GOVERNOR'S OFFICE OF MANAGEMENT AND BUDGET ILLINOIS

STATE OF ILLINOIS

EXECUTIVE OFFICE OF THE GOVERNOR

GOVERNOR’S OFFICE OF MANAGEMENT AND BUDGET

SPRINGFIELD 62706

JB PRITZKER ALEXIS STURM

GOVERNOR DIRECTOR

November 15, 2023

ILLINOIS ECONOMIC AND FISCAL POLICY REPORT

The Governor’s Office of Management and Budget (GOMB), pursuant to 20 ILCS 3005/7.3, annually

submits an Economic and Fiscal Policy Report to the General Assembly outlining the long-term economic

and fiscal policy objectives of the state, along with the economic and fiscal policy intentions for the

upcoming fiscal year and for the subsequent four fiscal years. The report also includes a comparison of

the current fiscal year’s enacted budget with the current outlook for the fiscal year along with fiscal and

policy options GOMB recommends for consideration by the General Assembly and the Governor to

remedy any budgetary shortfalls in the current year or the five following fiscal years.

ECONOMIC REVIEW

NATIONAL ECONOMIC CONDITIONS

The national economy has remained stronger than most predicted due to a hardy job market and enough

moderation in price increases to return some increased spending power back to households. Just this past

year, economists had raised the possibility of an impending economic downturn due to prolonged periods

of rampant inflation and borrowing costs not seen in 20 years, but a recession has yet to materialize. In

its place have been multiple quarters of moderate economic growth.

While an imminent recession is no longer the consensus opinion among economists, several recession

related characteristics persist. While consumption is stable, consumers are tapping into personal savings

and utilizing credit at increasing rates to maintain spending levels. Those factors, along with the

resumption of student loan payments, could result in consumers slowing spending even if the job market

remains strong. Government spending, particularly on defense, has helped to fuel growth over the past

year, but divisions in Congress make a government shutdown a more likely outcome with an unknown

economic impact. Energy and food prices also remain volatile and increased costs for housing and services

are not likely to recede even under a lower inflationary environment. In isolation, few of the above factors

are potent enough to push the economy into a recession, but when combined, there exists enough

uncertainty to continue calls for caution when looking ahead.

Real Gross Domestic Product

The newly released advance third quarter U.S. Real Gross Domestic Product (GDP) data for calendar year

2023 resulted in a higher-than-average annualized rate of 4.9 percent exceeding most expectations.

Recent growth is attributed to increases in consumer spending, private inventory investment, exports,

state and local government spending, and federal government spending.

For context, U.S. GDP regained

the 10.1 percent loss experienced in Spring 2020 (peak to trough) in the following year, an incredibly fast

rate compared to the six quarters it took to regain the 3.9 percent contraction during the 2008-2009 Great

Recession. The economy, as measured by GDP, shrank by 1.6 and 0.6 percent in the first two quarters of

2022, driving a belief among some economists and observers that the nation may already have entered a

recession. The National Bureau of Economic Research (NBER) Business Cycle Dating Committee did not

identify a recession as taking place during that time, likely due to the contraction not being widespread

across the economy. The following four quarters reversed that trend, resulting in an average rate of

growth that ranged between 2.1 and 2.7 percent.

Source: U.S. Bureau of Economic Analysis

Labor Market and Income

A strong contributing factor for the national economy has been the stalwart labor market and its

continued growth amid other complicating economic factors. Recessions are often accompanied by higher

rates of unemployment, such as seen in the 2008 Financial Crisis.

In this moment, the unemployment

rate is still extraordinarily low, national unemployment has not been lower than the April 2023 mark of

3.4 percent since the 1960s and labor force participation continues to increase from its pandemic lows.

During the pandemic, the labor force participation rate fell to as low as 60 percent as the number of

retirements and discouraged workers increased. A rise in the labor force participation rate likely means

that a number of workers have returned to the workforce or new workers have entered it altogether,

which helps compensate for the retirement exits.

One explanation for why workers are coming back to the labor force is growth in wages. Between calendar

year 2019 and 2022 about two-thirds of private sector payrolls saw an increase in their average weekly

wages.

Within that period, low-wage workers experienced historically fast real wage growth. According

to a report by the Economic Policy Institute, wages for the lowest percentile of hourly wage earners grew

by 9 percent during the three-year period.

There are signs that the labor market is on its way to rebalancing. Job gains continue at a positive rate,

while the number of job quits continue to decline. New jobless claims indicate that there are very low

numbers of job losses.

The number of job openings may hint that businesses are hiring fewer people but

if the rate of layoffs remains stable, the labor market may achieve a better balance between the supply

and demand for worker.

Inflation

As the inflation rate climbed to the highest it has been since the 1980s, the primary policy focus for the

Federal Reserve for the U.S. economy the last two years has been bringing the rate back down to its

preferred target level of 2 percent. Headline inflation, which started calendar year 2023 at 6 percent, has

moved to under 4 percent, as of September 2023.

In the most recent update, the Fed paused increases

to the benchmark interest rate, keeping its target range at 5.25 to 5.5 percent. The graph below suggests

that the Federal Reserve has been able to use the federal funds rate to successfully lower the inflation

rate even though it is not quite at its target rate yet.

Source: Trading Economics, NY Fed

The different components of the Consumer Price Index (CPI) have experienced periods of price growth

over the last few years, but the current trend is showing signs of cooling inflation. As noted above, CPI

increases have moved to under 4 percent as of September 2023.

When incorporating inflation into broad

sectors, as seen in the figure below, the inflation picture tells a more detailed story.

Source: U.S. Bureau of Labor Statistics

Housing, energy, and services inflation have remained high over multiple quarters and present a risk that

overall inflation will remain higher for longer. Housing costs, which account for most household expenses,

could be crucial to the overall trajectory of the U.S. economy. If housing costs grow faster than wages, the

consumer could be squeezed even tighter.

Personal Consumption and Saving

Since returning to its pre-pandemic level in January 2021, nominal Personal Consumption Expenditures

(PCE) on services and goods have accounted for much of the current economic growth. Pandemic-related

behavior and federal stimulus caused a shift in spending away from services and towards goods, but the

post-pandemic trend has resulted in consumers resuming much of their previous service consumption

while maintaining a consumption of goods well above their pre-pandemic trend. This trend, which appears

at odds with stagnation in nominal disposable personal income, can be at least partially explained by two

factors – savings and credit utilization. During the first two quarters of 2020, household savings nearly

tripled from $1.59 trillion annualized in the first quarter to $4.69 trillion in the second quarter due in large

part to federal government stimulus checks and other payments.

The savings rate increased again

following several other large federal stimulus packages. Now, Americans are dipping into their savings to

support consumer spending.

Another factor which has allowed consumer spending to stay high is usage

of consumer loans such as credit cards. Today, the total dollar amount of consumer loans is greater than

ever before and since its pandemic-era low, has risen at triple the rate of the pre-2020 trend.

Economic Forecasts

Economic forecasts are evolving regularly. This forecast is presented in the context of an economic outlook

that is trending towards lingering positive economic growth with some baseline uncertainty. This report

will discuss the ‘baseline’ economic forecast from September 2023 provided by IHS Markit (IHS), a national

economic forecasting firm. IHS Markit gives its September baseline forecast a 55 percent probability and

does not include a recession. Instead, the baseline forecast reflects an economy that is showing signs of

continued growth. The out-year revenue forecast, which is also built upon the September 2023 baseline

outlook, anticipates a slight decline in U.S. GDP growth to 1.5 percent for fiscal year 2024 and 1.3 percent

growth in fiscal year 2025. GDP is expected to grow between 1.4 and 1.9 percent in between fiscal years

2026 and 2029.

The projected level of economic activity is attributed to the factors described earlier. While the overall

rate of inflation is showing signs of decreasing, core price increases are proving hard to tame. Current

levels of consumption are being supported by a convergence of rising wages, greater utilization of savings

and higher levels of consumer debt. As wage growth subsides, consumer debt won’t be enough to support

high levels of consumer activity and economic growth. In the forecast, aggregate demand begins to tail

off as consumers begin to adjust spending.

The baseline forecast assumes that increases to the unemployment rate may loosen a tight labor market.

The forecast assumes the national unemployment rate will continue at a historical low of 3.7 percent for

the remainder of fiscal year 2024 before settling to the full-employment rate of 4.3 percent by the end of

fiscal year 2025. The unemployment rate is forecast to reach a peak of 4.7 percent by fiscal year 2026.

Personal consumption expenditures (PCE) on goods and services are expected to remain elevated through

the remainder of fiscal year 2024 and into fiscal year 2025 but at diminishing levels. PCE on goods was

boosted by fiscal stimulus and by substituting away from services and have remained at those levels even

as inflation has eroded purchasing power. PCE on services during the same timeframe have seen a return

to pre-pandemic levels. In the forecast, overall PCE growth will be constrained until economic conditions

improve.

The IHS forecast has incorporated the impact of the Infrastructure Investment and Jobs Act (IIJA) and the

Creating Helpful Incentives to Produce Semiconductors and Science Act (CHIPS). IIJA is expected to

increase spending by $300 billion over the next five calendar years, while CHIPS will provide another $280

billion over the same timeframe.

The IHS forecast expects the Federal Reserve to maintain high interest rates until inflation subsides. The

median projection of the federal funds rate outlook currently ranges between 5.5 and 5.75 percent and

assumes a reversal of policy in late fiscal year 2024 before a slow decline over several years. In most

scenarios further rate hikes will be dependent on economic data but the earliest they are expected to

revert to 2.5 to 2.75 percent is fiscal year 2026.

ILLINOIS’ ECONOMIC CONDITIONS AND FORECAST

The economic conditions on the state level in Illinois are similar to national conditions. Both economies

continue to show strong signs of growth in areas such as employment and consumer spending, although

measures like housing starts are down. Illinoisans have not been spared the price increases for essential

(b) (b) (b) (b) (b) (b)

U.S. Real Gross Domestic Product 1.5% 1.3% 1.4% 1.7% 1.7% 1.9%

U.S. Corporate Profits 0.9% -3.2% -0.1% 1.4% 1.7% 2.2%

Illinois Unemployment Rate 4.5% 4.2% 4.5% 5.2% 5.4% 5.4%

Illinois Non-Farm Employment 1.37% -0.28% -0.81% -0.46% -0.13% -0.04%

Illinois Wage and Salaries 4.24% 4.30% 4.03% 3.84% 3.87% 3.65%

Illinois Personal Income 3.48% 4.47% 4.60% 3.84% 3.59% 3.79%

Illinois Personal Consumption Expenditures 3.50% 3.40% 3.53% 3.81% 3.77% 3.72%

FY29

Source: IHS Markit September 2023 Forecast (b/baseline) scenario.

Variables

FY24

FY25

FY26

FY27

FY28

cost of living items. Prices for rent, energy and food all have increased year-over-year, similar to at the

national level. Salaries and average wages have increased, but not kept pace with rising costs.

Real GSP and Productivity

The State’s Real Gross State Product (GSP) is up over the last year but is showing signs of slowing. As with

the national economy, GSP not adjusted for inflation tells a different story; in nominal terms the state’s

GSP has increased in every quarter since the beginning of 2021.

Labor market

Illinois’ labor market has seen similar trends to the nation; unemployment rose during Spring 2020 and

now is very close to full employment. Labor force participation has regained its recessionary losses, and

hourly earnings have continued to grow at a steady clip. Job postings on the website Indeed, a measure

of total open positions, are up substantially in Illinois and nationally since the beginning of the pandemic.

The leisure and hospitality sectors have led much of the recent job growth for the state followed by public

and education/healthcare sectors.

Sources: US Bureau of Labor Statistics, Indeed and Federal Reserve Bank of St. Louis.

Note: “Pandemic-era max/min” is meant to represent the month at which the pandemic’s effects were most severe

and shows the month at which labor force participation, hourly earnings, and job postings were lowest, and at which

unemployment was highest. Job postings data is updated daily; the figure used is from the last day of the month

except for in the case of the max/min.

Economic Forecasts

State revenue growth has been notably strong for sources tied to economic activity, particularly

collections of income taxes, sales taxes and investment income. Growth in income taxes has largely

occurred due to wages and salaries that are rising well above historical trends. Conversely, income taxes

collected on non-withholding income have dropped due to recent soft patches in the stock market.

Corporate profits have been well beyond historical highs, but their outlook remains uncertain. Corporate

profits and sales tax activity continue to be bolstered by consumers utilizing savings and credit cards at

higher-than-average rates. However, the outlook for state revenues is highly dependent on national

trends and would be impacted if a national slump occurs.

The current baseline forecast does not factor in a recession in the short-term. The rate of growth in the

real GSP is anticipated to moderate in fiscal year 2025 and remain at that level until conditions for the

national economy change. In the September 2023 baseline forecast, the state unemployment rate is

expected to average 4.5 percent between fiscal years 2024 and 2026 before increasing to 5.2 percent and

above for the out years. Wage and salary growth are forecasted to stabilize as the tight labor market

loosens, before declining in the out years. Long-term growth prospects will continue to see jobs added in

the professional and business service sector, while receiving some growth in the manufacturing sector.

Metrics (all seasonally adjusted)

February 2020

(pre-pandemic)

Pandemic-era

max/min (mm/yy)

Sep-22 Aug-23 Sep-23

Unemployment Rate, United States 3.5% 14.7% (04/20) 3.5% 3.8% 3.8%

Unemployment Rate, Illinois 3.8% 17.4% (04/20) 5.5% 5.3% 4.9%

Labor Force Participation Rate, United States 63.5% 60.2% (04/20) 61.7% 62.8% 62.8%

Labor Force Participation Rate, Illinois 64.8% 62.3% (01/21) 64.3% 64.9% 64.5%

Average Hourly Earnings, United States $28.81 $28.81 (02/20) $32.53 $33.82 $33.90

Average Hourly Earnings, Illinois $29.75 $29.75 (02/20) $32.94 $33.35 $33.75

Job Postings on Indeed, United States

(2/1/20=100)

98.6 61.0 (05/20) 149.33 127.5 127

Job Postings on Indeed, Illinois (2/1/20=100) 98.6 60.8 (05/20) 139.49 112.84 113.85

Illinois is less dependent on generalized manufacturing compared to other regional competitors and is

instead focused on specialized industries.

A REVIEW OF THE ENACTED FISCAL YEAR 2024 BUDGET

On June 7, 2023, the Governor exercised his authority under Article IV, Section 9 (d) of the Illinois

Constitution and reduced several appropriations related to public officer salaries included in the budget

passed by the General Assembly, but approved all other appropriation items and budget implementation

provisions permitting the State’s Fiscal Year 2024 Budget, contained in Public Acts 103-0006 and 103-

0008, to become law. Additionally, the Governor signed Public Act 103-0007 which increased the

authorization in the General Obligation (GO) Bond Act by $165 million and the authorization in the Build

Illinois (BI) Bond Act by $535 million.

The fiscal year 2024 budget plan continues a path of sound investments to help bring about a brighter

future for Illinoisans. Budget investments were made to support higher spending for preK-12 and higher

education to increase the success of Illinois students and teachers. Further investments in economic

development were made to help modernize the state’s economy. Increased appropriations in public

safety and healthcare were made to better the health outcomes and safety for individuals and

communities. The budget also included an additional $600 million to the Illinois State Board of Education,

of which $75 million supports an expansion of early childhood education services and $45 million supports

a teacher pipeline grant program. The budget increased funding for Monetary Award Program (MAP)

need-based assistance and AIM HIGH merit-based higher education scholarships. The fiscal year 2024

budget also added approximately $700 million to address increased costs at the Department of Healthcare

and Family Services (HFS) for Medicaid and related program costs as an enhanced federal Medicaid match

drops off and to fund half-year rate increases. There were also significant investments in human services

agencies.

Updated Fiscal Year 2024 Projections

Following a review of the fiscal year 2024 general funds revenue performance year-to-date, GOMB is

revising the budget forecast as outlined in the following table. Through the first four months of fiscal year

2024, corporate income and sales taxes exceeded budget forecasts,

reflecting the conservative nature

of the initial forecast. As a result, GOMB is reporting a combined $214 million increase in the revenue

forecast from those sources. Additionally, a larger than forecasted end of fiscal year 2023 balance in the

Income Tax Refund Fund (due to stronger than expected income tax performance last fiscal year) has

contributed a one-time bump in the annual transfer from the fund of $255 million above forecast.

Transfers in from the Lottery have also been increased by $41 million due to stronger than anticipated

play. Additionally, the federal revenue estimate is revised upwards by $405 million due to a one-time

retroactive draw for reimbursement on expenditures on certain DHS waiver services

over the last two

years.

In total, the general funds revenue forecast is revised upward by $1.406 billion, using a review of the

performance fiscal year-to-date and the economic projections under the IHS September 2023 baseline

forecast for fiscal year 2024. However, GOMB is continuing to monitor these forecasts closely as inflation

and national and international factors may impact the economy in uncertain ways. Note that most of this

fiscal year 2024 revenue forecast revision is assumed to be one-time in nature.

Under the updated forecast, base revenues and transfers in from other state funds are estimated to total

$52.017 billion. The state’s three largest revenue sources; individual income tax, corporate income tax

and state sales tax, are estimated to total $41.456 billion, an increase of $1,428 million (3.6 percent) from

fiscal year 2023. The estimate assumes a $621 million sales tax allocation to the Road Fund and deposits

of $2.831 billion into the Local Government Distributive Fund, Downstate Public Transportation Fund and

Public Transportation Fund.

Other state source revenues are projected to total $3.727 billion, a $99 million increase from fiscal year

2023 levels. This forecast is revised from the enacted budget due in part to the strength in investment

income over the first four months of the year. Transfers into the general funds are projected to total

$2.546 billion, a decrease of $702 million (21.6 percent) from fiscal year 2023.

Federal revenues are projected to total $4.288 billion, an increase of $486 million from fiscal year 2023

due to the one-time retroactive draw.

Note: Totals may not add due to rounding.

The fiscal year 2024 budget’s revised estimated base operating expenditures are $48.282 billion. Base

statutory transfers out of the general funds are projected to decrease by approximately $853 million to

$429 million in fiscal year 2024 from fiscal year 2023 transfers out of $1.282 billion. Debt service for

general obligation bonds is projected to total $1.686 billion from the general funds.

GOMB has identified potential supplemental general funds budget pressures for fiscal year 2024 totaling

approximately $1 billion that will offset the revenue gains, including increased case load pressures at

Department on Aging and DHS, amounts needed to cover delayed FEMA reimbursements to HFS for

COVID-related nursing staff support costs for hospitals, outstanding DoIT bills, increased group insurance

costs at CMS and potential spending pressures related to asylum seekers at DHS. After accounting for the

supplemental budget pressures, the revised fiscal year 2024 surplus is projected to total $422 million.

FIVE YEAR BUDGETARY FORECAST

Pursuant to 20 ILCS 3005/7.3, attached to this report is a financial walk down of the budgetary outlook

for fiscal year 2025 through fiscal year 2029.

The projections assume growth in revenues under existing law in fiscal year 2025 and the remainder of

the forecast period following the September 2023 IHS baseline forecast. Expenditure projections are

Income Taxes 54$

Sales Taxes 161 (1,000)$

Transfers In 396 (99)

405

All Other Changes 390 Appropriation Estimate 130

1,406$ (969)$

Surplus from FY24 Enacted 45$

Increase to Base Revenue Forecast 1,406

Increase in Projected Expenditures (969)

Revised Budget Stabilization Fund Set Aside Estimate

(60)

Revised Surplus/(Deficit) 422$

Appropriations

Changes to FY 2024 Projections

($ in Millions)

Revenues

Expenditures

Proposed Supplemental

Revision to Forecast

Reflects updated estimate under current law due to increased estimate of fund's investment earnings.

SERS Continuing Appropriation

Federal Sources

Change to Lapsed

Total Base Revenue Changes

Total Changes

driven by statutory increases in pension payments based on end of fiscal year 2024 actuarial results,

projected debt service amounts, and moderate increases in other spending. Expenditure projections are

trend growth numbers that assume no significant reforms or spending controls aside from what is in

current statute.

Estimated Resources

GOMB and the Department of Revenue estimate that under current statutes, base general funds revenues

for fiscal year 2025 will total $51.537 billion. Revenue estimates going forward are based on projections

provided by Department of Revenue economists based on the IHS September baseline forecast.

The diversion rate of 9.15 percent of total individual income tax revenues in fiscal year 2024 to the Income

Tax Refund Fund is assumed to continue for the remainder of the forecast. The corporate income tax

forecast assumes a refund fund diversion rate of 14 percent in fiscal year 2025 and is maintained over the

remainder of the forecast.

Fiscal year 2025 sales tax revenues are estimated to total $10.567 billion. Fiscal year 2025 and future years

reflect the continued impact of the gradual shift of state sales tax on motor fuel purchases from the

general funds to the Road Fund, with approximately $844 million (4 percent of the total 5 percent state

share) estimated to be deposited in fiscal year 2025, the fourth year of the phase-in. The shift is scheduled

to reach full implementation in fiscal year 2026, when the entire 5 percent state share of sales tax on

motor fuel purchases will be allocated to the Road Fund.

Fiscal year 2025 estimated base general funds receipts from federal sources total $3.944 billion. This

estimate is based on appropriations that are expected to generate federal match if payments are released

timely. Generally, federal reimbursements for Medicaid spending are returned to the same fund that was

used for the original expenditure. It is assumed that HFS will continue to maximize use of general funds

for Medicaid spending, which will produce moderate growth over the forecast horizon. However, fiscal

year 2025 reimbursements will be lower than fiscal year 2024 estimates with the drop off of a one-time

retroactive draw for reimbursement on expenditures on certain DHS waiver services and the continued

impact of the drop off in the enhanced Medicaid reimbursement.

Estimated Expenditures

Fiscal year 2024 base general funds spending in the financial walk down is estimated at $50.397 billion.

To illustrate potential future-year spending, estimates are based on an assumed increase in evidence-

based funding for education by a minimum of $350 million per year, accommodates the annualization of

an additional $250 million in state costs for Medicaid enhancements included in the fiscal year 2024

budget, moderate growth rates in the various categories of state spending from fiscal year 2024

appropriations, pension spending consistent with the retirement systems’ projections from fiscal year

2023 actuarial reports, and no significant changes to base programs.

Fiscal Year Results

As noted above, GOMB estimates fiscal year 2024 will result in a budget surplus. Based on a trend growth

analysis for fiscal year 2025, estimated expenditures (including the set aside in the Budget Stabilization

Fund) would exceed revenues by $891 million – which will be addressed in the Governor’s Fiscal Year 2025

Introduced Budget. The outlook for next year and future years continues to signal notable progress on

state finances from when Governor Pritzker came into office, when the structural deficit was estimated

to be approximately $3.2 billion a year

. 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 Governor remains committed to taking steps to further improve Illinois’ fiscal

position.

POLICY OBJECTIVES AND INTENTIONS

Governor Pritzker remains committed to maintaining fiscal stability in Illinois’ budget and spurring

statewide economic growth. A key priority is investing in Illinois’ people, educational system,

infrastructure, and programs that assist the most vulnerable. These investments will strengthen the

economy and ensure that Illinois is a strong competitor in the global marketplace.

Even with a balanced budget for fiscal year 2024 and an improved financial trajectory, the state must

continue to build on the progress made in recent years while carefully preparing to face an uncertain fiscal

outlook due to national economic conditions. Illinois is constitutionally required to pass a balanced budget

for each fiscal year thus, any challenges must be addressed as they arise.

The fiscal year 2022 and fiscal year 2023 budget allowed for additional steps toward fiscal stability through

actions such as early repayment of COVID-19 Pandemic borrowings, directing funds to further pay down

the state’s existing payables and reserving additional funds for future fiscal emergencies or economic

downturns. The fiscal year 2024 budget builds on the progress in the earlier budgets with additional early

debt retirement and the use of budgetary surpluses to grow reserves. These actions, along with continued

investment in economic development and responsible budget management on the spending side, will

improve the budgetary outlook for future years.

Saving for the Future. Illinois created the Budget Stabilization Fund in 2001 with the intent to use it as a

rainy-day fund for future fiscal emergencies or economic downturns. After that original funding, very little

was contributed to the fund, and it was used as a tool to assist with cash flow until it was nearly drained

in fiscal year 2017. During fiscal year 2017, the $275 million Budget Stabilization Fund balance was used

to pay bills related to the budget impasse.

The COVID-19 Pandemic demonstrated how important a robust rainy-day fund is to stabilizing state

finances. Some states drew on their rainy-day funds in 2020, while Illinois and a few others turned to

short-term borrowing for cash flow assistance during the pandemic. However, strong revenue

performance nationally in 2021 and 2022 enabled states to replenish and even increase their rainy-day

funds from fiscal year 2020 levels. The 50-state total of rainy-day fund balances increased to a record level

of $134.5 billion at the start of fiscal year 2023. However, Illinois’ fund at that point was estimated to only

cover 6 days of operations, lower than the national median of 42.3 days.

While Illinois has since moved

its balance higher and is at a record of $1.9 billion, Illinois is still among the smallest state rainy-day funds

on a relative basis. Statutory provisions have been added in recent years ensuring continued contributions

to the Budget Stabilization Fund:

• 10 percent of cannabis tax revenues (estimated $25 million for fiscal year 2024)

• Monthly transfers of $3.75 million from the General Revenue Fund beginning July 1, 2023 ($45

million/year)

• Repayment over 10 years from state’s $450 million loan to UI Trust Fund (estimated $45

million/year)

• Interest earnings on fund’s balance (estimated $83 million for fiscal year 2024)

Reducing Debt Obligations and Saving on Interest Costs. Across 2022, 2023, and projected for fiscal year

2024, Illinois has paid approximately $11 billion towards outstanding debts and liabilities – reducing the

interest burden for the state’s taxpayers as efficiently as possible as Illinois emerged from the COVID-19

Pandemic. In 2020, the state undertook several borrowings to address the revenue shortfalls brought on

by the COVID-19 Pandemic, including $3.2 billion in borrowing from the Federal Reserve Municipal

Liquidity Facility (MLF), millions in interfund borrowing, and $400 million under the State Treasurer’s

investment borrowing powers. As of the end of fiscal year 2022, the state had paid back these borrowings

in their entirety – reducing interest costs and removing the burden of repayment from out years.

For fiscal year 2024, Illinois directed funds towards the remaining Railsplitter Tobacco Settlement

Authority bonds. In December 2010, the Railsplitter Tobacco Settlement Authority issued revenue bonds

in the amount of $1.5 billion to address a portion of the state’s unpaid bill backlog resulting from the Great

Recession. The repayment stream is the state’s tobacco settlement payments under the Master

Settlement Agreement between various states and various cigarette manufacturers. Of the original $1.5

billion issued in 2010 and refinanced in 2017, approximately $450 million, or nearly one third of the

original issue, remained outstanding. The Railsplitter Tobacco Settlement Authority undertook in

September 2023 a cash defeasance of a portion of the remaining outstanding bonds with proceeds from

a recent Attorney General settlement resolving claims regarding certain payments from tobacco

companies.

The tobacco payment stream is now freed up to be used as ongoing annual state revenues

to support the state’s Medicaid program.

Like many states, Illinois had a healthy balance of $1.85 billion in its Unemployment Insurance Trust Fund

before the pandemic. To keep unemployment benefits flowing to jobless workers once the pandemic hit,

the fund was drained, and the trust fund was forced to borrow money from the U.S. Department of Labor

which needed to be repaid. After several steps taken by the Governor and the General Assembly to reduce

the amounts owed from advances of $4.5 billion, Illinois’ Trust Fund was fully repaid in January 2023.

Continued Reduction in Unpaid Bills. At the end of fiscal year 2023, the Illinois Office of the Comptroller’s

estimate for the general funds and Health Insurance Reserve Fund bill payables totaled $571 million.

This reflects a reduction of $8.7 billion in liabilities since December 2018. In future budget years,

maintaining this lower level by enacting balanced budgets will save Illinois taxpayers millions in interest

costs and keep Illinois at a customary accounts payable cycle. Additionally, proposed supplemental

appropriations to support the costs of the Technology Management Revolving Fund will further reduce

the state’s limited remaining interest costs.

FY22:

Early COVID borrowing repayment $1,985

Unfunded College Illinois! liabilities $250

Additional Pension Contribution $300

Debt Transparency Act Accounts Payable Reduction $2,483

FY23:

Additional Pension Contribution $400

Debt Transparency Act Accounts Payable Reduction $949

FY24:

Railsplitter bonds defeasance $449

Estimated Accounts Payable Reduction $150

FY22/FY23: UI Trust Fund $4,063

Total Debt Paydown $11,029

Restoring Illinois' Fiscal House

Debt Paydown

($ in millions)

Source: IOC Debt Transparency Reports and GOMB estimates

Economic Development Investments. The state’s fiscal position is dependent on the strength of the

businesses that underpin Illinois’ economy – providing jobs and investment throughout the state. With

that in mind, the Governor is deploying the state’s new Invest in Illinois Fund (its ‘closing fund’) and other

economic development tools to help the Department of Commerce and Economic Opportunity with

business development and to provide the state the flexibility to tailor development packages to each

unique situation.

Spending Controls. To manage future year budget constraints, the Governor continues to instruct agency

directors to prudently manage operations with the limited available resources of state government.

During this administration, the Governor has implemented spending controls in a number of areas with

new efficiencies. He believes the people of Illinois expect high quality programs and services, as well as

the most efficient and effective use of their tax dollars. The Governor believes that support for quality

education, access to health care, and sufficient social services are all part of the essential functions of

state government. Optimizing operations while identifying all possible efficiencies will help the state

achieve balanced budgets in future years.

ESTIMATED INTEREST EXPENSES

The State Prompt Payment Act (30 ILCS 540/3-2) specifies the timeframe in which bills for goods and

services shall be paid. If the bills are not paid within the specified time frame, an interest penalty is applied

for each month, or portion thereof, until final payment is made. Similarly, the Illinois Insurance Code (215

ILCS 5/368a and 5/370a) establishes timely pay for healthcare services under the State Employees Group

Health Insurance Program. If healthcare services bills are not paid within the specified time frame, the

healthcare service provider is entitled to interest for each month, or a portion thereof, until final payment

is made.

In order to calculate the interest due to an eligible vendor or provider, an agency must know two critical

dates: the date the proper bill or invoice was received by the agency and the date the payment to the

eligible vendor or provider was issued by the Illinois Office of the Comptroller (the Comptroller). Agencies

use the dates to calculate the number of days that passed beyond the established payment timeframes

and the appropriate interest due to the vendor or provider. Until such time as a bill is paid, the agencies

are not able to calculate interest. The Comptroller determines which bills get paid and when, making it

difficult for agencies to project an interest amount.

With respect to the State Employees Group Health Insurance Program, the Department of Central

Management Services (CMS) estimates the program incurred approximately $319 thousand in interest

expenses in fiscal year 2023. Additional resources were provided to CMS in Spring 2022 and as a result,

interest expenses in the group insurance program have fallen to much lower levels and should carry very

little interest if the supplemental appropriation indicated above is enacted. With respect to the

Technology Management Revolving Fund, the Department of Innovation and Technology expects to incur

an additional $10 to $15 million in interest costs during fiscal year 2024, creating an end-of-year

aggregated amount of outstanding accrued and pending late payment interest totaling $77 million which

could be reduced by enacting the supplemental appropriation referenced earlier.

Due to fluctuations in the receipt of invoices and the timing of the Comptroller’s payment decisions, future

interest expense estimates cannot be made. Illinois has seen a significant improvement from recent years

when agencies submitted to the Comptroller prompt payment interest vouchers and other CMS state

employee health insurance interest payments at much higher levels – in fiscal year 2018, vouchers totaled

$980 million, fiscal year 2019 - $160 million, fiscal year 2020 - $137 million, fiscal year 2021 - $112 million,

fiscal year 2022 - $35 million, and fiscal year 2023 - $23 million.

FY 2024

Estimated

FY 2025

Projected

FY 2026

Projected

FY 2027

Projected

FY 2028

Projected

FY 2029

Projected

RESOURCES

State Sources: Revenues

Net Individual Income Taxes 25,711 26,731 27,235 27,758 28,838 29,936

Net Corporate Income Taxes 5,169 4,997 5,346 5,646 5,843 6,055

Net Sales Taxes 10,576 10,567 10,632 10,860 11,090 11,342

Public Utility Taxes 710 711 713 715 716 718

All Other Sources 3,017 2,717 2,544 2,534 2,540 2,540

Total State Sources: Revenues 45,183 45,724 46,471 47,513 49,027 50,591

State Sources: Transfers In

Lottery 800 816 832 849 866 883

Gaming 175 230 270 270 270 270

Adult-Use Cannabis 116 123 130 137 145 154

Other Transfers 1,455 700 735 772 810 851

Total State Sources 47,729 47,593 48,438 49,541 51,118 52,748

Federal Sources 4,288 3,944 4,023 4,103 4,185 4,269

TOTAL RESOURCES 52,017 51,537 52,461 53,644 55,304 57,017

EXPENDITURES

1. Education 12,905 13,380 13,857 14,335 14,814 15,219

PreK-12 Education 10,365 10,790 11,215 11,640 12,065 12,415

Higher Education 2,539 2,590 2,642 2,695 2,749 2,804

2. Economic Development 432 440 449 458 467 477

3. Public Safety 2,515 2,580 2,665 2,752 2,842 2,936

4. Human Services 10,295 10,663 10,947 11,252 11,566 11,888

5. Healthcare 9,292 9,664 9,906 10,153 10,407 10,667

6. Environment and Culture 102 105 107 109 111 113

7. Government Services 3,878 4,038 4,126 4,213 4,301 4,390

Group Health Insurance 1,837 1,984 2,033 2,084 2,136 2,190

Chicago Teachers' Pension System 323 354 358 361 363 364

Government Services 1,718 1,701 1,735 1,768 1,802 1,837

8. Unspent Appropriations

(950) (998) (1,047) (1,100) (1,155) (1,212)

Total Operating Budget 38,469 39,873 41,009 42,172 43,354 44,478

EXPENDITURES: PENSIONS

K-12 Education Pensions 6,043 6,204 6,420 6,579 6,815 6,967

State Universities' Pensions 1,918 1,999 2,053 2,099 2,202 2,271

State Employees' Pensions 1,851 1,933 1,953 1,969 2,025 2,057

Total Pension Costs 9,813 10,136 10,426 10,647 11,042 11,294

EXPENDITURES: TRANSFERS OUT OF GENERAL FUNDS

Statutory Transfers Out 429 432 440 447 454 459

Debt Service 1,686 1,816 1,902 1,917 1,842 1,662

Total Transfers Out 2,115 2,248 2,342 2,364 2,296 2,121

TOTAL EXPENDITURES 50,397 52,258 53,777 55,184 56,692 57,893

General Funds Surplus/(Deficit) 1,620 (721) (1,317) (1,540) (1,389) (876)

Budget Stabilization Fund Contribution (198) (170) (121) (121) (123) (125)

Supplemental Appropriations Needed

(1,000)

Base General Funds Surplus/(Deficit) 422 (891) (1,438) (1,661) (1,512) (1,001)

Recommended supplemental appropriations to address appropriation needs in FY24

($ in millions)

STATE OF ILLINOIS

GENERAL FUNDS FINANCIAL WALK DOWN

Governor's Office of Management and Budget

1. Education 5. Healthcare

PreK-12 Education Department of Healthcare and Family Services

Illinois State Board of Education 6. Environment and Culture

Higher Education Department of Natural Resources

Illinois Board of Higher Education Illinois Arts Council

Chicago State University Abraham Lincoln Presidential Library and Museum

Eastern Illinois University 7. Government Services (including employees health insurance)

Governors State University General Assembly and Legislative Agencies

Northeastern Illinois University Office of the Auditor General

Western Illinois University Supreme Court and Illinois Court System

Illinois State University Supreme Court Historic Preservation Commission

Northern Illinois University Courts Commission

Southern Illinois University Judicial Inquiry Board

University of Illinois Office of the State Appellate Defender

Illinois Community College Board Office of the State's Attorneys Appellate Prosecutor

Illinois Student Assistance Commission Court of Claims

Illinois Mathematics and Science Academy Office of the Governor

State Universities Civil Service System Office of the Lieutenant Governor

2. Economic Development Office of the Attorney General

Department of Agriculture Office of the Secretary of State

Department of Commerce and Economic Opportunity Office of the State Comptroller

Department of Labor Office of the State Treasurer

Department of Transportation State Board of Elections

Illinois Commerce Commission Department of Central Management Services

Human Rights Commission Department of Innovation and Technology

Southwestern Illinois Development Authority Department of Lottery

3. Public Safety Department of Revenue

Department of Corrections Governor's Office of Management and Budget

Department of Financial and Professional Regulation Office of Executive Inspector General

Department of Insurance Executive Ethics Commission

Department of Military Affairs Capital Development Board

Department of State Police Civil Service Commission

Environmental Protection Agency Commission on Equity and Inclusion

Illinois Criminal Justice Information Authority Procurement Policy Board

Illinois Workers' Compensation Commission Illinois Independent Tax Tribunal

Law Enforcement Training and Standards Board Illinois Gaming Board

Prisoner Review Board Illinois Racing Board

Property Tax Appeal Board Other Government Services*

Illinois Emergency Management Agency Chicago Teachers' Pension and Retirement System

Illinois Labor Relations Board 8. Pensions

Office of the State Fire Marshal Teachers' Retirement System

4. Human Services State Universities' Retirement System

Department on Aging General Assembly Retirement System

Department of Children and Family Services Judges' Retirement System

Department of Juvenile Justice State Employees' Retirement System

Department of Employment Security

Department of Human Rights

Department of Human Services

Department of Public Health

Department of Veterans' Affairs

Illinois Deaf and Hard of Hearing Commission

Illinois Guardianship and Advocacy Commission

Illinois Council on Developmental Disabilities

Key to Agencies by Outcome

* Includes contributions to the Teachers' Retirement Insurance Program, College Insurance Program, operational expenses of the State

Employees' Retirement System, and any additional appropriation authority needed to address the shortfall in contributions to the system in

prior years (approximately $99 million in fiscal year 2024).

Lucia Mutikani, “US economy delivers blockbuster performance in third quarter”, Reuters, October 30, 2023, US

economy delivers blockbuster performance in third quarter (msn.com)

U.S. Bureau of Economic Analysis, Gross Domestic Product, Third Quarter 2023 (Advance Estimate), October 26,

2023, gdp3q23_adv.pdf (bea.gov)

William J Congdon and Wayne Vroman, “The Unemployment Insurance System in Two Recent Economic

Downturns: Lessons from the Great Recession and the COVID-19 Recession” (Washington, DC: Urban Institute and

US Department of Labor, July 2022),

https://www.dol.gov/sites/dolgov/files/OASP/evaluation/pdf/The_Unemployment_Insurance_System_in_Two_Re

cent_Economic_Downturns.pdf.

U.S. Bureau of Labor Statistics, Labor Force Participation Rate [CIVPART], retrieved from FRED, Federal Reserve

Bank of St. Louis; https://fred.stlouisfed.org/series/CIVPART, October 30, 2023.

Drew DeSilver, “Many U.S. workers are seeing bigger paychecks in pandemic era, but gains aren’t spread evenly”,

December 22, 2021 Which workers have seen wage gains during the pandemic? | Pew Research Center

Elise Gould and Katherine DeCourcy, “Low-wage workers have seen historically fast real wage growth in the

pandemic business cycle”, Economic Policy Institute, March 23rd, 2023, Low-wage workers have seen historically

fast real wage growth in the pandemic business cycle: Policy investments translate into better opportunities for the

lowest-paid workers | Economic Policy Institute (epi.org)

Reuters, “US jobless claims fall in latest week in still-strong labor market”, November 9, 2023, US jobless claims fall

in latest week in still-strong labor market (msn.com)

Simon Moore, “What To Expect From Inflation For The Remainder Of 2023”, Forbes, October 28, 2023 What To

Expect From Inflation For The Remainder Of 2023 (forbes.com)

Simon Moore, “What To Expect From Inflation For The Remainder Of 2023”, Forbes, October 28, 2023 What To

Expect From Inflation For The Remainder Of 2023 (forbes.com)

Alan Cole, “Saving and COVID-19”, United States Congress Joint Economic Committee, September 30, 2020,

https://www.jec.senate.gov/public/index.cfm/republicans/analysis?ID=754B52C6-04CD-458B-8755-

98D1219398F1

Fitch Ratings, “U.S. Consumption Boost from Pandemic Savings Expected to Fade”, June 15, 2023, U.S.

Consumption Boost from Pandemic Savings Expected to Fade (fitchratings.com)

Board of Governors of the Federal Reserve System (US), Consumer Loans: Credit Cards and Other Revolving

Plans, All Commercial Banks [CCLACBW027SBOG], retrieved from FRED, Federal Reserve Bank of St. Louis;

https://fred.stlouisfed.org/series/CCLACBW027SBOG, October 30, 2023.

IHS Markit, US Economic Outlook, Executive Summary, September 2023, retrieved from 5462e7a3-0005-4026-

97de-f2259901e207 (ihsmarkit.com)

IHS Markit, State Analysis: Forecast Data: Quarterly Data – Illinois, October 31, 2023, retrieved from Connect by

S&P Global, https://connect.ihsmarkit.com/master-

viewer/show/phoenix/752843?connectPath=RegionalEconomics.UsRegionalStateResearchAndDataCenterWidget,

October 13, 2022.

See GOMB’s monthly reports to the Legislative Budget Oversight Commission for additional details on monthly

revenue performance when compared to estimates. https://budget.illinois.gov/

Internal Review Identifies Additional Federal Match Owed to State For Developmental Disability Services Provided

(illinois.gov)

https://www2.illinois.gov/IISNews/19698-Digging_Out_-_The_Rauner_Wreckage_Report.pdf

“Record State Budget Reserves Buffer Against Mounting Fiscal Threats,” the Pew Charitable Trust, March 16, 2023,

accessed November 10, 2023. Record State Budget Reserves Buffer Against Mounting Fiscal Threats | The Pew

Charitable Trusts (pewtrusts.org)

https://illinoisattorneygeneral.gov/pressroom/2022_04/20220422.html

Debt Transparency Report for June 2023 (illinoiscomptroller.gov), accessed November 10, 2023