Governor J.B. Pritzker recently unveiled his proposed budget for Illinois’ new fiscal year amid a pandemic that has impacted state and local finances in different ways. The Chicago Metropolitan Agency for Planning (CMAP) analyzed the governor’s budget blueprint and found significant investments and programs that aligned with priorities in ON TO 2050, northeastern Illinois’ long-range plan.

Those investments and programs include mobility, water management, and resources for local governments. Some provisions, however, would limit northeastern Illinois’ ability to advance other ON TO 2050 recommendations regarding public transit and open space conservation.

As proposed, Governor Pritzker’s budget request for fiscal year 2022 (FY22) would appropriate $95.5 billion for the operating budget, which includes $40.5 billion in general funds. Although the projected deficit is not as severe as initially forecast, the state still anticipates a $3.6 billion shortfall. The proposal addresses this gap by eliminating or reducing tax expenditures, redirecting revenues from special purpose funds, shifting loan repayment timing, and reducing costs.

The budget proposal would provide $3.7 billion in operations funding for the Illinois Department of Transportation (IDOT). This proposed appropriation is $15 million less than the amount enacted for FY21, but $102 million more than the total for FY20. Most programs would continue at similar levels as in FY21. IDOT also receives the majority of appropriations for capital spending in the proposed budget. The agency could receive $3.6 billion in new appropriations — slightly lower than the $3.8 billion IDOT received in FY21.

A large component of IDOT’s annual budget is derived from the state’s Road Fund. The budget proposes to leverage assets in the Road Fund to reduce other general funds expenditures. The proposal would allocate $100 million from the Road Fund to the Public Transportation Fund (PTF) to fulfill that portion of the state’s statutorily required contributions to the PTF. The proposal also would delay the scheduled allocation of additional sales tax revenue to the Road Fund from FY22 to FY23, reducing Road Fund allocations by $72 million. 

Despite these transfers, the budget proposal continues the progress of Illinois’ capital program, Rebuild Illinois, enacted in 2019. Rebuild Illinois increased and tied motor fuel tax to inflation. It recognized the importance of multimodal projects and provided an ongoing funding source for transit projects. But, as past CMAP analysis has shown, these funds are not sufficient to address the significant capital investment needs in northeastern Illinois, particularly in the region’s transit system.

Public transit has provided invaluable essential services throughout the pandemic and will be a vital component of the region’s recovery. But the proposed budget would reduce distributions from the PTF by 10 percent. The PTF includes the state’s 30 percent match of the Regional Transportation Authority sales tax and Chicago’s real estate transfer tax. As with similar reductions in FY18 through FY21, the proposed FY22 transfers would reduce funding that, otherwise, would be available to invest in transit and support regional mobility. In addition, the baseline levels of support for other transit initiatives remain insufficient. The $17.4 million appropriated in FY22 to support reduced-fare subsidies is significantly lower than the cost the region’s transit agencies incur to provide this state-mandated program. The cost to regional transit agencies totals more than $100 million.

Approximately $932 million of the FY22 budget proposal’s revenue comes from reductions and eliminations of various tax expenditure programs. These changes include adjusting the way Illinois taxes dividends, depreciation schedules, and net operating losses. Each would generate additional individual and corporate income tax revenue. The budget also proposes changes to sales taxes, including a cap on the discount retailers receive for collecting sales tax revenue on behalf of the state.

Local governments stand to receive $228 million in revenue primarily through the changes to sales taxes, based on projections from the governor’s office. But other proposed changes will offset most of that new revenue. For example, the FY22 budget proposal would reduce municipalities’ share of individual and corporate income tax revenue by $152 million (10 percent) following similar 5-to-10-percent cuts in FY18 through FY20 to the Local Government Distributive Fund. If the projections for FY22 materialize, local governments would receive $76 million in net additional revenue. Local governments with fewer retailers and greater reliance on income tax revenue could be disproportionately impacted. State tax policies should sustain communities of all types and reduce wide variation across municipalities, according to ON TO 2050 recommendations.

The state’s revenue projections for FY22 also highlight the importance of ON TO 2050’s recommendation to expand the state’s sales tax base. For now, the pandemic has shifted consumption toward goods and away from services, providing Illinois with an unexpected boost in sales tax revenue for the new fiscal year. 

While this increase could stave off immediate cuts to programs, consumers could reverse their spending habits as the economy recovers. Since Illinois does not tax the sale of most services, the state could see that revenue fluctuate over the long term. A broader sales tax base that includes additional services would provide greater stability against changes in consumers’ behaviors. 

The FY22 budget proposal would provide $2.2 billion in new operations appropriations for the Illinois Department of Commerce and Economic Opportunity (DCEO), down from $2.3 billion in FY21. Many of the agency’s programs would continue at similar funding levels. These programs include research and technology grants that advance ON TO 2050’s recommendations to enhance economic innovation and support foreign trade that can expand the global market reach of northeastern Illinois and the rest of the state. Under the proposal, DCEO’s largest new appropriation would be $570 million in federal funds for an eviction mitigation program. Operated by the Illinois Housing Development Agency and the Illinois Department of Human Services, the program began in response to the COVID-19 pandemic.

The Illinois Department of Natural Resources (IDNR) and the Illinois Environmental Protection Agency (IEPA) would receive slight operating appropriations increases as compared to FY21. The proposed budget also includes programs that would advance ON TO 2050 priorities to mitigate climate effects and plan for climate resilience. Those programs include $653 million in capital funding for a municipal water revolving loan program, split between projects for wastewater ($450 million) and drinking water ($200 million). IEPA also would receive $70 million for a new grant program that would help electrify public transit, fleets, and school buses, as well as invest in electric charging equipment. The program will enable transportation electrification in environmental justice communities.

But the proposed budget does not include any new appropriations for the state’s primary tool for supporting land conservation, the Open Space Lands Acquisition and Development Fund. It also would transfer $50 million from that fund into the state’s general funds. ON TO 2050 recommends preserving natural areas to retain and enhance open spaces. The budget proposal ultimately reduces the funds available to protect and conserve these spaces. 

Governor Pritzker’s budget proposal is only the first step in Illinois’ budget process. The Illinois General Assembly still has to debate and vote on a budget before the new fiscal year takes effect July 1. CMAP will continue to monitor this process as it unfolds and evaluate any changes using our state legislative policy agenda. Various budget documents prepared by the Governor’s Office of Management and Budget are available online, including the capital budget, operating budget, and an interactive budget review tool.