I spent some time talking with a top
legislative budget negotiator last week who said rank-and-file legislators will
very soon have to come to terms with a state budget environment unlike anything
many have ever seen before.
The “budgeteer” didn’t know yet how things
would shake out, but the person was adamant that weak revenues combined with
total uncertainty from both the federal government and in the national economy
meant the new state budget should most definitely not be overloaded with
spending.
Statehouse types talk about “budget pressures”
every year around this time. It’s second nature for legislators and interest
groups to propose more spending, regardless of what the revenue situation looks
like.
Public employee unions are pushing for the
most spending, and at the top of their list is a proposal to spend $30 billion
during the next 20 years to bolster pensions for their members. The teachers
want a $200 million annual increase in the K-12 Evidence-Based Funding program,
above the current $350 million hike. And there’s a proposal to spend about $1.7
billion in the coming years to increase funding for higher education, a similar
plan to the K-12 EBF model.
Everywhere you look, somebody wants $10
million more a year, or $20 million or $60 million or whatever for their
programs.
Nobody is really wrong. In some cases, small
and even large increases beyond what the governor’s proposed budget contains
are very much needed. There’s also little doubt that a strengthened K-12 EBF
program would help tamp down property taxes and more money for higher ed could
keep tuition from rising even faster.
But, as the governor said in his February
budget address, state-sourced (non-federal) revenues grew by 15.9% in Fiscal
Year 2021 and 13.2% in FY2022. “We expect to finish this year with 5% revenue
growth,” Pritzker said at the time. “For 2026, our forecast projects a 1.9%
increase.”
While that’s tiny, Pritzker’s FY26 revenue
projection was still $712 million above what the legislature’s Commission on
Government Forecasting and Accountability originally predicted.
COGFA did revise its revenue estimates upward
not long ago. But next fiscal year’s forecast is still significantly below the
governor’s budget forecast.
The new COGFA revenue prediction for the
coming fiscal year, which begins July 1, was revised up by $266 million, which
is a lot of money, but only represents a half-percentage-point increase. But
that more generous estimate is still $471 million below the governor’s base
revenue forecast. The governor added about $500 million on top of that with his
proposed changes to existing laws.
As a percent of the overall budget, they’re
not far apart. But the $471 million difference is still real money and not easily
dealt with, particularly since the governor claimed in February to have
proposed increasing state discretionary spending by less than 1%.
The federal government is a very big reason
why the new COGFA estimate wasn’t as high as some had hoped. Federal revenues
will fall by $270 million in the coming fiscal year (6%).
During the current fiscal year, which ends
June 30, federal revenues are projected to drop by $347 million (8.5%),
compared to the revenue estimate issued just a couple of months ago in March.
Both of those projections could be on the low
side, depending on what the courts and the Republican-controlled Congress
approve.
Combining both state and federal revenues,
COGFA says this fiscal year should see a $317 million revenue increase, due
mainly to tax returns filed in April, which is a positive reflection on last
year’s economy.
But, going forward, the party’s over.
Even some Republicans are warning that the
economy under President Donald Trump could very well drag down state revenues.
Rep. CD Davidsmeyer, R-Murrayville, told
reporters late last month that the increases in capital gains taxes during
President Joe Biden’s last year in office “are not sustainable” going forward,
according to Capitol News Illinois. And Davidsmeyer said of Fiscal Year 2027,
“I think it’s going to be an even worse look.” Davidsmeyer also pointed out
that Illinois growth often lags other states, which will compound the problem.
The legislative leaders and the governor can decide
to use either the legislature’s forecast or the governor’s forecast or
somewhere in between. But considering we don’t yet know what impact the next
federal budget and other presidential actions could have on the state’s
finances and its economy, choosing the most conservative outlook would most
definitely be the prudent path.