The Policy Shop: How to stop Illinois from going broke
This week’s Policy Shop is by Director of Fiscal and Economic Research Bryce Hill
It’s Wednesday morning. It’s March, but it’s still cold. Naturally, you’ve opened your inbox to find something to brighten your day. And, boy, do I have what you’re looking for.
… an analysis of the state budget.
Hang on. Before you close this email, hear me out. You get tired of gas tax hikes and the pension crisis driving up your property taxes, so just stick with me as I walk you through an explainer of what’s up with Illinois’ finances and what we need to do about it.
$1.37 billion: That’s the amount of federal funds received by the state that will decline in 2024. $1.37 billion is also the anticipated bill backlog amount. The general funds deficit reveals the fundamental problem with the state budget: in the long-term, expenditures have risen faster than revenues despite major tax hikes.
But it’s not too late. Despite a drop in federal funds, state lawmakers can take advantage of Illinois’ budget surplus to pay off debts and put the state on the path to long-term financial stability. The most recent budget forecasts from the Governor’s Office of Management and Budget show state revenues coming in much higher than anticipated. This combined with enhanced federal aid the state is still receiving has created an estimated $3.55 billion surplus for this year.
State lawmakers should use surplus funds to:
- Restore Illinois’ Unemployment Trust Fund – lawmakers have already paid off the $1.36 billion deficit but still need to contribute an additional $450 million to replenish the fund.
- Pay off 2010 Railsplitter Tobacco Settlement Authority Bonds, which the state still owes more than $561 million on.
- Eliminate the anticipated $1.37 billion bill backlog.
- Deposit the remaining $181 million into the state’s Budget Stabilization Fund, also known as its rainy-day fund.
$2.3 billion: This is the projected budget deficit during the next four years in Illinois if actions are not taken to stem the tide. Lawmakers should prioritize eliminating the state’s unpaid bills, while still actively seeking to grow the rainy-day fund balance. This would make for a responsible start to Illinois’ fiscal year 2024 budgeting process. GOMB estimates show without significant structural changes, annual budget deficits will return beginning in 2025.
$440 million: Gov. Pritzker’s “Smart Start Illinois" plan would invest millions into universal pre-K and higher ed. While a popular move, it would only be short-lived because taking on a significant, ongoing expenditure during a brief window of excess cash is reckless. The money will run out. If Pritzker sticks to his word and expands the initiative to every 3- and 4-year-old in Illinois, the costs will be significant and could mean a step back for education initiatives when federal aid dries up.
Illinois is in a unique position to get its finances fixed for the first time in decades. Lawmakers can choose to use surpluses from bolstered federal funds and a strong rebound in revenues to eliminate longstanding issues within the state budget. Or they can stick to the status quo of ongoing budget deficits, billions in unpaid bills and the worst pension crisis in the nation.
To see the institute’s analysis of the state’s finances and our recommendations for the next state budget, visit illini.is/ilforward2024.