Illinois plans a $300 million deposit into its empty rainy day fund and will pay down $900 million of overdue bills with the $1.7 billion surplus projected this year in a new five-year budget forecast.
Chronic structural budget gaps remain over the next five years but at more modest levels that mark a stark contrast to the dire warnings amid the COVID-19 pandemic a year ago before $8 billion of federal relief was in hand and tax collections began climbing.
The state expects to end the current fiscal year next June with a $406 million ending balance, up from the $88 million projected when the budget was adopted in the spring, according to the
That’s after making the $300 million rainy day deposit and paying off $913 million of employee and retiree health insurance bills with the $1.7 billion of additional revenue now expected.
Gaps heading into future years resurface with a $406 million hole projected in fiscal 2023, rising to $820 million in fiscal 2024, and peaking at $1.1 billion in fiscal 2025 before falling to $903 million in 2026 and $600 million in 2027.
The same report one year ago
“I am committed to building on this significant progress while tackling our remaining fiscal challenges. Together, we can build long term fiscal stability for Illinois while ensuring economic opportunity in all of our communities,” Gov. J.B. Pritzker said in a statement.
On the fiscal 2022 revised forecast, the main drivers for the $1.7 billion increase in projected revenues come from higher-than-expected income and sales tax collections that were raised by $837 million and $596 million, respectively. The revisions are based on collections for the first quarter and projected growth going forward from state and national economic forecasts.
New expenses will absorb about $1.1 billion of the $1.7 billion including the $913 million pay down of the bill backlog. Another $300 million would begin building the rainy day fund, leaving a $418 million ending balance June 30. The general fund will total $44.1 billion.
The state’s rainy day fund held a modest $275 million before being drained during the two-and-half year budget impasse driven by clashes between former Gov. Bruce Rauner, a Republican, and the Legislature’s Democratic majorities.
Fiscal 2022 planned expenses include fully paying off the remainder of what was borrowed in fiscal 2021 through the Federal Reserve’s Municipal Liquidity Facility to manage what then appeared to be deeper tax wounds expected from the pandemic.
The state borrowed $1.2 billion in fiscal 2020 and previously paid that off. Another $2 billion was borrowed in December 2021 and will be paid off by the end of the current fiscal year, earlier than originally planned.
The state now projects ending the current fiscal year with the bill backlog, closely watched by rating agencies and investors as a sign of the state’s fiscal liquidity health, at $2.75 billion. That’s down from $4 billion for fiscal 2021. The backlog hit a $16 billion peak in 2017.
Comptroller Susana Medoza reports that invoices are being paid within 30 days, what she said is considered a standard bill cycle.
“The projections assume growth in revenues under existing law in fiscal year 2022 and the remainder of the forecast period following the baseline IHS (Markit) economic forecast,” the report said. “Expenditure projections are driven by statutory increases in pension payments based on end of fiscal year 2021 actuarial results, projected debt service amounts, and moderate increases in other spending.”
Expenses include honoring an annual $350 million increase in education aid and pension funding levels based on fiscal 2021 actuarial reports.
In the five-year forecast, pension payments are based on strong fiscal 2021 investment performance. The state’s 2022 payment totals $9.4 billion, followed by $9.6 billion in 2023, $9.7 billion in 2024, $9.8 billion in 2025, $9.9 billion in 2026 and $9.9 billion in 2027 based on current estimates. The state is carrying unfunded liabilities of $141 billion with the system at a 40.4% funded level.
Future deficits are also down from the pre-pandemic 2019 forecast the Pritzker administration highlights in a press release. The current projection of a $406 million 2023 deficit is down from $2.9 billion and the 2024 shortfall of $820 million is down from a $3.2 billion 2019 estimate.
“The future years’ budget outlook also benefits from strong pension fund investment returns in fiscal year 2021, substantial early debt retirement in 2021 and interest cost savings from paying down the state’s unpaid bill backlog,” the report said.
The administration acknowledges in the report the potential downsides that could harm the fiscal picture.
“GOMB will continue to monitor these forecasts closely as the COVID-19 Pandemic continues to impact the economy in various, sometimes unpredictable ways,” the report said.
The fiscal 2022 budget relies on $2 billion in relief from the American Rescue Plan Act to make up for lost revenues due to the pandemic and spends another $3 billion on infrastructure, violence prevention, education, healthcare, affordable housing, and economic recovery. The remainder is reserved for future spending.
The state has already reaped a series of rating rewards for its pandemic recovery reversing course after years of credit deterioration that left it one cut away from junk status.
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