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* My weekly syndicated newspaper column…
The fiscal news in Illinois of late has been a whole lot better than just about anyone expected. March’s base general funds revenue grew by $422 million versus a year ago, mainly because of stronger than expected receipts of personal and corporate income taxes and sales taxes. That follows a growth of $330 million in February’s receipts.
The revenue surge has been so rosy that some have openly wondered whether Gov. J.B. Pritzker was telling the truth last year when he warned voters that failing to approve a graduated income tax, which would’ve eventually produced more than $3 billion a year in new revenues, would result in budget cuts or higher taxes.
But a little noticed budget forecast published during spring break by the Legislature’s Commission on Government Forecasting and Accountability threw cold water on all the excitement.
“The 2017 income tax increase closed some of the structural gap in the budget but the state still has more work to do to truly be able to operate under a sustainable model moving forward,” COGFA reported.
That structural budget gap also came up in a recent report by the University of Illinois’ Institute of Government and Public Affairs, which noted that Illinois’ expenditures exceeded revenue by roughly 10% each year between 2010 and 2020.
But back to COGFA’s report, which claimed that, “as demonstrated in this report, based on forecast models, the state needs to raise more revenue and/or reduce expenditures.”
The commission produced several scenarios, including one that used the projected spending for this fiscal year and next fiscal year and applied the 2.7% annual spending growth averaged here over the past five years. In that scenario, the Fiscal Year 2022 deficit would be $1.2 billion, FY23’s deficit would be $1.7 billion and the FY24 budget would have a $1.9 billion hole and a $9.9 billion backlog on paying bills. That backlog is currently $5.4 billion.
Basing projections on the same two fiscal years with an average 3.2% spending growth seen in Illinois over the past ten years, the projected Fiscal Year 2024 deficit grows to $2.3 billion and the bill backlog would be $10.6 billion.
But basing calculations on only this fiscal year’s spending would produce even higher deficits and backlogs: A $5 billion deficit and a $19.1 billion backlog by FY2024 assuming a 2.7% annual spending growth; and a whopping $5.7 billion deficit and a $20.5 billion bill backlog assuming a 3.2% spending growth.
To bring the bill backlog down to zero dollars, COGFA calculated that the state would need annual spending cuts of 5.3% and 4.7%, depending on which fiscal year spending base was used in the projection.
Zero-growth budgets would produce a $413 million surplus and a $6.5 billion backlog by 2024 in one scenario and a $1.4 billion deficit and a $12 billion backlog in the other.
But even achieving flat spending is hugely difficult because of ever-increasing pension obligations, medical inflation and education spending pressures, not to mention all the other programs that legislators and governors devise.
One of COGFA’s suggestions is to reduce statutory interest rates on past-due bills of between 9 and 12% annually, which it claimed could reduce spending by $15 million to $45 million per year. While it looks good on paper, the hard fact remains that vendors have been stiffed for two decades by this state and it’s already difficult to find people who will do business with Illinois. Cutting that interest rate would make it even tougher.
COGFA also suggested expanding the sales tax base, which is something the governor has rejected.
But the commission did have one piece of sound advice: Use the $7.5 billion from the federal government’s new American Rescue Plan to pay off the money borrowed from the feds, pay down the state’s bill backlog, use some of the cash to generate as much federal matching funds as possible and patch any COVID-caused budgetary holes.
That definitely would help keep down the projected bill backlogs, but it wouldn’t do much to correct the structural budget problems Illinois has had for many years. That opportunity was lost last November when Pritzker’s “Fair Tax” plan went down in flames at the polls.
While the governor’s $1 billion “corporate loopholes” proposal would make a dent in those projected holes, a new and comprehensive plan is necessary. But it’ll be pretty tough with an election year right around the corner. Petitions can be circulated in about five months.
* Meanwhile, here’s Capitol News Illinois…
A phased repeal of the corporate franchise tax, an addition to what properties qualify for the state’s machinery and equipment sales tax exemption, and a tax deduction for creating new construction jobs in the state were added to the budget proposal put forth by Pritzker in 2019 to secure Republican support.
All three provisions would be delayed or removed in the governor’s plan in order to generate approximately $102 million in savings for FY 22
That third provision, branded as the Blue Collar Jobs Act, was meant to go into effect Jan. 2021. At the time of its passage, the bill was touted by both Pritzker and Republicans as a tax credit that would bring more jobs and businesses to Illinois.
However, the construction worker tax credit had its implementation delayed by Pritzker, who cited losses in tax revenue due to the coronavirus pandemic.
Sen. Chapin Rose, R-Mahomet, questioned Sturm, the governor’s budget director, on why a program passed with bipartisan support needed to be cut if the state expected a surplus.
posted by Rich Miller
Monday, Apr 26, 21 @ 2:37 am
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The GOP wanted unfair taxes, they got unfair taxes with bipartisan support
Comment by Rabid Monday, Apr 26, 21 @ 5:51 am
Excellent article, Mr. Miller. Would love to see more articles relating financials in detail. The structural problem seems intractable, even with a progressive tax which of course is off the table for several years. I am shocked at the bill backlog projections by 2024. The state could have a bill backlog approaching half of its annual budget. Just how can that kind of hole be patched?
Comment by willowglen Monday, Apr 26, 21 @ 9:33 am
Apparently the GOP was not alone in demanding structural reforms to limit the growth of government spending before passing another tax hike.
JB proving once again he is one of the most progressive (partisan) Governors in America who does not keep his promises
Comment by Lucky Pierre Monday, Apr 26, 21 @ 9:39 am
I don’t know how big a deal the 9% / 12% interest really is in keeping suppliers. I know of a couple of national suppliers that don’t care about the interest because they’ve been burned too many times; they demand pre-payment / cash on delivery.
Comment by RNUG Monday, Apr 26, 21 @ 9:55 am
== . I am shocked at the bill backlog projections by 2024. ==
When you keep piling deficit on top of deficit … stuff piles up.
Comment by RNUG Monday, Apr 26, 21 @ 9:57 am
It is not a great Monday. Huge structural deficits for years to come; the 2020 census will announce a shrinking population with the loss of one (or two) members of the Illinois congressional delegation.
Comment by Donnie Elgin Monday, Apr 26, 21 @ 10:07 am
==COGFA also suggested expanding the sales tax base, which is something the governor has rejected.==
Expanding the sales tax base while simultaneously lowering the sales tax rate would broaden and stabilize that revenue stream while generating more revenue in the long term.
Comment by City Zen Monday, Apr 26, 21 @ 10:09 am
“… limit the growth of government spending … .”
You’re either advocating walking away from the Edgar Pension Ramp or removing the pension protection clause from the Constituion. Or are you using this type of arithmetic?
https://www.youtube.com/watch?v=Bfq5kju627c
Comment by Anyone Remember Monday, Apr 26, 21 @ 10:10 am
===while simultaneously lowering the sales tax rate would broaden and stabilize that revenue stream while generating more revenue===
I dunno about that. Devil is in the details and I have yet to see a plan that I can recall which is revenue positive.
Comment by Rich Miller Monday, Apr 26, 21 @ 10:12 am
Illinois expenditures exceeded revenue by roughly 10% each year between 2010 and 2020?
The University of Illinois Institute of Government and Public Affairs must be staffed by a team of carnival barkers.
So much for a constitutionally mandated balanced budget
Comment by Lucky Pierre Monday, Apr 26, 21 @ 10:12 am
=== But the commission did have one piece of sound advice: Use the $7.5 billion from the federal government’s new American Rescue Plan to pay off the money borrowed from the feds, pay down the state’s bill backlog, use some of the cash to generate as much federal matching funds as possible and patch any COVID-caused budgetary holes.===
This should be a no-brainer, slam dunk, done deal.
The long term structural deficits that exist are the helped as much as doing this suggestion for fiscal health in both the immediate and short term of 5 years or less.
Comment by Oswego Willy Monday, Apr 26, 21 @ 10:37 am
“walking away from the Edgar Pension Ramp”
Re-amortizing the Edgar Ramp will be pushed by localities. The options are re-amortize or issue PO Bonds. We already tried the latter. Not very popular based on results. The risk of a re-amortization is a lower rating. I have a hard time thinking voters care about State & Local credit rating and probably can’t tell you what ours currently is.
Comment by 1st Ward Monday, Apr 26, 21 @ 10:38 am
“The risk of a re-amortization is a lower rating.”
And, at Illinois’ current rating, the lower rating is Junk Status.
Comment by Anyone Remember Monday, Apr 26, 21 @ 11:03 am
“And, at Illinois’ current rating, the lower rating is Junk Status.”
And the ramifications would be what exactly? CPS and the City of Chicago have had junk ratings for 5+ years. Not ideal but it’s the cleanest shirt in the dirty hamper.
Comment by 1st Ward Monday, Apr 26, 21 @ 11:17 am
=“The risk of a re-amortization is a lower rating.”=
=And, at Illinois’ current rating, the lower rating is Junk Status=
So is this possible? Would it cost more to pay what the ramp requires each year or would it cost more to borrow at junk status?
Comment by Cool Papa Bell Monday, Apr 26, 21 @ 11:18 am
===And the ramifications would be what exactly?===
Bruce? Is that you?
Comment by Rich Miller Monday, Apr 26, 21 @ 11:21 am
In the long run extending the ramp would cost more in pension payments in addition to bond interest rates potentially being higher. The earlier a dollar gets into the pension funds, the less the state pays long run.
Comment by Blake Monday, Apr 26, 21 @ 12:46 pm