From State Rep. Dan Ugaste:

BUDGET

Revenue numbers show a sharp decline in March 2023

General funds revenues, which cover the ongoing spending programs of State of Illinois operations, dropped sharply in March 2023. 

The drop of $563 million in March 2023 cash receipts, put next to comparable figures for March 2022 cash inflows, signals the approaching fiscal challenges facing the State. 

The FY23 budget, which covers State spending through the second quarter of 2023 up until June 30, 2023, is based on an assumption of healthy, booming State tax revenues. 

 The March 2023 revenue numbers reported by the Commission on Government Forecasting and Accountability (CGFA) are a warning that these assumptions may have to be modified or changed in the near future.

As in previous months, the overall State of Illinois revenue trend for March 2023 was driven by changes in income tax payments.  

The taxes paid in by Illinoisans and their employers as Personal Income Taxes dropped $384 million in March 2023 as compared to March 2022.  

Even after part of this shortfall was set aside to reflect the participation of the Income Tax Refund Fund in this item of overall cash flow, Illinois personal income tax receipts were down $330 in March 2023. 

This accounted for more than half of the overall March 2023 net revenue shift of $563 million.  

Corporate income tax payments to the State of Illinois also declined sharply in March 2023.

Other lines within the State general funds revenue picture were flat to down in March 2023 as compared to the year-earlier month. 

These included sales and use taxes, public utility taxes, cigarette taxes, taxes on liquor and alcohol, taxes on estates, and taxes on insurance activities. 

It is not known whether this negative trend will continue in April, May, and June of 2023. 

Based on worldwide movements toward slowing economic activity based upon higher interest rates and growing risks of international conflict, continued negative movement can be expected.

Three-year budget projection unveiled

The projection, by CGFA, covers FY24 through FY26. 

This multi-year projection utilizes known information about Illinois’ “structural budget deficit” and other trends affecting the State’s revenues and spending patterns, to come up with a medium-term projection intended to cover the three-year period ending June 30, 2026.

Illinois general funds revenue trends continue to move State revenue towards income tax, sales tax, and federal aid, and away from other sources of general revenue. 

This includes major revenue sources such as the

• Illinois State Lottery,
• excise taxes on public utility services such as electricity and natural gas, and
• other taxes such as the estate tax charged on estates as they pass through probate. 

While these other revenue sources generate hundreds of millions of dollars annually, next to the State’s ongoing need for more than $50 billion in general funds annual revenues these once-mammoth revenue sources have become less significant.

In the most recently completed fiscal year, FY22, income taxes on individuals and corporations raised three-fifths of the total of more than $50.3 billion in base general funds notched by Illinois as State revenues. 

These income taxes were driven by increasing pay rates earned by Illinois workers, together with the movement of income tax revenue towards automatic payment through deduction from paychecks.  Individual income taxes accounted for 49% of the total, and corporate income tax for 11% of the total, to make 60% in all.

Sales taxes accounted for another 20% of the total. 

This number included healthy revenues from the State’s ability to charge sales and use taxes on many items bought by Illinois residents over the Internet for delivery in Illinois.  

Federal aid covered 9% of the revenue total. 

Put together, these “Big Three” revenue sources – income taxes, sales taxes, and federal aid – accounted for 89% of Illinois’ FY22 base general funds revenues. 

All other revenue sources, including the Illinois State Lottery and other gaming taxes funneled to general funds, public utility taxes, and other State taxes such as taxes on alcohol, tobacco, and estates – made up only 11% of the whole. 

CGFA expects these revenue trends to continue and intensify in future years.

The analysts at CGFA also looked at Illinois spending trends. 

They found that State spending, particularly with regard to big-ticket items headed by Corrections, Medicaid, pensions, and education, can be expected to continue to grow faster than these tax receipts in future years. 

This trend should revive Illinois’ temporarily-diminished “structural deficit.”