SPRINGFIELD – With two months to go before the adjournment of Illinois’ spring legislative session, Gov. J.B. Pritzker’s state budgeting task may have gotten easier Tuesday.
The Commission on Government Forecasting Accountability increased its revenue estimate for the current fiscal year by $575 million – yet another positive development in a monthslong streak of revenue growth.
The commission is a bipartisan, bicameral group of lawmakers and is staffed by nonpartisan economic analysts.
“You can see in every single month so far this fiscal year we’ve actually had a gain where we’ve generated more revenue in this fiscal year compared to the same time a year ago,” Eric Noggle, senior revenue analyst for COGFA, said at the commission’s Tuesday meeting.
All told, COGFA anticipates revenues for the fiscal year that ends June 30 to exceed original estimates by $5.5 billion, rising to a record $51.9 billion.
Much of that surplus has already been appropriated. Lawmakers allocated at least $3.6 billion supplemental spending package in its January lame duck session, and Pritzker proposed spending another $490 million by the end of the fiscal year when presenting his proposal for next year’s budget last month.
COGFA’s new estimate for the current fiscal year is $545 million beyond the amount assumed by the Governor’s Office of Management and Budget in Pritzker’s budget proposal.
COGFA is also projecting stronger revenues in the upcoming Fiscal Year 2024 than the most recent estimate from GOMB. The $50.4 billion COGFA estimate marks an increase of $465 million beyond the revenues the governor proposed.
Noggle noted that COGFA’s estimate was higher than GOMB’s because the commission had an extra half of January and all of February to factor into its projections. Because base revenue growth remained strong over that span, the commission was able to increase the estimate. That drove up the current year base revenues, which in turn drove up estimates for next fiscal year.
In recent years, lawmakers have directed surpluses to retiring debts early, increasing payments to the state’s pension system and to long-term savings. For the upcoming fiscal year, Pritzker has proposed added spending across state government – especially on child care and education – while adding an extra $200 million to the pension fund.
Tuesday’s update could give the governor additional breathing room to usher his budget through the General Assembly and – if the past is any guide – potentially increase pension contributions or long-term savings.
Noggle said the expected growth was driven by strong performances in the state’s base tax revenue sources – corporate and personal income tax and sales tax driven higher by inflation.
The good revenue news in COGFA’s March update was the continuation of a nationwide state revenue boom which the Pew Charitable Trusts predicted last month could be reaching an “inflection point.”
That report was highlighted by the Illinois Department of Revenue in its testimony to a House committee last week. Pew calculated Illinois’ post-2020 revenue growth at 10.8 percent over what it was expected to be based on pre-pandemic trends. That put Illinois at the third-best growth of all states.
Still, IDOR, GOMB and COGFA are all in general agreement that a recession is on the horizon – or at least they are relying on outside economic forecasts that predict such a scenario.
While IDOR’s presentation last week noted a recession could occur in the first two quarters of the current calendar year, COGFA and GOMB had a different take.
“So far, we’re just not really seeing that looking at our income tax data and our sales tax data and the jobs numbers,” COGFA Chief Economist Benjamin Varner said at the Tuesday meeting. “Now, tax receipts obviously probably lag economic activity a little, but so far, we think the slowdown is probably going to be a little later in the year.”
COGFA’s report noted other factors that could change the state’s revenue outlook moving forward. Among them are the possibility of another COVID-19 resurgence, a worsening of the war in Ukraine, and the impacts of inflation and further possible interest rate hikes by the Federal Reserve.
But the report also noted that its $575 million upward revision was “very cautious,” based on the fact that final income tax receipts could drastically alter the revenue landscape.
Final payments were “especially strong” in the previous fiscal year due to an influx of capital gains taxes amid a booming stock market. But that pace has slowed, leading to the cautious approach, COGFA said.
“The market conditions have been not as strong in tax year 2022, so we’re anticipating final income tax payments to drop during this last quarter of Fiscal Year 2023,” Noggle said. “But we still have had strong wages, we’ve had strong personal income…And so we think that they’re going to offset each other a little bit. The question is how much is there going to be a decline in the remainder of Fiscal Year 2023?”
All three fiscal forecasting entities have also agreed on another thing in recent months: forecasting has been difficult in an era marked by the COVID-19 pandemic and unprecedented levels of government stimulus.
“We keep expecting that slowdown’s going to happen,” Noggle said at the end of the COGFA meeting. “But it just hasn’t happened yet.”