This past February, Governor Pritzker proposed a General Fund Budget for FY 2022 that essentially held spending on public services level in nominal dollars level with FY 2021. Which means if that budget passed as proposed, total General Fund spending on services in FY 2022 would have ended up being less in real, inflation-adjusted terms than in FY 2021.
At the time, CTBA described the proposal as “sobering,” because it would effectively constitute a year-to-year cut in real General Fund spending on education, healthcare, human services and public safety, given that 95 cents of every dollar of General Fund spending goes to those four, core service areas.
However, on March 11, 2021, which was shortly after the proposed budget was announced, President Joe Biden’s administration secured passage of the American Rescue Plan Act (the “ARPA”). Under ARPA, Illinois is targeted to receive $13.7 billion in federal funding, as part of a national relief package designed to help state and local governments cope with fiscal challenges created by the pandemic, including $7.5 billion to assist the state government.
ARPA came on the heels of various federal initiatives that passed in 2020—like the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)—which were also intended to help state and local governments cover pandemic related costs. Combined, Illinois state government received some $13.2 billion under these federal relief packages, which the state has the authority to spend over fiscal years 2021, 2022, and 2023.
Without this financial support from the feds, the General Assembly would not have been able to increase year-to-year spending on K-12 Education in FY 2022 by $300 million, after flat funding it last year.
Meanwhile, Illinois enacted state legislation that, beginning in FY 2022, will generate an estimated $666 million in new General Fund revenue annually, through the elimination of various tax expenditures that had primarily benefited corporations. (For more information about why elimination of these tax expenditures made sense, see CTBA’s report, Recommended Changes to Illinois Tax Expenditures, FY 2022.
Yet, despite obtaining the aforesaid new federal and state funding, and the promising year-to-year increase in education funding, the FY 2022 General Fund budget that passed into law over Memorial Day weekend still holds overall net spending on core services in FY 2022 to an amount that’s $100 million less in nominal dollars than in FY 2021. Which means that, after adjusting for inflation, General Fund spending on services in FY 2022 is now scheduled to be $688 million less in real terms than in FY 2021.
This was done in an attempt to get the enacted FY 2022 General Fund close to having an “on-budget” balance, which simply means that, without accounting for any carry-forward deficit that remains at the end of FY 2021, in-year projected spending and revenue for FY 2022 will be equivalent. The attempt came close, with projected total General Fund spending for FY 2022 coming in at $41.64 billion, which is $200 million below the $41.85 billion in projected revenue for the year.
Trying to achieve an “on budget” balance between revenue and expenditures is of course a fiscally responsible thing to do. But, as CTBA has emphasized previously, what it takes to get there is sobering.
That is because, without both enhancing state General Fund revenue by $666 million, and receiving the substantial federal aid outlined previously, Illinois would not have been able to keep spending on core services essentially flat in nominal dollars on a year-to-year basis in FY 2022, unless decision makers were willing to increase the already significant, as in $6.4 billion, “accumulated deficit” in the state’s General Fund. An “accumulated deficit” typically represents the dollar value of unpaid bills that remain outstanding at the end of a fiscal year.
The reason Illinois keeps struggling to maintain General Fund spending on core services over time is simple: the state’s existing mix of taxes and their respective structures are so flawed, they simply do not work in a modern economy, and instead have created a “structural deficit.” A “structural deficit” exists when annual revenue growth is not sufficient to cover the cost of providing the same level of public services from one fiscal year into the next adjusting solely for changes in inflation and population—even during a normal, non-pandemic economy.
Which means when the pandemic ends and enhanced federal financial assistance ends with it, Illinois will not have the fiscal capacity to continue enhancing its investment in education—or indeed to continue investing adequately in any of the four core service areas—without enactment of the structural tax policy reforms needed to create long-term revenue generation that grows with the economy.