(Editor's note: This article was published first at Illinois Policy Institute)
State lawmakers and Gov. J.B. Pritzker are congratulating themselves on the new state budget for its fiscal accomplishments, but reality doesn’t match the rhetoric. Case in point: the state’s rainy-day fund.
As of May 17, the emergency fund balance stood at $1.73 billion, according to Illinois Comptroller Susana Mendoza. That is enough to run the state for fewer than 13 days.
| Illinois Policy Institute
Mendoza wants to get the fund up to 7.5% of spending which is about $3.8 billion now. That is fewer than 28 days of operation.
But Illinois should have enough in reserve to run the state for 60 days, experts with the Government Finance Officers Association recommend. That is $8.3 billion for the 2024 fiscal year budget of $50.6 billion.
Mendoza has championed using recent strong revenues for more reserve funding and has called for codifying automatic deposits into the budget stabilization fund “when the state can afford it.” Still, Mendoza acknowledged “more fiscal discipline is necessary to complete the process” despite recent improvements in the fund’s condition.
Increased reserve funds are a positive, especially given the state’s history of ignoring the rainy-day fund and lacking surpluses to fund it. In 2020 Illinois only had enough in reserve to run for about 15 minutes. But these recent deposits remain a fraction of the 60-day minimum recommended by experts at the Government Finance Officers Association. Illinois would need over $8.3 billion based on the new budget, meaning it is $6.6 billion shy.
Keeping these record reserve levels in context is key to understanding just how far behind the state is in terms of sound fiscal management and how much work is still left to be done. It took unprecedented revenues and billions in one-time federal aid to get the state rainy day fund beyond the level of a joke.
While they make it sound like “record” reserve funding is the result of Pritzker and lawmakers suddenly vanquishing chronic fiscal problems plaguing the state, the reality is much less heroic. Record reserve funds are the current norm for most states, not something unique to any policy achievements in Illinois. By the end of fiscal year 2022, 37 states hit all-time highs in their reserve funds. With one-time federal aid and much stronger than anticipated revenues coming out of the pandemic, most states are suddenly flush with cash.
According to the latest data from the National Association of State Budget Officers, Illinois ranks 49th in the nation for total reserve balances. That amount includes both rainy-day funds and any general fund balances carried forward from the previous fiscal year. Only Washington had a smaller total balance that could fund state operations for fewer days, but that is because Washington used nearly all of its rainy-day fund during the pandemic. Plus, the rainy-day fund in Washington is set to automatically replenish and is expected to exceed $1 billion again by 2025.
In fiscal year 2023, Illinois had enough rainy day funding to operate the state for about 9 days. At Illinois’ current rainy-day fund level of $1.73 billion, the state could operate for fewer than 13 days.
The last time Illinois’ rainy-day fund had a zero balance was fiscal year 2013. Although it is better off now, that progress is weak when compared to other states. In 2013, Illinois was one of seven states with a rainy-day fund balance capable of funding operations for less than one day. By fiscal year 2023, Illinois had a balance that could fund the state for 9.1 days. The median days of operation held in rainy day fund balances across all 50 states was 13 days in 2013. In 2023, it was about 44.5 days.
That means Illinois, after a decade of effort, remains below where the median state was a decade ago. Illinois’ supposed progress on the rainy-day fund doesn’t feel like progress when compared to other states.
Rainy-day rhetoric not lining up with reality is a bad sign for Illinois as the threat of a recession continues to loom over the economy. A downturn would likely mean Illinois’ volatile revenues fall again, putting pressure on a budget that is out of balance by over $4.1 billion because of pension debt alone. Without reforms to public pensions, the budget process and spending, Illinois will quickly deplete its emergency savings during the next recession.