Gov. J.B. Pritzker delivers his 2022 State of the State address. (illinois.gov file photo)

SPRINGFIELD – Gov. J.B. Pritzker’s second-term legislative agenda will kick off in earnest next week as he proposes his fifth annual state budget to lawmakers in the General Assembly.

But while a governor’s proposal usually provides the framework for the state’s annual spending plan, it rarely makes it through the General Assembly untouched by lawmakers who have their own spending priorities.

The monthslong negotiating process involves dozens of budget hearings and behind-closed-doors meetings, eventually culminating in the budget’s passage — in normal years —sometime before the end of the legislative session. This year, lawmakers are scheduled to adjourn on May 19.

Here’s what to watch for ahead of Pritzker’s Feb. 15 address.

Budget basics

While there are hundreds of funds in the state treasury with statutory requirements for how the money is spent, the most scrutinized is the General Revenue Fund, or GRF. That pool of money – which last year topped $50 billion for the first time – is the state’s main discretionary spending account, meaning lawmakers have the greatest authority to move it around.

Generally, about 80 percent of GRF spending is allocated between pension payments (roughly 21 percent in the current fiscal year), K-12 education (21 percent), human services (19 percent) and health care (17 percent). The fund’s main revenue sources are personal and corporate income tax and sales tax, along with some federal revenues and other state sources.

Since each budget allocates money collected over a future 12-month period, lawmakers generally base their spending proposals on economic estimates provided by the state’s two main forecasting agencies.

Those are the legislative Commission on Government Forecasting and Accountability, also known as COGFA, and the Governor’s Office of Management and Budget, also known as GOMB. Each provides sophisticated economic projections laying out pessimistic, optimistic and middle-of-the-road looks at how state revenues may perform.

Revenue projections

Illinois is coming off a record-high $50.3 billion in base revenue for the fiscal year that ended June 30 – about $8 billion more than had been anticipated when the Fiscal Year 2022 budget was initially approved in the spring of 2021.

Following that strong performance, lawmakers budgeted for an 8 percent decrease in the current fiscal year that began July 1. But in the seven months that have already passed in FY 2023, revenues are outpacing even last year’s strong performance by $2.3 billion, according to COGFA’s January report.

The strong revenue performance led COGFA to up its projections by $4.9 billion in a November forecast revision. The agency now anticipates revenue receipts will top last year’s totals by $259 million.

GOMB, meanwhile, was more conservative, projecting revenues to spike by about $3.6 billion over initial estimates. That was the basis for a supplemental spending plan that included $2.7 billion in debt repayment and savings measures approved in the January lame duck session.

As the economic forecasting agencies mull the likelihood of a recession, we’ll be watching to see if Pritzker plans for a downturn in revenue or if the current-year projections for a surplus are updated in either direction.

Spending growth

In his second inaugural address last month, Pritzker telegraphed a few areas where he’d like to see increased state investment: child care, preschool and higher education.

“I propose we go all in for our children and make preschool available to every family throughout the state,” he said in his speech. “And let’s not stop there. Let’s provide more economic security for families by eliminating child care deserts and expanding child care options.”

On higher education, Pritzker said he’d like to make college tuition “free for every working-class family.”

Details on those plans are lacking, so one thing to watch will be whether the governor proposes spending amounts or any specifics as to how such plans would be implemented.

The governor’s K-12 education funding proposal is worth watching as well. The state’s school funding formula, revamped in 2017, calls for an added $350 million each year until all districts reach a point of funding adequacy.

The budget met that mark in three of four years during Pritzker’s first term, keeping funding flat in only the fiscal year that coincided with the beginning of the COVID-19 pandemic. It bears watching to see if another $350 million will be added to that in accordance with statute.

Spending growth is important to watch because GOMB’s five-year budget analysis projected Illinois could be in for a deficit of about $384 million and growing beginning in Fiscal Year 2025. Generally, that means the state must increase base revenues, cut expenditures or pass some combination of both.

While Illinois’ base sales and income tax rates have not changed in Pritzker’s time in office, the governor has taken credit for increasing revenues by eliminating some corporate tax exemptions and streamlining the way the state levies an online sales tax.

It remains to be seen what, if any, new revenue sources or structural spending reforms the governor might offer in his address next week.

Pensions

At about $9.9 billion, the state’s GRF pension payment was its single biggest expenditure for the current year, topping the $9.8 billion spent on K-12 education.

And yet unfunded pension liability grew to $139 billion last year, despite the state having upped its pension contribution by $500 million beyond required levels over two years, including $200 million in the current year.

Due to that added funding, COGFA predicted in a special November pension briefing that the required pension payment for the upcoming fiscal year will decrease by about $38 million from the current year.

While that number reflects the payment required by law, the COGFA report outlined another annually repeated criticism of the state pension funding formula: accountants say it comes up short. The report estimated the state would have to increase its contribution by $4.4 billion this year to stave off continued increases in unfunded liabilities.

While such a large infusion is unlikely – and the governor has staunchly resisted calls for a constitutional amendment to change pension benefits – we’ll be watching to see if he’ll propose any changes to the payment level required in law.

Lawmaker response

How easy a path the governor’s budget will have can often be gleaned from the initial response to it. And with Democrats dominating both chambers of the General Assembly, the response from the governor’s own party will likely be a stronger indicator.

Democratic comptroller Susana Mendoza, for example, said in a recent interview with Capitol News Illinois she’d be opposed to new ongoing spending initiatives. While she has no formal vote on the matter, her voice has proven an influential one at the Capitol.

But Republicans will also make their voices heard. The House GOP laid out its asks for the budget year last month, including greater GOP involvement, an earlier adoption of a revenue estimate and more time to review the budget. In recent years, state spending plans have frequently passed in the dead of night, leaving lawmakers mere hours to review their language.

The GOP’s specific policy asks include eliminating the corporate franchise tax – a plan Pritzker approved in 2019 before he and Democratic lawmakers backtracked on it in future budget years. They also called for property tax relief and “reducing the harmful impacts of the estate tax on family farms.”

jnowicki@capitolnewsillinois.com