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According to an analysis from The Pew Charitable Trusts,
dwindling tax revenues, population loss and an inadequate rainy
day fund could spell trouble.
Pew experts analyzed a broad set of updated fiscal, economic and
demographic indicators to provide an overview of current state
budget conditions.
At the beginning of the pandemic, the federal government acted
quickly to deliver robust financial support to states facing a
slump in tax collections and a spike in spending demands. But
despite the additional federal funds, 19 states closed fiscal
2020 with a deficit. That is the most states since the Great
Recession.
“This extraordinary chapter in state financing has come to an
end as budget conditions are tightening,” said Justin Theal, a
fiscal research officer with The Pew Charitable Trusts.
“Policymakers now face the tough combination of both weakening
revenues and mounting spending pressures.”
Illinois was one of only five states that had a deficit in
fiscal 2021, where revenue covered just 96.2% of expenses, while
many states accumulated notable surpluses.
Illinois was one of only eight states that lost residents in
2023, a sharp decline from the 19 states that had shrinking
populations a year earlier. Growth accelerated in 35 states,
including nine of the 10 slowest-growing states.
The report noted that many states were able to beef up their
rainy day funds to prepare for rough economic times. Illinois’
rainy day fund has grown in the past couple years, but still is
the third worst in the country. The government could run for
only two weeks on the fund.
Theal said states should be conducting budget stress tests to
analyze the fiscal risk posed by recessions and other short-term
events, something Illinois does not do.
“It is striking to me just how few states actually use these
forward looking analytical tools,” said Theal. “It really means
that policymakers are often operating in the dark about whether
their state finances are on a sustainable path and prepared for
the next downturn.”
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