Pritzker urges ‘careful’ approach as current-year surplus could be followed by deficit

[December 16, 2023]  By JERRY NOWICKI
CAPITOL NEWS ILLINOIS
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With Illinois lawmakers scheduled to return to legislative session in less than a month, a recent government fiscal forecast provides an overview of the budgeting landscape that awaits them.

The bottom line from the five-year forecast from the Governor’s Office of Management and Budget: The current fiscal year is now projected to end with a $1.4 billion surplus, while the upcoming fiscal year 2025 is projected to face an $891 million deficit.

“So that five-year forecast, you know, we look at it as a guide for how careful do we need to be as we move forward in the in the budget year thinking about FY ’25,” Gov. JB Pritzker said at a recent event in Springfield.

“I think it's a signal that everybody, we need to be careful in Illinois, we have to balance our budget…” Pritzker added. “And so, if that requires us to reduce the increases that may occur in certain programs, maybe that will be necessary.”

The mandatory GOMB report is published each November. It takes stock of the state’s general revenue fund, which is the main discretionary spending account that’s subject to budget negotiations each spring. This year’s five-year forecast projected deficits of over $1 billion from FY 2026 through FY 2029.

But, as Pritzker noted in his interview with the news media outside of the Governor’s Mansion Thursday, future-year budgets can be “very hard to project” due to state, national and global economic factors.

It’s noteworthy that actual revenue performances have routinely exceeded prior-year estimates during Pritzker’s tenure – his GOMB has proven a conservative prognosticator. And the governor noted he expects some fluctuation in the anticipated FY 2025 revenue total as the state gets closer to the fiscal year that begins July 1.

“I think you're going to see different projections as we go forward just because the economy is changing,” Pritzker said, alluding to strong Thursday stock market gains after the Federal Reserve indicated interest rates would remain flat for the time being and decrease in the coming months.

While budget surpluses have routinely yielded supplemental spending plans in Pritzker’s tenure amid sustained revenue booms, the governor and lawmakers have been noncommittal when asked about such a plan passing in the upcoming session.

But Pritzker on Thursday noted at least one area of supplemental spending need.

In November, he announced $160 million in state support to aid and house migrants being bussed to Chicago from U.S. border states, particularly Texas. That plan shifted money from elsewhere in the Department of Human Services’ budget, including block grant funding and $40 million that was backing a pending application for Federal Emergency Management Agency funding.

Pritzker said it “is going to be a requirement” that the state reexamines “whatever buckets that we've had to pull from” to provide aid to migrants as winter approaches.

The five-year report from GOMB identified another $969 million in added “spending pressures” that could also require supplemental appropriations. Those include potential state assistance for asylum seekers, increased caseloads at the Department on Aging and the Department of Human Services, delays in other federal reimbursements, increased group insurance costs, and outstanding technology bills.

Gov. JB Pritzker is pictured in his Capitol office with fellow Democrats House Speaker Emanuel “Chris” Welch and Senate President Don Harmon at a news conference announcing a fiscal year 2024 budget plan in May 2023. Nearly halfway through the fiscal year, the governor’s budgeting office is now projecting a $1.4 billion surplus. (Capitol News Illinois photo by Jerry Nowicki)

While the report didn’t break down the costs in each area, it noted that the “spending pressures” serve to offset much of the anticipated surplus.

“After accounting for the supplemental budget pressures, the revised fiscal year 2024 surplus is projected to total $422 million,” GOMB noted in the report.

All told, GOMB now expects FY 2024 to see just over $52 billion in revenues, up from the $50.6 billion when lawmakers approved the budget in May.

GOMB’s report noted the main drivers of the increase – including the state receiving hundreds of millions of dollars in reimbursement for federal matching funds not properly claimed in a previous fiscal year – are likely “one-time” in nature and shouldn’t be built into annual budgets.

Other surplus drivers include a $255 million greater-than-expected transfer from the income tax refund fund due to a strong tax filing season a year ago, good investment and interest returns, and strong corporate and sales tax performance.

The one-time nature of much of this year’s surplus drivers plays into next year’s projected deficit, as GOMB anticipates revenues to decline to $51.5 billion, with expenditures growing to $52.3 billion.

The main drivers of spending growth each year are the state’s public school and pension funding formulas.

The school formula calls for an added $350 million each year. A recent report from the legislature’s Commission on Government Forecasting and Accountability noted Illinois’ FY 2025 general fund pension payment is also expected to grow by $350 million, to about $10.2 billion.

All told, that adds up to the $891 million projected deficit for FY 2025, although that number drops to $721 million when accounting for the statutory contribution to the state’s “rainy day” savings fund.

That rainy day fund has been a major beneficiary of recent surpluses and is now at its strongest-ever balance of over $2 billion. Pension funds have also benefitted, with lawmakers and the governor adding $700 million to the funds beyond statutory requirements in recent years.

Other recent surpluses have gone to pay down interest-accruing debt and to replenish the state’s unemployment insurance trust fund amid the crush of claims brought on by the COVID-19 pandemic.

As for the anticipated current-year surplus, we’re likely a few months away from knowing the full scope of any supplemental spending plan it will yield.

Pritzker is scheduled to give his budget address to lawmakers on Wednesday, Feb. 21. After that, budget negotiations normally continue until the legislature adjourns and approves a budget in May.

Jerry Nowicki is the editor-in-chief of Capitol News Illinois, a nonprofit, nonpartisan news service covering state government that is distributed to hundreds of print and broadcast outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation, along with major contributions from the Illinois Broadcasters Foundation and Southern Illinois Editorial Association.