Illinois lawmakers last week passed a $42 billion budget for fiscal year 2022 that does nothing to improve the fiscal and economic trajectory of this state. Missing were the many spending reforms Illinois needs to bring down its pension debts and high property tax rates.
Each year Illinois lawmakers find a new way to kick the can and this year $8.1 billion in federal stimulus aid has made can kicking possible.
All that extra money has let lawmakers off the hook from making any tough decisions, allowing them to paper over Illinois’ many fiscal cracks that widened at the onset of the pandemic.
But the state’s financial cliff will be waiting after the federal largesse runs out. Here are the seven biggest takeaways from the 2022 budget:
1. The 2022 budget includes tax hikes on businesses. The budget adds $655 million in revenues by implementing several of Gov. Pritzker’s suggested tax hikes on businesses, what he calls “closing corporate tax loopholes.”
2. Pension costs will consume 26% of the budget in 2022.
Wirepoints calculates that retirement costs will consume 26 percent of the 2022 budget. In total, that’s $11.2 billion of the $42.3 billion budget.
3. The budget is not balanced, no matter what politicians claim.
Illinois' true pension costs – based on the pension funds’ actuarial reports – add another $4 billion in expenses to the budget, while retiree health insurance costs add about $2 billion more. That's a $6 billion deficit. It’s this kind of failed accounting that’s led to the massive retirement debt build up over the past three decades.
4. $360 million more for education, even though Illinois already spends the most in the Midwest.
Lawmakers continue to ignore how much Illinois already spends on education. The latest data from the U.S. Census bureau shows Illinois in total spent over $16,200 per student (including local, state and federal dollars) in 2019 – more than any other state in the Midwest.
Education policy discussions need to focus on how to better spend the money Illinois has already invested in education. That will be the focus of an upcoming Wirepoints report.
5. The budget pays off $2 billion in debt to the Federal Reserve, but no praise is warranted.
Illinois was the only state in the nation to borrow from the Federal Reserve – largely due to lawmakers’ insistence on passing a 2021 budget that was $6 billion in the red. If lawmakers had simply passed a budget that was affordable to Illinoisans in the first place, none of the MLF borrowing or subsequent interest costs would have occurred.
Not to mention, the only reason the state can pay the debt off is because it's being bailed out by the federal government.
6. Hopes for a credit upgrade.
A credit upgrade could happen, but if it does, chalk it up to the billions in federal dollars that have flowed into the state. Since bondholders have first-dibs over money, their situation may have improved for a few years. But make no mistake, any upgrade will have nothing to do with what legislators have done. They’ve passed none of the structural reforms that could have a major impact on Moody’s “key indicators” listed below.
7. $8.1 billion more in the hands of Illinois lawmakers means more spending. Lawmakers have already targeted $2.5 billion for spending and say they’ll spend the summer months planning how to spend the remaining billions. What could go wrong?