* Press release…

In a report released today, the Institute for Illinois’ Fiscal Sustainability at the Civic Federation announced its support for Governor Pritzker’s recommended FY2020 budget, because it represents a workable short-term plan to move Illinois forward. The Federation is encouraged by the Governor’s decision to not take a partial pension holiday in FY2020. However, significant concerns persist regarding aggressive revenue assumptions at the core of the proposal and the adequacy of the Governor’s long-term plan to deal with the bill backlog and pension obligations.

The Governor has described his proposed budget as a bridge to financial stability, based on expected implementation of a graduated income tax structure in 2021 and resulting infusion of new revenues. The Civic Federation has continued to express concerns that state and local fiscal conditions are deteriorating at a pace that requires more immediate attention.

“As proposed, the budget represents a relatively rickety financial bridge—though it has been significantly strengthened in recent days,” said Civic Federation President Laurence Msall. “The General Assembly is approaching the deadline to pass several components upon which this budget and the Governor’s long-term plan rely, and revenue projections attached to many of the proposals remain uncertain. Accordingly, we encourage the Governor and General Assembly to develop a comprehensive Plan B that does not involve shorting the State’s pensions or running up the backlog of bills.”

Governor Pritzker presented his first budget, for FY2020, in February 2019. In order to close a projected $3.2 billion deficit, that version relied heavily on a seven-year extension of the State’s statutory pension funding plan. The Civic Federation would have been unable to support that proposal, because it would have further jeopardized the financial condition of Illinois’ severely underfunded retirement systems.

In early May 2019, the Governor announced that his office would no longer pursue the partial pension holiday following a surge in revenues in April 2019 that led to higher revenue projections for the current and upcoming fiscal years. While supporting that decision, the Federation is concerned that April’s strong revenue performance might not be sustainable and therefore continues to recommend a series of steps to further stabilize the State’s operating budget and establish a balanced financial path out of its ongoing fiscal crisis.

The report reinforces many previous Civic Federation recommendations, including limiting net agency spending, consolidating and streamlining units of local government (including pension funds) and restructuring Illinois’ public university system, among others. Further, the Federation cautions against many past bad practices such as relying on accounting gimmicks, reducing or extending the pension funding target and ignoring the financial condition of Illinois’ local governments.

“The State of Illinois is not alone in its financial challenges,” said Msall. “Communities across the State are struggling under the weight of their pension and debt obligations. The Civic Federation calls on the Governor and General Assembly to build on the proposed budget to move more directly and effectively in its assistance to and consolidation of local governments throughout Illinois.”

A summary of the report is here. The full report is here.

* Let’s look at some of the numbers analysis…

After accounting for $800 million of unexpected revenue announced in May 2019[2] and the Governor’s cancelation of a plan to extend the pension funding target, the FY2020 budget has an expected surplus of approximately $92 million.

The $39.7 billion revised revenue estimate for FY2020 represents an increase of $858 million, or 2.2%, from $38.8 billion in FY2019.[3] The increase is composed of four factors:

A forecast of strong economic growth leading to a $366 million increase in existing revenues;
Policy changes expected to bring in an additional $350 million from existing sources;
New revenues of $401 million; and
A shift of $259 million in cigarette tax revenues out of the General Funds.

The total one-time revenue included in the FY2020 budget is $525 million. Of this, $350 million derives from sources new to Illinois: legalized sports wagering and recreational cannabis.
Under the revised proposal General Funds expenditures increase by $287 million, or 0.7%, to $39.6 billion from $39.3 billion in FY2019.

Net agency expenditures increase by $211 million, or 0.8% from FY2019, but this increase excludes Medicaid spending that is shifted to a special account outside of General Funds.

The shift of Medicaid spending includes the cigarette taxes, $65 million from new tobacco-related taxes and $390 million from a new assessment on managed care organizations that goes directly to the other fund, relieving pressure on General Funds.

If the portion of shifted expenditures traditionally associated with General Funds is included, net agency expenditures grow by 2.0% over FY2019.