Pensions put Illinois’ 2024 budget in red by over $4B

Illinois state lawmakers shorted pensions by $4.1 billion and killed scholarships for low-income students, but gave themselves pay raises and a new office building. Their budget leaves no room for error as revenue projections drop.

Illinois state lawmakers approved a record-high $50.6 billion spending plan for fiscal year 2024 at 2:30 a.m. on May 27, despite no Republican support and three Senate Democratic caucus members voting “no” on the bill.

Lawmakers had originally anticipated passing the state budget and adjourning their spring session by May 19 but were hung up amid reported revenue declines and higher-than-expected costs.

Despite repeated claims by elected leaders that the budget is balanced, that claim ignores a massive unpaid bill: state pensions.

Appropriations to the five statewide pension funds will fall $4.1 billion below what the plans’ own actuaries have determined is required to actually begin paying off the state’s pension debt.

While Gov. J.B. Pritzker has touted his administration’s handling of the state’s pension crisis – including making $200 million in additional pension contributions in the 2024 budget – state budgets continue to shortchange pensions by billions of dollars annually. The effects of year after year of paying in too little has resulted in massive growth in pension debt, which now stands at $140 billion, according to state estimates.

It is likely much worse: independent estimates put the figure at more than $300 billion, using assumptions that are more realistic than the state’s optimistic projections.  Refusal among elected leaders to consider constitutional pension reform or make full, actuarially determined contributions leaves the current budget inherently unbalanced and jeopardizes the ability of future budgets to deliver core services to Illinoisans.

Lawmakers also refused to take action to extend the Invest in Kids tax credit scholarship program that provides scholarship for 9,000 low-income students. That decision wasn’t driven by fiscal restraint. The program is capped at $75 million in income tax credits for scholarship donors, but at $330 million in donations since 2017 has cost significantly less than the maximum.

While members of the General Assembly decided not to extend a vital school choice program benefitting thousands of disadvantaged children – and with tens of thousands more on waitlists hoping to receive a scholarship – they did approve a $4,675 pay raise for themselves. The latest boost in legislator compensation comes after lawmakers gave themselves a nearly $13,000 raise in January.

Also included in the budget was $50 million dedicated to planning and design of a new legislative building to replace the Stratton Building where lawmakers have their offices. The full costs of replacing the building was projected at more than $250 million roughly 15 years ago.

Also missing from the 2024 budget is any meaningful contribution to the state’s Budget Stabilization Fund. In recent years, state budgets have taken advantage of finances buoyed by federal stimulus and a quick economic recovery to grow that rainy-day fund to a projected balance of $1.9 billion by the end of fiscal year 2023. State law currently requires a $45 million minimum contribution to the fund, however the fund’s balance remains insufficient.

At current levels, the budget stabilization fund could sustain less than two weeks of state spending. The Government Finance Officers Association recommends governments keep two months’ worth of general fund operating expenditures in their rainy-day funds.

This is especially troubling given that the 2024 budget leaves virtually no wiggle room between spending and anticipated revenues. While the Pritzker administration has said the $50.6 billion spending plan is balanced, Illinois has no formal revenue estimating procedure and details on current revenue projections have not been made publicly available.

Initial estimates of 2024 revenues from the Governor’s Office of Management and Budget pegged total revenues at $47.6 billion. A later estimate used in Pritzker’s proposed 2024 budget projected $49.9 billion, after revenues began coming in higher than expected. The latest available estimate is $50.4 billion, by the legislature’s Commission on Government Forecasting and Accountability.

Because there is no standard, agreed-upon procedure for estimating revenues, these estimates can become highly politicized and unreliable. From 2008 to 2020, the legislature’s projections were “on target” just five times while the governor’s office projections were right just twice. The National Association of State Budget Officers defines solid projections as being within 0.5% of actual revenues.

If revenues falter and fail to meet expectations, the 2024 budget would quickly fall out of balance, and perhaps eat all of the rainy-day fund. COGFA estimates of year-end 2023 revenue were already cut by more than $800 million after April state income taxes came in lower than expected. So far, their estimates for 2024 revenues remain virtually unchanged.

Even if revenues do come in as projected, there were multiple sleight-of-hand tactics used in the budget that could throw it out of balance and create future budget deficits. Primarily, the budget doesn’t account for the cost of a new American Federation of State, County and Municipal Employees contract.

The current contract expires at the end of fiscal year 2023. The last time Pritzker and AFSCME were in contract negotiations they struck a deal that included $2,500-per-worker automatic bonuses, automatic 12% raises and taxpayer-subsidized platinum health insurance benefits that cost taxpayers $800 million more per year than a more modest proposal would have. This year’s contract negotiations will likely carry similar increases in costs, particularly after the passage of Amendment 1 last year greatly expanded the scope of collective bargaining in public-sector contracts.

The state’s budgeteers also only accounted for half of the cost of increased Medicaid provider reimbursement rates by choosing to begin rate increases in January 2024 – halfway through the upcoming fiscal year. Using this “creative” budgeting tactic hides the full cost of the decision, and will leave Illinois already grappling with a $317 million budget hole for 2025 – more than a year before that fiscal year even begins.

Illinois’ budgeting process is broken. The fact that no one beyond a select group of lawmakers – let alone anyone from the public – had even seen this 3,000-plus page document prior to a few days ago underscores just how very flawed this process continues to be.

Rather than patching a budget together at the last minute every year so the public and even other lawmakers have no time to read it, challenge it or improve it, state lawmakers should pursue reforms that will put Illinois in a better, more sustainable financial position.