Illinois revenue is $4.6 billion higher in current fiscal year than originally forecast – Muddy River News
SPRINGFIELD — A House revenue committee this week heard projections of an Illinois economy that is steadily returning to a level of pre-pandemic normalcy, meaning that spikes in revenue realized due to temporary changes in consumer spending habits and federal stimulus plans are expected to ease.
Illinois Department of Revenue Director David Harris called the COVID-19 pandemic a “black swan event” that sent state revenue plummeting by $400 million in 2020.
“A black swan is very rare, and rare events can happen that can upset the financial apple basket,” Harris told the House Revenue and Finance Committee.
But in response to this so-called black swan event, consumers across the country shifted to buying more goods than services, and the federal government provided direct financial payments to Americans and expanded health benefits. unemployment insurance.
This triggered a nearly two-year period of substantial state revenue growth, in part because Illinois taxes goods but not most services, so the redistribution of spending is directly correlated to a increase in sales tax revenue. Additionally, unemployment benefits are taxable by the state, and many people who have received enhanced federal benefits have seen higher levels of income than before the pandemic.
The companies also got by, according to Harris.
“To give you an example, in December alone, in December alone, we received $961 million in corporate income tax receipts,” he said. “It’s in a month. In any given year, a normal year would represent approximately $3.5 billion in corporate income tax revenue for the entire year.
Windfall gains in the three major sources of revenue – personal and corporate income tax and sales tax – have created unprecedented flexibility, at least in modern times, for Governor JB Pritzker to craft a budget for the coming year which devotes the surpluses to the repayment of old debts. Negotiations on a final budget continue in the General Assembly.
Specifically, revenue for the fiscal year ending June 30 is expected to be about $4.6 billion higher than projected when the governor signed into law the budget last year, according to a presentation from the Commission on Government Forecasting. and Accountability.
COGFA expects state coffers to have taken in $48.5 billion by the end of the fiscal year, compared to a projection of $44.4 billion in the budget that lawmakers approved in may. However, the state’s basic revenue streams actually increased by $4.6 billion as the governor’s office changed its planned use of federal funds to offset lower General Revenue Fund spending of $500 million. dollars due to the surplus.
Updated estimates for FY22 include a $1.6 billion increase in personal income tax from original projected levels, a $1.2 billion increase in corporate income and a $926 million increase in sales tax revenue.
Revenue in January alone was $1.2 billion higher than a year earlier, according to COGFA.
Upcoming budget year
Harris and other fiscal prognosticators have projected that fiscal year 2023, which begins July 1, will continue to show strong revenue performance, but it will also begin a period of leveling out, where the last two years of fiscal respite will tend to return to normal.
COGFA’s FY23 revenue estimate is $671 million lower than its updated FY22 estimate, not including federal funding. Federal American Rescue Plan Act funding represents $1.5 billion of the FY22 budget, but no such expenditure is planned for FY23 in terms of GRF replacement funding.
But representatives from IDOR, COGFA and the Governor’s Office of Management and Budget noted that the picture for the coming fiscal year could change quickly as tensions continue amid the Russian invasion of the Ukraine, which was rapidly escalating by the time of Thursday morning’s hearing.
“Will Russia’s invasion of Ukraine be a black swan that will cause disruption that will affect revenue streams? We don’t know,” IDOR director Harris said. “But again, the trends so far are positive. And the guidance presented today for FY23 is positive.
Republican lawmakers have also inquired about inflation, and budgeters have said that projections typically call for “several months” of continued upward inflation before the trend reverses, and their current projections call for the rate inflation will be 7.9%.
Extended Russian sanctions could impact everything from energy prices to the cost of wheat, so the projections will be updated as needed, according to IDOR.
As projections stand, according to House Majority Leader Greg Harris, who is a top budget official in the chamber, the governor and the General Assembly will have the ability to repay the former debt and to prepare the state for future fiscal recessions.
Representative Harris, who is not related to the director of IDOR, said the way forward is to use major bargains for one-time expenses.
The governor’s plan includes an injection of $600 million into the rainy day fund from the current fiscal year’s surplus, as well as $279 million from the coming fiscal year. This fund had been spent to almost nothing during the budget stalemate from 2015 to 2017.
The governor also offered to spend $898 million on reimbursing overdue health insurance bills. His proposal also includes spending $300 million of the surplus to pay down pension debt, with $200 million added to the statutory payment in the next budget.
The House committee and Harris at the press conference also discussed the state’s plan for remaining American Rescue Plan Act funding. Illinois received $8.1 billion directly from President Joe Biden’s stimulus package, and about $3.5 billion remains, Rep. Harris said.
He added that a task force made up of both parties as well as business and labor interests is currently discussing the plan to pay off the $4.5 billion debt to the federal government that the state incurred to maintain its unemployment system at the height of the pandemic. This loan has accrued $36 million in interest due as of September 30, according to the US Treasury.
Republicans at Thursday’s hearing suggested the governor reallocate his planned $1.5 billion ARPA spending for FY22, using it to pay down trust fund debt instead of replenishing the coffers of the state for expenses related to COVID-19.
Rep. Harris said the task force offered a “menu of options” for repaying the backlog, which could include funds from ARPA. Typically, such a solution includes some combination of benefit cuts, employer premium increases, or an infusion of state, federal, or private funding.
Although Pritzker’s proposed budget for FY23 largely does not depend on ARPA funds, one major proposed expenditure — $250 million for violence response funding — would be funded primarily through a lump sum. $235 million from ARPA.
Rep. Harris said funding for the response is often “short-term,” but the state will monitor the effectiveness of the violence prevention program over the next few years as ARPA funding remains. available and consider future expenditures in future budget years.
The governor’s plan to pay down debt with the one-time surplus this year could free up funds in the future, he said.
“Tens and tens of millions or hundreds of millions of dollars have been spent to pay down debt that might otherwise fund programs like this in years to come,” he said of the budgets recently. adopted. “So being fiscally responsible now is going to pay us a lot of dividends in the years to come.”
Capitol News Illinois is a nonprofit, nonpartisan news service covering state government and distributed to more than 400 newspapers statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation. Muddy River News LLC is also supporting his efforts.