Illinois, once awash in red ink, expects a $1.7 billion revenue surplus, which the governor wants to use to replenish the state’s rainy day and pension funds.
Gov. J.B. Pritzker is proposing the state deposit $1.3 billion in its fund for fiscal emergencies or economic downturns. If approved, the influx would more than double its current size, which stands at $1.045, the highest since its inception but among the smallest such funds in the country.
While the improvement of Illinois’ current fiscal position is particularly noteworthy, pension and other concerns persist. However, Illinois joins the vast majority of states seeing improved balance sheets, which are, as we have noted, buttressing the municipal bond market (“The Ballast Behind the Muni Market”).
Income, sales tax collections up
In the annual Illinois Economic and Fiscal Policy Report, released by the Governor’s Office of Management and Budget, officials boosted the general funds revenue forecast for fiscal year 2023 by $3.69 billion.
Pritzker’s office attributed the increase to greater-than-expected income and sales tax collections, along with other one-time revenues.
The state’s projected $1.7 billion net surplus in the general funds budget for fiscal year 2023 sharply contrasts with earlier forecasts. In 2019, officials estimated a shortfall of nearly $3 billion for fiscal 2023.
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In addition to adding to the rainy-day fund, Pritzker wants to make an additional contribution toward the Unemployment Insurance Trust fund. The state still owes the federal government $1.345 billion from the $4.5 billion federal loan, which was used to help pay unemployment claims that spiked early in the Covid pandemic.
The state used $2.7 billion of the $8 billion it received from the American Rescue Plan Act to pay a portion of the loan, and announced in September a trust fund surplus would further reduce it, according to The Bond Buyer.
Unpaid bills slashed
Illinois’ unpaid bills, which peaked at more than $16 billion in 2017, was reduced to $1.5 billion by the end of fiscal 2022, in June. The governor expects to reduce it further, to $1.2 billion, by the end of fiscal year 2023.
Credit rating agencies have taken notice of Illinois’ improved finances. During the past year, they’ve raised the state’s General Obligation bond ratings a total of six times.
In addition to revising its forecast for 2023, the governor’s office expects deficits of $384 million in 2024, $625 million in 2025, $567 million in 2026 and $708 million in 2027, which are considerably lower than projections made in 2019.
“Substantially reducing the structural deficit reflects the commitment of the governor and the General Assembly to achieving fiscal health for Illinois for the foreseeable future,” the report said.
Improved Illinois fiscal position not unique
Federal aid has played an important role in helping states improve their balance sheets, while the fiscal effects of the pandemic weren’t as severe as many feared.
This has prompted many state and local governments to take similar actions as Illinois to enhance their rainy-day funds, pay down debt, make supplemental pension payments and lower taxes.
In turn, these conditions have given rise to the headlines now extolling the exceptional value of municipal bonds and the enthusiasm among investors.