Illinois Governor J.B. Pritzker has signed into law a $46 billion budget for fiscal year 2023. The budget is just one piece of a four-bill fiscal package that includes tax relief; makes greater investments in education, health, and public safety; and provides some debt reduction (for the current fiscal year). The legislature also approved the budget much earlier than it has in recent years (normally the end of May) due to an early adjournment date in April because of the shift in the Illinois primary date from March to June.
Approved Financial Package:
|SB 2803||Unemployment Insurance Trust Fund and Other Measures||$4.2 billion|
|SB 157||Tax Relief Provisions||$1.8 billion|
|HB 900||FY23 State Budget||$46 billion|
|HB 4700||Budget Implementation Bill (BIMP)|
The FY23 budget is built on anticipated revenues of $46.2 billion. Revenue projections for the current and upcoming fiscal year were much brighter than what the state anticipated one year ago. The extension of unemployment benefits, stimulus checks and further federal tax relief, plus greater expenditure on goods versus services (few of which are taxed in Illinois) produced higher than expected revenues for FY22. As a result, The Commission on Government Forecasting and Accountability (COGFA) estimated a net increase to the state of just over $4 billion for FY22. In March, COGFA estimated base revenues for FY23 would begin to decline with shifting consumer patterns and the curtailment of federal stimulus measures. However, there’s also uncertainty regarding the impact of the conflict in Ukraine and inflation.
SB 2803 Debt Reduction
The budget package does take several large one-time steps to address unpaid state medical bills, a large portion of the state’s Unemployment Insurance Trust Fund deficit, and pension liabilities with funding above the annual certified payments (although the unfunded pension systems liabilities remain high). Additional pension funding and adding $1 billion to the state’s “Rainy Day Fund” (part of SB 157 noted below) were two of the reasons cited by Moody’s in upgrading the state’s credit rating after the legislative session.
Funding for the state’s Unemployment Insurance Trust Fund generally comes from a payroll tax paid by Illinois business owners with the tax for each business depending on its history of laying off employees. The actual amount paid into the fund and benefits paid out has typically been a negotiated process between business and labor.
When the state runs short of funds, federal law allows it to borrow funds from the federal government. The pandemic brought about a record number of unemployment claims. The state borrowed from the federal government, which netted out to a $4.5 billion deficit.
SB 2803 allocated $2.7 billion of the American Rescue Plan funds received by the state from the federal government towards repayment of borrowed funds. According to lawmakers, the means of addressing the remaining $1.8 billion deficit (which could be addressed through increased payroll taxes, reduced benefits, allocation of General Revenue Funds, or issuance of a long-term bond) will be negotiated.
SB 2803 also allocated General Revenue Funds in the following amounts to address other financial issues:
- $898 million for unpaid state group health insurance bills.
- $280 million for unfunded College Illinois program liabilities. This prepaid tuition program stopped taking new applications in 2017 (and also did so in 2011) as liabilities outstripped projected payment needs.
- $300 million for the state’s pension funds. The legislature approved this payment as an addition to the scheduled Fiscal Year 2023 payments approved in HB 900 (along with an additional $200 million). According to the Governor’s budget office, the $300 million alone will save the state $1 billion between now and 2045.
SB 157 Tax Relief Provisions
This component of the budget package provides a significant amount of tax relief – in total. The exact benefit to each Illinois resident will depend on the resident’s economic circumstances. Many of the provided tax relief measures are one-time. A significant permanent relief measures is the increase and expansion of the state’s Earned Income Tax Credit. It’s quite possible a household could still face increasing costs due to inflation and supply shortages after some of the benefits detailed below expire. However, the legislature can also take up additional steps when it returns either for the fall veto session after the election or spring legislative session early next year.
Recognizing the financial circumstances faced by many Illinois households because of job losses/reduced hours due to the pandemic, ending federal stimulus benefits, and increasing inflation, the legislature approved a set of tax breaks and rebates totaling $1.8 billion.
- Property Tax Rebate: Illinois homeowners can now take as an income tax credit 5% of a property tax bill on a principal residence. SB 157 provides a rebate to these homeowners of the lesser of the credit taken or $300 per principal residence.
- Additional Rebate Checks to Households (income less than $200,000 for individuals or $400,000 if filing joint return): $50 single filers, $100 spouses filing joint return, $100 for each of up to 3 dependents claimed on a federal tax return.
- Increases and expands eligibility for the state’s Earned Income Tax Credit: Increases the credit amount in 2023 from 18% of a taxpayer’s federal EITC to 20%; expands eligibility for individuals 18-25 years old, 65 years old or older, individuals using an ITIN (individual taxpayer identification number) rather than a social security number.
- Suspends scheduled increase in state’s gas tax from July 1st-December 31st. (Now 39.2 cents/gallon; savings of approximately 2.4 cents/gallon. Scheduled to increase January 1, 2023 by rate of inflation as of September 2022.)
- Suspends for 1 year the state’s 1 % grocery tax (on food for human consumption off sale premises)
- School Supply Holiday: Suspends the state’s 5% sales tax (another 1.25% is collected and distributed to local governments) from August 6th – August 15th for certain clothing items, sports equipment, and school supplies.
- Increases maximum income tax credit for instructional supplies from $250 to $500 in 2023.
SB 157 also adds an additional $200 million to the Pension Stabilization Fund (above the required annual pension contributions and the $300 million to the Pension Stabilization Fund noted above) and places $1 billion of General Revenue Funds in the state’s Budget Stabilization Fund. Sometimes referred to as the “Rainy Day Fund”, this fund is designed to hold monies the state may need to address a budget shortfall due to an economic downturn or unforeseen expenditures during a fiscal year.
HB 900 FY22 Supplemental Appropriations and FY23 State Budget
HB 900 represents the bulk of the approved appropriations as supplemental funding for FY22 and for the FY23 budget. There’s a significant investment in public safety and the Department of Children and Family Service along with further enhancement for housing and medical services. In a number of cases, the investments represent increases in available grant funding for community organizations and thus do not permanently increase the state employee headcount.
HB 900 contains supplemental appropriations for the current fiscal year, which ends June 30th and appropriations for Fiscal Year 2023. The bill also contains funding for state capital projects. While the chart below reflects General Revenue Fund expenditures, there are also expenditures from state and federal trust funds.
FY23 Budget (in millions)
Source: Illinois Office of Management and Budget
The largest category of General Revenue Fund expenditures is for education. The budget continues the commitment made by elected officials in 2017 to add an additional $3.5 billion over ten years to fund the state’s evidence-based school aid formula with the addition of $350 million this year. (Total funding for the evidence-based formula in FY23 is $7.6 billion.) The formula is designed to provide greater resources to school districts most in need determined by using a formula that looks takes into account an adequacy target for educating all of a district’s students, local financial resources, total attendance, number of low-income students, number of special education students, and the number English learner students.
In addition to the evidence-based funding, there is an appropriation of $5 billion in federal COVID-19 relief education funds received by the state to local school districts. These funds are primarily designated to meet the needs of low-income and underserved students with anticipated expenditures ranging from helping schools mitigate the public health impact of COVID-19, providing mental health services to students, investments in internet services and laptops, summer programs, tutoring, and other related services.
The budget also contains a $54.4 million increase for Early Childhood Education, which includes a $49.2 million increase to Early Childhood Education line item plus:
- $1.9 million for a contract with National Louis University for Monitoring Preschool for All and Preschool for All Expansion programs.
- $1.4 million for a contract with Illinois Action for Children for community systems development work.
- $1.9 million for a grant to the Center for Professional Learning to provide technical assistance to Preschool for All and Preschool for All Expansion programs.
HB 900 provides a five percent increase to the operating budget for state universities and community colleges (both in FY22 and FY23). There is a $122 million increase or 25% increase to the state’s Monetary Award Program, which provides grants to eligible Illinois residents who attending an approved Illinois college. According to the Governor’s office, this will allow the state to serve an additional 24,000 students.
Last year, the state enacted the Early Childhood Access Consortium for Equity Act. It is designed to help increase the number of early childhood workers by streamlining, coordinating, and improving the accessibility to degree completion pathways at institutions of higher education. The FY23 budget contains the following funding related to the Act:
- Grants and Administrative Costs Associated with Early Childhood Programs-Illinois Community College Board: $50 million
- Financial Assistance and Administrative Costs Associated with Early Childhood Programs-Illinois Student Assistance Commission: $120 million
- Grant and Administrative Costs Associated with Early Childhood Programs and Consortium-Board of Higher Education: $60 million
Illinois Department of Children and Family Services
For decades, the Illinois Department of Children and Family Services (DCFS) has been under a federal consent decree requiring it to increase staffing to meet adequate service and caseload levels. In addition, an outside review of DCFS operations by Chapin Hall at the University of Chicago in 2019 found “systemic influences that create barriers to effective service delivery to Intact families, including interrelated structural, procedural, and cultural challenges”.
The agency made a commitment to address by the staffing and Chapin Hall issues. At the same time, it has seen a dramatic increase in recent years in children under its care.
Source: Illinois Department of Children and Family Services
The FY23 budget contains an agency budget increase of $250 million for DCFS budget to hire additional personnel, provide rate increases and increase residential capacity. Including:
- A $99.1 million increase for foster homes and specialized foster care and
- An $11.6 million increase for adoption and guardianship services
The budget also includes $500,000 for a rate study.
Illinois Department of Human Services
In addition to the use of $2.7 billion in federal COVID-19 relief funds for the Unemployment Insurance Trust Fund noted above, the state legislature approved the use of an additional $1.37 billion in federal COVID-19 relief funds to various state agencies. This includes $235 million to the Department of Human Services (DHS) for violence prevention grants through the Reimagine Public Safety Act. As noted by DHS on its website: The Reimagine Public Safety Act (RPSA) calls for a comprehensive approach to reducing firearm violence through targeted community investments. (The budget also contains $5 million in General Revenue Funds for the grants.)
Funding for the Child Care Assistance Program is level with a $1 million increase for the Great START (Strategy to Attract and Retain Teachers) Program, which is designed to increased professional training and retention of child care personnel in state-licensed centers and homes.
There is also a $2 million appropriation for a new Off-Hours Child Care Program. Created under HB 1571, the program is designed to help first responders and other workers identify and access off-hours, night, or sleep time child care.
Below are just a few of the funding increases for programs serving young children:
- Early Intervention Program – $7 million GRF increase
- Maternal and Child Home Visiting Program (Parents Too Soon) – additional $480,000
- Healthy Families – additional $536,000
Some of the additional funding items impacting families generally include:
- A $50.5 million increase for domestic violence shelters and services
- A $20 million General Revenue Funds increase for Welcoming Centers, designed as one-stop human service centers designed to help immigrants navigate state services and coordinate those state services with non-profit community social services. (Total GRF funding $25 million plus $80 million from the DHS State Projects Fund.) There is also an increase of $40 million for Refugee Settlement Services.
- $88 million for grants and administrative expenses associated with the national opioid settlement
- $120 million for Eviction Mitigation Program and Other Social Services (same as FY22 funding) from the DHS Federal Projects Fund.
HB 4700 Budget Implementation (BIMP) Bill
To fully implement the budget, the state generally also passes a bill that makes necessary fund transfers and statutory changes. Just a few of the provisions in this year’s BIMP bill include:
- Creation of Office of Opioid Settlement Administration
- Direction for a DCFS rate study
- Increased reimbursement rates for community-based substance use disorder treatment and intervention
The Road Ahead
As noted in this blog post a number of the tax breaks, rebates, and expenditures are one-time measures made possible by stronger than expected state revenues and federal assistance. Earlier this month, the U.S. Department of Labor reported that the 12-month increase in the Consumer Price Index up to March 2022 (or the rate of inflation) was 8.5%, the fastest annual gain since December of 1981. Going into 2023, the questions will be how will Illinois families deal with any continuing inflation (impacting -among other items- food, housing and transit costs) as certain federal and state financial assistance measures end, will Congress pass any additional COVID-19 or economic relief legislation, and what post-election steps will Illinois state government take to address the situation.
Written by Mitch Lifson
 Among the other provisions of the bill are measures regarding the state’s EDGE (Economic Development for a Growing Economy) Tax Credit, the Film Production Services Tax Credit, the Live Theater Tax Credit, biodiesel, hospitals, an employer tax credit for allowing employees to take paid leave of at least 30 days to serve as an organ donors, breast pumps, and agritourism.
 There is also an increase of $87.5 million in funding to the evidence-based formula to correct what the state says was a past miscalculation resulting in an overpayment to the Chicago Public Schools. The amount would be paid to other school districts that would have received additional funding under the formula. The state is asking CPS to repay the amount: https://www.nbcchicago.com/news/local/illinois-officials-ask-chicago-public-schools-to-repay-87m-it-mistakenly-received-over-3-years/2805769/
 Press Release, Office of the Governor, April 19, 2022