Capitol Information Illinois file picture by Jerry Nowicki
The Illinois State Capitol constructing in Springfield.
State lawmakers will face a projected price range deficit and slowing income once they return to Springfield in January, however a brand new report exhibits fiscal choices made lately have put Illinois in a greater place to deal with a recession than any time in current many years.
No state is immune from the destructive results of an financial downturn, however Illinois is extra ready at present than it was for the Nice Recession of 2007-2009 or the COVID-19 recession of 2020, in line with a new report from the Illinois Financial Coverage Institute and College of Illinois Urbana-Champaign’s Mission for Center Class Renewal.
The report analyzed 9 indicators of progress, resembling fund balances and late payments, that might assist the state climate a future financial downturn.
“Illinois is healthier positioned to beat challenges and stand up to the forces that set off recessions than at another level in current historical past,” ILEPI economist Frank Manzo informed Capitol Information Illinois.
The primary cause Illinois is extra ready is as a result of it eradicated its backlog of unpaid payments within the years for the reason that state’s price range deadlock led to 2017. The backlog had reached almost $17 billion on the top of the two-year deadlock between Republican Gov. Bruce Rauner and Democrats within the Basic Meeting. But it surely now sits usually between a $2 billion to $3 billion vary, placing it consistent with a typical 30-day billing cycle.
Illinois has loved 9 credit score upgrades collectively from the three main credit standing businesses for the reason that deadlock, as payments at the moment are paid by the comptroller once they arrive every month.
“These greater credit score scores permit the state to borrow cash at decrease rates of interest, which get monetary savings for Illinois taxpayers. Decrease Basic Fund deficits and higher credit score scores put Illinois in a significantly better place to scale back the depth and severity of the following recession,” the report acknowledged.
A more healthy reserve fund additionally supplies the state with extra money to fund operations if income dips. The Funds Stabilization Fund, extra generally often called the “wet day” fund, had a steadiness of $2.2 billion as of Dec. 2. That is a significant enchancment from 2007 when the fund had simply $276 million accessible, sufficient to fund the state for 4 days, in line with the report. However researchers additionally mentioned Illinois ought to comply with a Fitch Scores advice to put aside $3 billion to $5 billion in reserves.
Researchers additionally credited the state’s current choices to extend annual funds into state pension funds when surpluses allowed for it. In fiscal years 2022 and 2023, the state contributed $700 million extra in whole to its pension funds than was required by regulation, serving to to gradual the expansion of unfunded liabilities.
The pension programs have been collectively funded at 46% on the finish of fiscal 12 months 2024, in line with the Fee on Authorities Forecasting and Accountability. That is an enchancment from 44.6% funded final 12 months and the very best ratio since 2021 when the state loved robust funding returns. Nonetheless, unfunded pension liabilities grew by $1.5 billion in FY24 to $143.7 billion. The legal responsibility has continued to develop after briefly declining in 2021. The pension fee required by regulation annually, in the meantime, will devour about 19% of the state’s basic income spending in FY25.
“Whereas the situation of the state-funded retirement programs poses challenges for the monetary well-being of Illinois and hinders the state’s skill to spend money on public companies and infrastructure, marked enhancements in funding, together with supplementary contributions throughout the Pritzker administration, point out that Illinois is healthier ready for a recession than it has been at any time since 2008,” the report mentioned.
Nonetheless, a separate report from COGFA confirmed Illinois lags the nation in new job progress when in comparison with pre-pandemic job ranges in fall 2019. The state has recovered all the roles misplaced throughout the pandemic, however has solely added about 29,000 jobs since October 2019, a rise of 0.5% in comparison with the nationwide charge of 4.9%, in line with COGFA chief economist Benjamin Varner.
The Champaign-Urbana and Bloomington metropolitan areas are the one ones in Illinois to surpass the nationwide job progress charge for the reason that pandemic, logging progress numbers of 8.4% and seven.3% respectively, in line with COGFA. The Champaign space, with College of Illinois’ primary campus, benefited as a hub of presidency employment whereas Bloomington has seen new manufacturing progress.
The Chicago space noticed 0.3% progress and made good points within the non-public training and well being companies sector, however misplaced hospitality jobs. The Kankakee metropolitan space noticed the biggest decline since 2019 with whole employment down 5.2%.
Researchers with ILEPI and UIUC additionally famous Illinois has a brand new instrument to mitigate job losses when the following recession hits. Illinois carried out a work-share program that enables employers to quickly scale back staff’ hours and obtain partial unemployment advantages to assist keep away from layoffs. It was created in 2015, however the state did not implement it till 2021. NPR Illinois beforehand reported it might have saved as much as 124,000 jobs and lowered unemployment prices by $1 billion throughout the 2020 recession.
Replenishing the state’s unemployment insurance coverage belief fund after the pandemic, growing investments in public training, passing an infrastructure invoice, local weather resilience initiatives and embracing a Medicaid growth underneath the federal Reasonably priced Care Act all assist create jobs and monetary safety for residents, which creates extra stability within the state’s financial system, in line with the report. Job creation establishes a “basis for restoration,” Manzo mentioned.
However the report additionally urged state lawmakers ought to evaluate Illinois’ tax construction. Researchers wrote the state’s flat revenue tax construction and native reliance on property taxes is extra resilient than different tax programs to a recession, however the lack of strong gross sales taxes on companies creates extra vulnerability.
The report suggests a flat tax reduces volatility in a recession, UIUC professor Robert Bruno mentioned, however he added the report doesn’t conclude that it’s the greatest general construction for a state’s financial system and price range.
“The extra unstable the tax construction, the extra, if you’ll, in danger the state is to destructive impacts of a recession,” Bruno informed Capitol Information Illinois.
What issues most is how states spend tax income, resembling if it is spending on vital companies and infrastructure or shoring up the “wet day” fund and pensions, Manzo mentioned.
Early fiscal 12 months 2026 estimates from the governor’s workplace, in the meantime, mission a possible price range shortfall of $3.2 billion if the state does not lower spending or increase income.
Tax income for the state continues to lag this 12 months, in line with COGFA’s November report. Company revenue taxes have dropped by 15.3% in fiscal 12 months 2025 by way of November in comparison with the primary 5 months of fiscal 12 months 2024. Private revenue tax receipts have risen by 6.4%, however gross sales tax receipts have seen little progress and are down $8 million this 12 months in comparison with FY24. Analysts mentioned they’re hopeful vacation buying will increase gross sales tax receipts.
The state’s income whole thus far in FY25 additionally stays $291 million behind this level in FY24, largely due to $633 million of one-time federal cash the state obtained final 12 months however shouldn’t be receiving this 12 months – an anticipated drop. State income is up $342 million excluding the lack of these federal funds.
Capitol Information Illinois is a nonprofit, nonpartisan information service that distributes state authorities protection to tons of of stories retailers statewide. It’s funded primarily by the Illinois Press Basis and the Robert R. McCormick Basis.
