made him lucky.

Here’s Pritzker’s take: “Today our outlook looks much different than it did five years ago when I presented my first budget to you. With balanced budgets and responsible fiscal management, we’ve been able to make key investments the last few years.”

It is true that in recent years Illinois has been able to pay down some of its debts, build up the rainy-day fund and received multiple credit rating upgrades. Rarely mentioned is how these events truly came to pass.

While the Pritzker administration has claimed “responsible fiscal management” has created the state’s improvements, analysis of past budgets tells a much different story.

Illinois politicians have been the beneficiaries of over $35 billion in a combination of unexpected revenue and federal aid. Despite this, they continue to misallocate funds and overspend rather than build up Illinois’ long-term stability and halt the need for new taxes.

Since the start of the pandemic in 2020, Illinois has received billions of dollars in federal relief funds. In 2020, Congress passed four pieces of legislation: the Coronavirus Preparedness and Response Supplemental Appropriations Act; Families First Coronavirus Response Act: Coronavirus Aid, Relief and Economic Security Act; and the Paycheck Protection Program and Health Care Enhancement Act. Together these funneled $5.5 billion into the state budget.

Illinois was also the only state to use the Federal Reserve’s Municipal Lending Facility, which gave the state access to a $2 billion loan. In 2021, the American Rescue Plan Act became law and brought another $8.127 billion into state coffers.

In total, Illinois received at least $15.6 billion in extra funds from federal sources.

The state also benefitted from nearly $19.5 billion in higher-than-expected tax revenues since 2020. During that time, the state’s credit rating improved as the massive cash infusion helped tamp down unpaid bills and stabilize the state’s increasing budget costs.

State leaders failed to use that federal aid and the breathing room it offered to do anything serious about the cost-drivers that are applying more pressure on taxpayers and state spending.

With this extra $35 billion, the state was able to gradually pay down its bill backlog of $5.4 billion. It used $4.5 billion to repay its debts from the Unemployment Insurance Trust Fund. The state also managed to raise its credit rating from near junk status, but remains the lowest in the nation.

Still, Illinois’ rainy-day fund stands at only $2.3 billion. That is worth just less than 16 days of state spending under the $53.1 billion general funds budget. That reserve is the lowest in the nation in terms of days it would last. The Government Finance Officers Association recommends having enough in reserve to run the state for 60 days, which would be $8.73 billion – nearly quadruple what Illinois currently has.

The state has the worst pension crisis in the nation while still shorting the systems by $4.5 billion annually. The pension debt stands at over $140 billion.

Pritzker’s ever-growing spending was possible only because of federal aid and unexpected windfall revenues. But even though the state was awash with federal money, Pritzker continued to pursue taxes instead of relief and reforms. Since taking office there has been a tax hike of $4.6 billion in 2020, a failed attempt at a progressive tax that could have added an extra $3.7 billion in taxes in 2021 and $700 million in tax hikes 2022 along with the $1.1 billion in the latest budget.

Politicians are grabbing at any revenue they can get so they can keep spending. State spending has grown by almost $15 billion since the start of Pritzker’s tenure as governor.

In fiscal year 2019, the year before Pritzker’s first budget, Illinois’ proposed budget tallied $38.5 billion. Since Pritzker took office, his budgets have increased every year, now totaling more than $53.1 billion. That’s an increase of $14.6 billion, or 38%, in just six years.

Pritzker’s budget proposals have not been as fiscally responsible as he suggests.  He has proposed spending 99.6% of his budgets – virtually every penny.

It was only after large revenue windfalls that Pritzker was able to pay down many of the state’s outstanding debts or move more money into the rainy-day fund. These maneuvers were more the result of blind luck than strategic financial planning.

In the fiscal year 2025 budget that started July 1, Pritzker has once again revved up the state budget to a record $53.1 billion. It took $1.1 billion in new taxes to get him there.

And he’s leaving less than $200 million to be directed towards the rainy-day fund and has only $13 million left as cushion in case revenues come in lower than expected. These are the same types of mistakes that put Illinois on the brink of financial ruin, only to be bailed out by massive federal pandemic aid and surprise revenue windfalls.

Pritzker’s budgetary practices are not sustainable, considering COVID-19 relief funds are going away. Illinois cannot simply make up the difference through tax hikes, because it already imposes one of the nation’s highest tax burdens and people are reacting by moving out of Illinois. Illinois already has the second-highest property tax and seventh-highest state and local tax burden in the country. It has the second-highest corporate income tax and seventh-highest sales tax. High taxes have regularly been touted as the No. 1 reason Illinoisans have been leaving the state. There were 32,826 residents who left Illinois in 2023, adding to the over 300,000 who have left since 2020. This decline hurts Illinois’ economic future.

Pritzker has been a big beneficiary of relief funds and revenues that he didn’t see coming and can’t count on in the future. Unless Illinois controls its spending, it will quickly put itself back on the edge of bankruptcy. Rather than allowing Pritzker’s spending to continue running free, state lawmakers should consider constitutional pension reform, aligning government health care costs with the private sector, reducing the administrative costs of Illinois’ 850-plus school districts and enacting a responsible spending cap.

Illinois’ luck has likely run out. It’s time to be good.

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