Analysis: Is state's record 'rainy day fund' balance proof of fiscal achievement?
The state's "rainy day" fund -- spent down to essentially nothing during the 2015-2017 budget impasse -- now has its highest-ever balance of $750 million after a $320 million deposit this week.
While statutory fund transfers don't usually make for headline fodder, the fact that the state is socking away money is a rarity worthy of a deeper look.
The Budget Stabilization Fund, as it's officially called, was written into statute in 2000 for the purpose of "reducing the need for future tax increases, maintaining the highest possible bond rating, reducing the need for short term borrowing, providing available resources to meet State obligations whenever casual deficits or failures in revenue occur, and providing the means of addressing budgetary shortfalls."
It has remained woefully underfunded since its first deposit of $600,000 at that time.
"The first year I took office in 2016, the rainy day fund had withered to about $60,000 -- not enough to run state operations for 30 seconds," Comptroller Susana Mendoza said in a statement Thursday.
Mendoza took office in December 2016, right in the middle of the two-year period in which the state failed to pass a budget, spending billions of dollars more each year than it collected in revenue.
Thus, the "rainy day" fund was used to keep the wheels of state government in motion, and its $276 million balance as of June 2016 bottomed out to around $69,000 at the end of 2017. It rebounded to about $17 million at the end of 2021 while seeing dips amid the COVID-19 pandemic.
While the $750 million may cover only about a week of state spending, considering the overall $46 billion budget for the upcoming fiscal year, it still marks a near-tripling of its previous high-water mark.
Per the spending plan signed by Gov. J.B. Pritzker for the upcoming fiscal year, it'll receive another $280 million after July 1, bringing its balance to over $1 billion. The budget also retired more than $1 billion in other interest-accruing state liabilities.
That's been noted by the three major credit rating agencies, which have upgraded Illinois' credit rating by two notches each in the past year.
While Illinois remains at the bottom of all states in terms of credit rating, reversing the downward slide for the first time since the Pat Quinn administration is something Pritzker will hang his hat on as he seeks a second term.
It's a message he brought to the Chicagoland Chamber of Commerce this week, where he compared the six cumulative credit rating upgrades to eight notches of downgrades received by the state under Republican ex-Gov. Bruce Rauner, who presided over the two-year impasse.
"The state's long-standing structural deficit is nearly gone," Pritzker said. "Our pension debt is lower than when I took office and is now 10 percent below its peak.
"I'm restoring the state's rainy day fund. In fact, we put a billion dollars into it. That's the highest amount that it's ever had. And by the way, we did all that without the help of the federal money from the (American Rescue Plan Act) program."
The state's pension debt came in at about $130 billion at the end of 2021, down from about $144 billion the year prior, although the Commission on Government Forecasting and Accountability noted that the decrease was largely a result of unprecedented -- and likely unsustainable -- investment gains of more than 20%.
As for the governor's American Rescue Plan Act claim -- referring to about $8.1 billion in direct federal payments to the state -- it's true that the federal funds were dedicated to one-time expenditures and the budget wasn't directly balanced by the funding influx.
But representatives of the Commission on Government Forecasting and Accountability and the state's Department of Revenue told lawmakers in a February committee that indirect results of federal spending have largely propagated some of the strong revenue performances in the state's "big three" revenue sources -- personal income tax, corporate income tax and sales tax. It's led to state coffers taking in $4.8 billion more in the current fiscal year with one month left than they did the year prior, according to forecasting commission.
In part, revenue gains resulted from increased unemployment payments and direct payments to Americans, which increased the tax base and consumer spending. As well, spending habits shifted toward the purchase of taxable goods and away from untaxed services as Illinoisans stayed home.
Republicans have also pointed to an "inflation-induced sugar high," as higher prices drive up tax receipts.
Still, Pritzker points out that the funding influx has largely gone to decreasing interest-accruing debt and reducing a bill backlog, which exceeded $17 billion under Rauner, to a regular accounts payable cycle.
The kicker, he told attendees at the chamber event: "Our firmer fiscal footing has allowed us to help families respond to the current inflationary environment by delivering $1.8 billion in direct tax relief this year."
That includes a six-month pause on the automatic 2.2-cent increase in the state's motor fuel tax, an expansion of the Earned Income Tax Credit by two percentage points, a one-year suspension of the 1%t tax on groceries, a one-time property tax rebate up to $300, and a one-time income tax rebate of $50 per individual and $100 per dependent, up to three.
While Republicans have criticized that relief as temporary election-year giveaways, Pritzker argued that the budget sets the table for further growth in his second term should voters give it to him.
"If we stay the course, we can do much, much more," he said.