Illinois' Budget Realities

Governor-elect Bruce Rauner is facing a bleak fiscal reality when he takes the oath of office on Jan. 12. The current budget is short $1.4 billion in funding which could force some state agencies to shut down by February. And with the state's temporary income tax hike rolling back, Illinois' financial state looks dire. Joining Chicago Tonight to discuss the state budget are Bob Secter, special assignment reporter at the Chicago Tribune, State Rep. Greg Harris and State Rep. Ed Sullivan, Jr.

According to the Center for Tax and Budget Accountability, the state’s projected deficit will double, increasing from an estimated $6.8 billion in FY2015, to $12.7 billion in FY2016 (using projected numbers).

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1. Significant Income Tax Revenue Loss

The temporary Illinois income tax increases began to phase down on Jan. 1, halfway through FY2015. According to the Taxpayer Accountability and Budget Stabilization Act of 2011, on Jan. 1 the personal income tax rate declined from 5 to 3.75 percent, and the corporate income tax rate declined from 7 percent to 5.25 percent. In FY2016, after the reduced income tax is in effect for the full 12 months, the General Fund revenue is projected to be nearly $3 billion less than it was in FY2015.

2. Loss of One-Time Revenue Generated Through Inter-Fund Borrowing

*The “one-time, non-recurring revenue” refers to the $650 million obtained by borrowing from other state funds. Although it softened the loss of revenue from FY2014 to FY2015, the $650 million worsened the shortfall in revenue from FY2015 to FY2016. When coupled with the scheduled phasing down of state income tax rates, it resulted in year-to-year losses of more than 10 percent.

3. Increased Hard Costs

**Hard Costs refer to expenditures required by law, such as pensions, bonds, and statutory transfers, which neither the General Assembly nor Rauner have the ability to reduce or eliminate.

In 2013, Gov. Pat Quinn signed PA 98-599 into law, which reduced the state’s required annual contributions to pension systems. In 2014, a Sangamon County Circuit Court judge ruled the law unconstitutional, meaning there will be no reduction in Illinois’ contributions to pension systems.

The $650 million borrowed in FY2015 must be repaid within 18 months, which creates a Hard Cost repayment obligation in FY2016. Hard Costs in FY2015 is an estimated $1.9 billion less than FY2016.

4. The Accumulated General Fund Deficit in FY2016 Will Almost Double From FY2015 Levels

The CTBA estimates Illinois will end FY2015 with an accumulated deficit of $6.8 billion. If spending levels on the four core services of education, health care, human services, and public safety are maintained, FY2016 will end with an estimated accumulated deficit of $12.6 billion. That figure would result in more than half of FY2016 service spending to be on deficit spending.

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