Illinois budget heads to vote; preserves rainy day, pension deposits, tobacco bond payoff
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Illinois lawmakers expect to cast a final vote early Saturday on a nearly $50.7 billion budget that preserves scheduled deposits into the rainy day fund, Gov. J.B. Pritzker’s proposed $200 million pension supplemental pension payment and pay off of the state’s tobacco bonds.
Some of those plans appeared in possible jeopardy in recent weeks over rising Medicaid-related costs and revenue pressures.
The Senate cast its votes on the budget package including the bond authorization bill, budget implementation bill, and budget late Thursday after the Democratic majority failed to reach agreement by a self-imposed May 19 deadline. The legislature aims to vote ahead of May 31, after which a super three-fifths majority is required for legislation to take effect immediately.
The governor, a Democrat, and the Democratic leaders — House Speaker Chris Welch and Senate President Don Harmon — announced a deal Wednesday, but the voting was delayed as negotiators remained at odds over some issues. The Senate sent the package late Thursday to the House which can begin voting after Midnight Friday.
“This budget makes transformative investments in the children and families of Illinois while building on our record of fiscal responsibility,” Pritzker said after the Senate vote.
The budget agreement preserves a $200 million supplemental pension contribution that follows a $300 million deposit and $200 million deposit made over the last two years in addition to the state’s statutory contribution.
The budget also leaves intact the statutory allocations from various sources that amount to $138 million for a deposit into the rainy day fund. The once-depleted fund is on course to hit the $2 billion mark by the end of fiscal 2024.
The fund received an infusion of $746 million in fiscal 2022 and $1.17 billion of deposits are expected in the current fiscal year that runs through June 30. The fiscal 2024 infusion comes from statutory measures put in place in the fiscal 2023 budget that includes a $45 million annual repayment of a $450 million state loan to the unemployment trust fund, 10% of cannabis revenues and a monthly transfer $3.75 million that begins July 1. The state is also raising its targeted balance to 7.5% of general fund revenues from 5%.
The budget package also pays off the remaining $450 million of state tobacco bonds saving the state $60 million in interest costs, which adds to the tab of short- and mid-term debt including billions in overdue bills paid off over the last two years.
The state’s progress in building up its rainy day fund, putting more toward pensions, and paying down debt helped drive several rounds of positive rating actions.
S&P Global Ratings in February raised the state’s rating to A-minus with a stable outlook from BBB-plus. Moody’s Investors Service in mid-March upgraded the state to A3 and stable from Baa1. Both rewarded the state for building reserves and paying down debts with surplus tax revenues.
Fitch Ratings followed in late March, lifting the state’s outlook to positive from stable on its BBB-plus rating, signaling the potential upgrade, possibly soon after passage of a fiscal 2024 budget that makes further progress on chronic fiscal strains.
The positive momentum has helped trim state spreads. The state’s 10-year bond is currently set by Refinitiv MMD at a 110 basis point spread to the AAA benchmark compared to the 170 basis point range early in the year.
“It’s positive to see the proposed budget relies on fairly conservative revenue assumptions and provides additional funding for pensions and education,” Molly Shellhorn, senior research analyst for municipals at Nuveen, said after Wednesday’s agreement was announced. “Underfunding state commitments has been an issue in the past, but that does not appear to be the case this year, though there is some concern the state may be underestimating the full cost of health care for undocumented immigrants. Overall, investors are still viewing the budget positively.”
The general fund budget spends $50.6 billion of $50.7 billion, which is $140 million below fiscal 2023 spending, the Senate Democrats’ chief budget negotiator Sen. Elgie R. Sims Jr., D-Chicago, said on the floor.
It spends $18 billion on public education including a $560 million hike with the state meeting its $350 million annual increase in the evidence-based formula for school aid while also providing grants for early childhood education and to recruit teachers.
Universities will see a 7% increase of $81 million and community colleges receive a $19 million hike while an additional $100 million will go to the state’s grant program for lower-income families to help toward tuition. Human services spending rises by $2.2 billion to $19 billion. The bill passed in a 34-22 vote.
The bond authorization act was approved in an amended HB351. It authorizes $700 million of new general obligation borrowing and includes some modernization of the state’s various bond acts, according to Harmon, who presented the bill on the floor. It cleared in a 37-19 vote meeting the 36 vote three-fifths threshold needed for new GO bonding.
The budget implementation bill known as the BIMP which allows for various transfers of funds in an amended HB3817 includes the $200 million general fund transfer to make the supplemental pension payment.
It raises the local government distributive fund rate — which holds income taxes that flow to local governments — to 6.47%. Local governments will receive an additional $112.5 million in fiscal 2024, including $88 million from the percentage hike with the remainder coming from natural growth. It passed 36-20.
Republicans praised their inclusion in budget negotiations this year but during floor debate attacked the spending plan on multiple fronts, from dropping documents in their laps at the last minute, which is a perennial complaint, to where the state is directing its dollars and use of “balanced” in describing the budget.
There’s “some good stuff” in the budget like in the area of higher education but there’s been a “crowding out effect that has occurred in this budget,” said Sen. Chapin Rose, R-Mahomet. “This healthcare issue has crowded out so much” and misplaced priorities.
Rose was referencing what had emerged as a stumbling block in the budget over the last week due to the skyrocketing cost of a program established in 2021 that provides Medicaid-like healthcare coverage to noncitizens who are at least 42.
The cost ballooned to an estimated $1.1 billion with the budget proposal accounting for just a couple hundred million. As part of the budget agreement announced by Pritzker and leaders Wednesday, the legislature gave the governor’s officers various “tools” to hold the costs in check at $550 million. The tools include limiting future enrollment and maximizing federal funds.
Rose said the state should instead have prioritized a $4 per hour wage hike for developmentally disabled aides. The budget provides a $2.50 increase. He also said the state should have prioritized the 20% increase in Medicaid reimbursements hospitals were seeking. They instead received 10%.
The budget provides $40 million to Chicago to help with its costs aiding migrants seeking asylum who are being sent from Texas.
“This budget does reflect our priorities,” Sims fired back. “It reflects our shared priorities to move our state forward. It reflects our ability to invest in communities. What you call expenditures we call investments. What you call overspending we call building up.”
“Budgets like this, the spin would have us believe this is a balanced budget but this is not a balanced budget,” Sen. Win Stoller, R-East Peoria, said ahead of the BIMP passage. “In fact, it’s not even close to being a balanced budget.”
Stoller said the budget doesn’t account for expected raises that could carry a $200 million to $300 million tab and it’s unclear whether Pritzker can achieve the $550 million in healthcare savings to keep the noncitizen healthcare costs in line with approved levels.
Stoller also attacked the state’s lack of an actuarially determined contribution. The state’s statutory contribution based on a 50 year schedule to reach 90% funding in 2045 is $10 billion. The state will make a $200 million supplemental contribution but the ADC is $14.4 billion.
Clouds loom from the state’s latest revenue results.
Illinois revenues sunk in April by $1.8 billion from April 2022 collections — a trend seen in other states — leading both the Governor’s Office of Management and Budget and the legislature’s Commission on Government Forecasting and Accountability to trim revenue estimates for the current fiscal year that ends June 30.
The governor’s budget office in a report to the Legislative Budget Oversight Commission this week cut this year’s revenue projections by $616 million to $50.7 billion after April revenues fell $849 million below the budgeted level while COGFA cut its estimate $728 million to $51.2 billion.
The latest estimates abruptly reversed the upward revision COGFA had made of $575 million two months ago, which had prompted talk of possible tax relief. Spending through April is also up by $319 million from budgeted levels, according to the governor’s budget office.
While revenues are faltering late in the current fiscal year, the governor’s budget office lifted its projections for the coming fiscal year by $532 million to $50.5 billion, moving it closer in alignment to COGFA which said in its latest revenue monthly report that it would hold steady with its 2024 estimate of $50.4 billion.
