August 18, 2023
During the last week of May, after the Illinois General Assembly had been scheduled to adjourn, legislators passed four budget bills for fiscal year 2024: the appropriations bill, the bond authorization bill, the budget implementation bill and the revenue omnibus bill. The Governor signed them into law on June 7. This blog will explore the trends between the year-end FY2023 estimates from the Governor’s Office of Management and Budget and the FY2024 enacted State budget passed by the General Assembly and signed by the Governor.
It is important to note that throughout FY2023 and even between the passing of the FY2024 budget and the end of the fiscal year there were several rounds of updates to FY2023 General Funds revenue estimates. Total General Funds “base” receipts for FY2023 were $50.7 billion, which was $726 million, or 1.5% above what the Governor’s Office of Management and Budget (GOMB) projected in their revised May 2023 forecast. Base receipts do not include federal COVID relief funds. Revenues in FY2023 performed well above expectations, particularly given the ongoing fear of post-pandemic recession that existed throughout the year and has only recently abated.
The FY2024 revenue projections also changed between the Governor’s proposed budget and the enacted budget. The enacted FY2024 projections total $50.4 billion within the General Funds, which is a $786 million, or 1.6% increase from the original FY2024 budget proposal of $49.6 billion. Due to the projected increase in revenue, the FY2024 budget passed by the General Assembly increases spending in the areas of education, human services and healthcare from the Governor’s proposal. The reason for the difference between the revenue numbers in the FY2024 proposed budget and the FY2024 enacted budget is an increase in revenue projections for individual income taxes, offset somewhat by a decrease in corporate income taxes. The enacted FY2024 budget, like the proposed budget, makes a $138 million contribution to the State’s Budget Stabilization Fund, or the ‘rainy day fund’, which is set to surpass $2 billion. For more information about the Governor’s proposed FY2024 budget, see this blog post and the Civic Federation’s full analysis of the proposal released in May.
Prior to the passage of the enacted budget, there were a number of additional issues for the Governor and the General Assembly, including increasing the rate of State funds allocated to municipalities through the Local Government Distributive Fund (LGDF). When the Local Government Distributive Fund was first established in 1969, municipalities received 10% of collected state income tax before the rate decreased in 2011. The enacted FY2024 budget includes a rate increase from 6.16% to 6.47%. Another major issue was the cost of a previously-passed expansion of Medicaid healthcare coverage for migrants aged 42 and older regardless of their citizenship status. The Medicaid health care coverage program known as the Illinois Health Benefits for Immigrant Adults has been expanded twice since 2021. After the Governor introduced his FY2024 budget, projections for the cost of the program increased significantly to $1.1 billion and had to be accounted for in the enacted budget. The enacted budget included $550 million for the program, which the Governor later addressed with a subsequent suspension of enrollments and a cap to the number of people who can enroll.
The table below shows the change in General Funds revenues between the year-end FY2023 budget estimate and the enacted FY2024 budget.
Revenue Projection Changes
Since the time the FY2023 budget was passed, FY2023 and FY2024 revenue estimates were significantly revised upward by the Governor’s Office of Management and Budget (GOMB) in November 2022 and again in February 2023 in the Governor’s FY2024 budget proposal. Projected General Funds revenues for FY2024 increased by $2.3 billion from the State’s expectations in November 2022. Year-end FY2023 revenue projections made in the Governor’s proposed FY2024 budget increased by $4.9 billion from the FY2023 adopted budget in June 2022. An update from GOMB in May 2023 revised the year-end FY2023 projection downward by $616 million. GOMB’s most recent revenue projections, obtained by the Civic Federation in August 2023, increased projections by $3.8 billion, for a current year-end FY2023 revenue projection of $50.6 billion.
The enacted FY2024 General Funds budget projects a total of $50.6 billion in revenues. The General Funds support the regular operating and administrative expenses of most State agencies and are the funds over which the State has the most control. Outside of the General Funds, the operating budget also includes Other State Funds, which are accounts for activities funded by specific revenue sources that may only be used for specific purposes, and Federal Funds (other than those designated for General Funds), which support a variety of State programs with federal revenues. The remaining revenues that are not included in the General Funds are restricted for specific purposes, shared through revolving funds between government agencies, held in trusts or generally not available for discretionary spending by the General Assembly.
Total General Funds resources are expected to decrease from FY2023 year-end estimates by approximately $2.5 billion, or 4.7%, from $53.1 billion to $50.6 billion. The largest source of this decrease is due to the end of federal COVID-19 recovery funding directed to the General Funds. During FY2023 the General Funds received transfers of $1.06 billion in American Rescue Plan Act (ARPA) funds and $1.36 billion in Coronavirus Urgent Remediation Emergency (CURE) funding, both of which were allocated by the federal government as part of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). The FY2024 budget does not include any appropriations from these federal funding sources within the General Funds. Additionally, the amount of refund fund transfers—accounted for in the “Other Transfers” line—decreased significantly, by nearly $1.2 billion in FY2024, from an unusually high amount in the FY2023 budget due to above-average income tax receipts in that year.
Net Corporate Income Tax is also expected to decline by 12.2%, or $712 million. The decline is due to a reallocation in fund distributions that will occur in FY2024 as part of the Department of Revenue’s annual statutory reconciliation of business-related tax payments, which will result in a decline in corporate income taxes and an increase in individual income taxes. The decrease is offset by an estimated increase in Net Individual Income Tax receipts of nearly $2 billion. Sales Tax, Public Utility Tax and other revenues are expected to decline by 0.3%, 4% and 9.1%, respectively.
General Funds receipts from other State-source revenues are projected to decrease by $176 million, or 0.4%. Lottery, gaming and adult-use cannabis revenues transferred into the General Funds are all estimated to increase over FY2023. Other Transfers are expected to decrease in FY2024 by $1.2 billion, or 51.2%, again based on a larger-than-usual transfer into the General Fund from the Income Tax Refund Fund in FY2023. Federal sources, aside from ARPA and CURE funding, are expected to increase by $80 million, or 2.1%, to $3.9 billion.
The General Assembly’s enacted FY2024 budget includes $50.4 billion in total expenditures. This spending level is $695 million, or 1.4%, less than the year-end FY2023 estimate.
The State’s total Agency spending in FY2024 is $38.5 billion. This represents an increase of $1.2 billion or 3.2% from $37.3 billion in FY2023. Most areas of the budget are receiving an increase in spending authority except Government Services. Government Services include employee group health insurance, contributions to the Chicago Teachers Pension Fund and other services provided by State agencies. The Human Services area of the budget appears to decline in FY2024 from FY2023, but that is because of supplemental appropriations in FY2023 of $1.36 billion to finish paying down the State’s unemployment trust fund debt that was approved in December 2022. The year-end FY2023 appropriations also include additional supplemental appropriations that were approved as part of the FY2024 budget bills. Unspent appropriations for the FY2024 enacted budget decrease by $25 million from the FY2023 year-end estimate. The Governor’s Office of Management and Budget (GOMB) has noted that the FY2023 unspent appropriations total is an estimation and will not be finalized until September due to agencies still spending in the lapse period. Highlights of agency spending in the enacted FY2024 budget include:
- P-12 Education: Funding will increase by $601 million, or 6.2%, to $10.4 billion in FY2024 from $9.8 billion in FY2023 budget. The enacted FY2024 budget increases spending for the first year of Smart Start Illinois, which is the Governor’s early childhood initiative, an additional $75 million for the Early Childhood Block Grant at the Illinois State Board of Education, and $130 million to begin funding Early Childhood Workforce Compensation Contracts to stabilize operational funding and promote quality within the childcare system.
- The State is also continuing to fund the Evidence-Based Funding (EBF) formula by an increase of $350 million, which will bring the total annual EBF program to $8.3 billion.
- Higher Education: Funding will increase by $286 million, or 12.7%, to $2.5 billion in FY2024 from $2.3 billion in FY2023. The increase is due to $100 million for the Monetary Assistance Program (MAP) for grant funding and $100 million in operating funds for public universities and community colleges.
- Human Services: Funding will decrease by $544 million, or 5.0%, from $10.8 billion in FY2023 to $10.3 billion in FY2024. The decrease, as noted above, is due to the $1.36 billion supplemental that was appropriated in FY2023 through the Illinois Department of Employment Security (IDES) for the Unemployment Insurance Trust Fund. However, the enacted FY2024 budget increases spending for the Department of Children and Family Services (DCFS) by $75 million to hire staff, expand training and protection, increase scholarships for youth in care and improve facilities.
- Public Safety: The enacted FY2024 budget increases public safety programs by $172 million, or 7.3%, from the FY2023 total of $2.3 billion to $2.5 billion. However, the increase in the enacted FY2024 budget compared to the proposed FY2024 budget was only $53 million due to increased funding for violence prevention programs such as the Restore, Reinvest, and Renew (R3) grant program and other State funded agencies and programs.
- Healthcare: The healthcare area of the budget mostly funds Medicaid and the enacted FY2024 budget increases spending by $696 million, or 8.1%, from $8.6 billion in FY2023 to $9.3 billion in FY2024. The increase is predominantly due to $550 million being allocated to the State’s Medicaid program to serve migrants seeking health care coverage.
- Economic Development: Funding will increase by $92 million, or 27.1% from $340 million in FY2023 to $432 million in FY2024. The increase is due to funds for community development programs through various State agencies. However, the increase between the FY2024 proposed budget and the FY2024 enacted budget is only about $109 million.
Pension contributions will increase by $180 million in FY2024 from the prior year based on the statutorily required contribution levels. The enacted FY2024 budget also includes $200 million in additional supplemental pension payments to the Pension Stabilization Fund for FY2023. The State has made a total of $700 million in supplemental pension contributions between FY2022 and FY2023, including $300 million to the Pension Stabilization Fund in the FY2022 enacted budget and a total of $400 million in FY2023.
The FY2024 General Funds budget includes transfers out of $2.1 billion, a decrease of about 50% from FY2023, due to a decrease in statutory transfers and one-time tax relief measures that had been included in the FY2023 budget. Debt service expenditures are anticipated to increase by $537 million to $1.7 billion. The State is also paying off the remaining $450 million in Railsplitter Tobacco Settlement Authority Bonds, which is expected to save the State up to $60 million in interest costs and will free up an ongoing revenue stream to support the Medicaid program. Approximately $85 million in additional funding will be allocated to municipalities through the Local Government Distributive Fund, which is an increase of $39 million from the proposed total of $46 million in the proposed budget.
The enacted FY2024 budget also includes continued investments for the Rebuild Illinois program, which is the State’s capital plan, which is separate from the General Funds. The continued investments will help fund projects such as the I-290 Blue Line Modernization Project, lead service line replacement loans through the Infrastructure Investment and Jobs Act (IIJA) and for public transit agencies such as the Regional Transit Authority (RTA). The investments are also in addition to the General Funds agency spending discussed above.