Current law only allows deposits when income increases by 4%
SPRINGFIELD — Illinois Comptroller Susana Mendoza is proposing legislation that would require the state to make automatic deposits into its so-called “rainy day fund” whenever certain financial conditions are met.
Officially known as the Fiscal Stabilization Fund, it was created in 2001 as a reserve so that the state could pay its bills in a timely manner, especially during the regular months of the year when revenues are below other months. The goal was to maintain a reserve fund equal to 5% of annual state revenues.
The current law, however, requires deposits into the fund only when general state revenue estimates increase by 4% or more from the previous year, which Mendoza says hasn’t happened since. the creation of the fund.
Instead, transfers to the fund were made only when the General Assembly makes a one-time vote in the budget.
In 2002, lawmakers committed $225 million to the fund with money from the state’s share of a nationwide tobacco lawsuit settlement. Another one-time deposit of $50 million was made in 2004, Mendoza said.
The fund balance then remained unchanged until it was depleted in 2017 during the two-year budget stalemate under former Republican Governor Bruce Rauner.
“Ironically, the previous administration was draining Illinois’ rainy day fund just as the biggest bull market of our lifetimes was allowing other states to replenish their rainy day funds,” Mendoza told House Revenue. and Finance Committee on Thursday.
“Now fast forward to when the world was hit by the catastrophic COVID-19 pandemic. Our state’s rainy day fund was only $60,000 and our backlog of bills was about $6 billion,” she said. “Now $60,000 isn’t enough to cover even 30 seconds of state government operations.”
House Bill 4118, filed by Rep. Michael Halpin, D-Rock Island, would change the funding formula, beginning in June 2023, to require automatic payments of $200 million at the end of a fiscal year or any which is needed to achieve a 5 percent balance, whenever the state’s backlog of bills to be paid at the end of the year falls below $3 billion.
It would also require the transfer of an additional $200 million into the Pension Stabilization Fund, but those payments would be spread out in equal monthly installments.
The Pension Stabilization Fund, Mendoza said, was created in 2000 to allow the state to make additional contributions to its pension funds, beyond the amount statutorily required. But no money has been deposited there since its creation.
The bill would also allow the transfer of money from the rainy day fund to the general fund whenever the backlog of bills exceeds $4 billion, to allow the comptroller to deal with overdue bills.
As of Thursday, according to the Comptroller’s website, the state’s bill backlog stood at just over $4.4 billion, but was as low as $3.1 billion as recently as the 1st February.
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According to the latest revenue estimates released Tuesday by the Commission on Government Forecasting and Accountability, the state’s General Revenue Fund is expected to receive $48.5 billion in the current fiscal year, which ends June 30.
That’s a $4.1 billion increase from previous estimates lawmakers used when they passed this year’s budget, meaning the state will likely end the year with a substantial surplus.
“Because we have this improved fiscal position, I think it’s necessary that we harness that momentum and try to use the moment to support our reserves for the future,” Halpin said during the hearing.
Mendoza said maintaining a healthy balance in the rainy day fund would help ensure the state is able to pay its bills on time. This is because revenues are not flowing into state coffers at the same rate each month, even though bills are falling due daily.
This is important to many public contractors, including small social service agencies that administer programs for youth, families, seniors, and people with disabilities.
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Andrea Durbin, executive director of the Illinois Collaboration on Youth, which represents more than 100 community-based child care providers, said late payments during the budget stalemate and other difficult times have taken their toll. on these organizations.
“Such late payments are unfair and damaging to community organizations, tying up their capital, forcing them to take out expensive loans and lines of credit, and preventing them from pursuing new opportunities or innovations,” she said. “All the time and energy that boards and executives spend figuring out how to handle their unintended role as Illinois’ state banker is time they’re not investing in capacity building. to meet needs and help families and communities thrive.”
The committee took no action on the bill, but lawmakers could incorporate something similar as part of the overall budget package they are expected to vote on in April.
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