Gov. J.B. Pritzker on has signed Illinois’ $53.1 billion fiscal year 2025 budget, which includes $198 million for the state’s rainy day fund and $182 million for the migrant crisis as well as creating a Department of Early Childhood and an innovation center at the University of Illinois-Springfield and funding the new state-based insurance marketplace.
“This budget is balanced, pro-family, cuts taxes on workers, and opens up doors of opportunity for employers and employees alike,” Pritzker
The budget includes some priorities from Pritzker’s budget proposal, like ending the 1% grocery tax, although municipalities can pass their own 1% grocery taxes without referendums in home-rule communities, according to the
Bloomberg News
But the enacted budget doesn’t change the long-run statutory goal of funding pensions to the
“The current statutory plan, the statutory plan to get to 90%, is not sustainable from our perspective,” said Eric Kim, senior director and head of U.S. state ratings for Fitch Ratings.
“It created a structural budget gap of a pretty sizable proportion, historically, for the state,” he said. “Adopting a plan that instead says they’re going to turn in 100% of funding would definitely be positive, [although] we’d want to take a look at an actuarial analysis to see exactly how it’s going to play out.”
Fitch assigns Illinois a rating of A-minus with a stable outlook. Kim noted that even under the governor’s proposal, changes in contribution amounts wouldn’t really kick in until about 2030. So if passed, it could take some time to become meaningfully effective.
“Illinois’ pension funding target should be 100%,” said Bryce Hill, director of fiscal and economic research at the nonpartisan Illinois Policy Institute, a Chicago-based think tank with libertarian leanings. “It is discouraging to see lawmakers continue to fail to pursue a full funding target in the state’s pension systems.”
But Hill added that the target in the governor’s proposal “should not be confused with an effort to ‘fully fund’ Illinois pensions,” because actuaries say Illinois needs to kick in $16.1 billion per year to pay down the state’s pension liabilities. Current contributions are at least $4.5 billion below that and pension debt is continuing to grow, he said.
“Taxpayers, of course, can’t afford payments that large,” Hill said. “Leaders should come together with stakeholders to enact meaningful pension reform.”
While Kim said the $198 million contribution to the Budget Stabilization Fund is “certainly helpful for the state,” Illinois Comptroller Susana Mendoza said in a statement that it’s “good, but the bond rating agencies — and I — think Illinois can do better.”
Speaking to The Bond Buyer, Mendoza explained, “We have a governor who’s been very fiscally disciplined… But my point is, while we are in control of all these chambers, we should take the initiative of codifying [fiscal responsibility] into law. Because you don’t really ever want to be dependent on a specific governor or a specific party controlling the legislature.”
Mendoza has proposed a rainy day and pension stabilization bill that would implement a new requirement in years when Illinois’ revenue growth is 4% or greater and its accounts payable is under $3 billion. If both those criteria are met, then it would automatically trigger a 1% deposit from the state’s budget to be put into both the state’s rainy day fund and the pension stabilization fund.
As the bill is currently written, it would be a 50/50 split, but Mendoza said she’s open to tweaking that. Once the rainy day fund reaches 10% of the state’s budget, all of the money would go to paying down pension debt.
“There are no ribbon cuttings associated with saving money for a rainy day,” Mendoza said, but “we really need to be closer to that national average of 46 days” worth of reserves.
“When Governor Pritzker took office, the state did not have enough in reserve to survive for even ten minutes in the event of a crisis,” said Pritzker Press Secretary Alex Gough. “Now, we have more money in the rainy day fund than ever before and we will continue to build on that record in any way we can.”
Joe Ferguson, president of the Civic Federation of Chicago, a fiscal watchdog group, said that even with the additional money going to the rainy day fund, the state’s General Fund reserves would still only get the state through about two weeks of spending.
“We’d like to see the state continue to work toward reaching its own goal of 7.5% of operating expenditures, and better yet, to create and follow through on policy that establishes an appropriate level of reserves based on Illinois’ revenue volatility,” he said.
S&P Global Ratings rates Illinois’ general obligation bonds A-minus with a stable outlook. It rates the state’s appropriation-backed debt BBB-plus and its moral obligation debt BBB-minus, outlooks stable.
S&P director and lead analyst Scott Nees said that the state has improved its structural budgetary alignment, paid down liabilities and built its budgetary reserves, putting it on a generally positive trajectory.
However, he said, “the incremental progress in, for example, building reserves and funding pensions in the fiscal 2025 is not enough to carry [the state] to a higher rating.” In particular, the state’s annual pension funding shortfall remains around 8% to 10% of the budget, “which continues to position the state as an outlier,” he said.
Fitch’s Kim said the state has made strides: “They’re coming from a place not that long ago where there was very little if anything in terms of dedicated reserves,” he said. “So the state has made a lot of progress on that front and that’s reflected in the rating.
“This [rainy day fund] contribution in and of itself is not going to make a material change for our rating,” he added. “But we have indicated in our reports, in our last commentary… that they’re at about 5% of revenues. So getting closer to 10% would support a rating improvement in our view, and obviously, this doesn’t get them there, but it’s a step in the right direction.”
Moody’s Ratings assigns Illinois a rating of A3 with a positive outlook. Moody’s Vice President Matthew Butler praised the growth in Illinois’ reserves.
“Growth in budget reserves is typically a credit positive move and the steady improvement in the state’s reserve position over the past several years has been recognized in our rating actions,” he said.
Some parts of the budget drew criticism from the other side of the aisle. A Republican state legislator told the Associated Press as saying that the budget leaned on transfers from dedicated funds, like the $150 million transfer from the road fund to public transit, which he called “gimmicks… that put us on a path to collision in the future.”
“Every year, Republicans say things like this,” said Gough. “It hasn’t happened.
“Six years in a row, we have balanced this budget, and we have made sure that we’re thinking about and lowering costs for working families every time we put a budget together. Six years of balanced budgets for Illinois: that’s a record to be proud of. A record Republicans in this state cannot say they are a part of,” Gough said.
“State budgets are really complicated, there are a lot of moving parts, a lot of flows between and across funds,” said Kim. “I think modest transfers between funds are primarily just a policy choice. We’ve seen the state do things along those lines that are much more significant in other years. It’s not something that is a particular concern for us right now.”
The budget also includes roughly $1 billion in revenue increases, and those too have drawn criticism. IPI’s Hill called those “disappointing,” saying some of them “directly target the business community.” In particular, he pointed to extending the cap on net operating losses and capping the retailers’ discount.
Hill also argued that the spending financed by the tax hikes will likely be permanent, while the lion’s share of the new revenue comes from temporary measures that will expire within a few years.
But Ferguson stressed that most of the tax increases impact gambling and businesses rather than individuals.
“The final revenue enhancements were palatable from the perspective that they avoid reverting to historical patterns of fiscally irresponsible practices in a year when the budget is starting from a deficit position,” he said. “However, the measures represent a short-term solution… The state will continue to run into challenges finding ways to make revenue meet the demands of rising expenditures.”
The Civic Federation recommends that the General Assembly and the governor launch an evaluation of the state’s tax structure to come up with improved long-term revenue solutions that would make Illinois more competitive with other states, he said.