In one of the final acts of the 103rd General Assembly 2023 regular session, the Illinois state legislature passed a budget for fiscal year 2024 (FY24) in late May 2023. The operating budget appropriates $50.4 billion, while revenue estimates total $50.6 billion, which results in a projected operating budget surplus of $183 million after debt service payments and statutory transfers. Additionally, the FY24 budget proposal released earlier in the year by the Governor’s Office of Management and Budget projected $46.5 billion for the FY24 capital plan.
As Illinois continues to recover from the COVID-19 pandemic and benefit from large infusions of federal resources, the state budget increases spending on education, human services, and public safety, along with contributions to the Budget Stabilization Fund, a “rainy day” fund that ensures state services can continue in the face of economic disruption. Statewide investments also align with priorities in ON TO 2050, northeastern Illinois’s long-range plan. These investments will support mobility, economic development, and environmental protection in the region.
Nevertheless, critical funding shortages and concerns about future economic conditions are complicating future budget outlooks and increasing competition for the limited funding available. Within this context, the Chicago Metropolitan Agency for Planning (CMAP) analyzed how the budget affects fiscal sustainability, transportation, and other policy priorities in the region and across Illinois.
Expanding sustainable revenue sources could offset systemic financial risks and ensure fiscal stability for the region
The state is projecting increases to the FY24 general fund, driven in part by the growing tax revenues observed in recent years, which is a result of higher prices of taxable goods and a significant increase in consumption. The FY24 budget assumes this trend will continue and projects $48.7 billion of tax revenues*, a 1.4 percent increase in comparison to the estimated revenues for fiscal year 2023 (FY23).
However, predictions of an economic recession, continuing high inflation, rising interest rates, exhaustion of pandemic-related stimulus, and changes in spending patterns may all undermine future tax revenues. The Economic Outlook and Revenue Forecast previously included in the governor’s FY24 budget proposal predicts Illinois will mirror the national economy with a recession in 2023. The Illinois Commission on Government Forecasting and Accountability also adjusted expected FY23 revenues downward in April 2023.** Moreover, due to requirements that pandemic-related federal funds be fully spent-down by 2025, funding provided through the CARES Act is projected to decline 15.6 percent ($684 million) in the FY24 budget compared to FY23.
Combined, state tax revenues and federal resources account for over two-thirds of the total state revenues included in the FY24 budget (income tax (23.2 percent), state sales tax (11.4 percent), federal sources (33.5 percent)). Given potential risks to these revenues, alternative and more sustainable funding sources are needed to ensure there is sufficient financial support for priorities of the state and northeastern Illinois in future budgets, regardless of economic cycles. In ON TO 2050, CMAP recommends expanding the sales tax base to help fully fund the transportation system. As consumer spending continues to shift to non-taxable services from taxable goods, expanding the sales tax base to include additional services could also provide revenues to meet state and local governments’ competing needs.
A key funding source that communities in northeastern Illinois rely on for their own fiscal sustainability is the Local Government Distributive Fund (LGDF). Through LGDF, municipalities and counties receive a share of state income and use tax revenues based on population. The FY24 budget implementation bill increases the distribution formula for LGDF from 6.16 percent to 6.47 percent of the applicable revenues, which is projected to result in an increase of $112 million in FY24. However, given that the contribution was cut from 10 percent to 6 percent in 2011, this amount continues to fall short of previous funding levels. ON TO 2050 calls for Illinois to continue evaluating opportunities to reform state revenue sharing disbursement criteria to strengthen the region.
Transportation funding continues to fall short of the system’s operating and capital needs
The FY24 operating budget appropriates $4.1 billion towards the Illinois Department of Transportation (IDOT), a 7 percent ($269 million) increase over the FY23 appropriation. IDOT’s largest funding source is the Road Fund, which received a $1.8 billion appropriation (9.5 percent increase over FY23). Part of the Road Fund’s growth is attributable to increasing contributions from the state’s sales tax on motor fuel and gasoline, as opposed to the General Fund. In FY24, this will result in an additional $121 million.
Road Fund allocations dedicated towards safety-related programs increased by a total of $1.9 million from the FY23 appropriation. This funding can help supplement the $5 million Safe Streets For All grant CMAP and IDOT received from the United States Department of Transportation to improve road safety in northeastern Illinois.
Nevertheless, public transit faces serious funding challenges. Emergency federal assistance is expected to be fully spent by the end of 2025. With higher operating costs, as well as lower ridership and fare revenue due to the pandemic and changing commute patterns, regional transit operators currently project they will face a 20 percent operating budget shortfall (roughly $730 million) in 2026.
CMAP’s Plan of Action for Regional Transit is looking at these and other challenges related to operating the transit system in northeastern Illinois. For example, the approved budget includes an appropriation of $19.1 million to support reduced transit fares in the region. This represents a slight increase ($1.5 million or 8.5 percent) from prior funding levels but continues to only cover a fraction of the program’s total cost ($83 million in 2023). State support for regional paratransit services similarly falls short compared to total program costs. While the state once provided almost 60 percent of the funding needed to operate the program, 2008 funding reforms shifted the funding burden to northeastern Illinois. In the approved FY24 budget, the state appropriates $9.1 million for Pace Paratransit, which accounts for only 3.8 percent of the total program cost ($238.5 million in 2023).
CMAP has also long advocated for funding to address a backlog of capital improvements needed for the regional transportation system. IDOT receives $26.5 billion in capital spending in the FY24 budget, or 57 percent of the state’s total capital budget. This is 3.1 percent less ($843.8 million) than IDOT’s previous capital budget appropriation for FY23. IDOT’s proposed capital spending would see 76 percent go towards road improvements and transportation-related construction. Regional projects identified in the FY23-28 Highway Improvement Program include bridge replacements and other improvements along the Kennedy, Eisenhower, and Stevenson Expressways; improvements to Stony Island Avenue in Chicago; and reconstruction and rehabilitation along I-80 in Will and Kendall counties. Capital support for transit projects in northeastern Illinois include grants for improvements to various CTA and Metra stations.
The Motor Fuel Tax (MFT) supplies capital funding for roadways and transit, and the FY24 budget projects MFT receipts of $2.7 billion, a 4.5 percent increase over FY23. The increase is tied to an annual Consumer Price Index adjustment of the base motor fuel tax, even though fuel consumption is projected to decrease 0.5 percent. Previous CMAP analysis has shown that increasing fuel efficiency will negatively affect future revenues in the absence of structural funding changes. This impact and the need for alternate revenue sources may be even greater than previously expected due to the rapid growth of electric vehicles, which grew by 600 percent in northeastern Illinois between 2017 and 2022.
Federal and state resources continue to support environmental initiatives
The FY24 budget includes significant investments in energy efficiency, green infrastructure, and the preservation of green space in Illinois, all of which align with ON TO 2050, as well as priorities identified in the state’s 2021 Climate and Equitable Jobs Act. The budget appropriates $870.5 million to the Illinois Environmental Protection Agency for FY24, which is $600 million more than their FY23 appropriation. This increase in funding includes:
$268 million provided by the Inflation Reduction Act for energy efficiency programs
$148 million in federal funds to defray up to 80 percent of the cost of charging station installations through the Illinois Electric Vehicle Infrastructure Deployment Plan
$80 million for environmental mitigation as the result of a legal settlement with VW air pollution
$50 million for protecting ground water from Coal Combustion Residual Surface Impoundments
$20.5 million for electric vehicle rebates
The budget also increases the Illinois Department of Natural Resources operating budget to $587 million, up 7 percent from the FY23 appropriation. The Open Space Lands Acquisition and Development Fund supports environmental conservation, water resources, and the agricultural economy while also promoting reinvestment and infill opportunities in local communities. Despite a significant need for funding, the Fund’s FY24 budget remains unchanged at $2.5 million.
Various budget documents prepared by the Governor’s Office of Management and Budget are available online, and the Legislature’s website includes links to the FY24 appropriations package and the FY24 Budget Implementation Act.
* Except where otherwise noted, CMAP’s analysis of FY24 projected revenues is based on the budget proposal detail that preceded the FY24 appropriations package and the FY24 Budget Implementation Act.
** Actions taken in anticipation of this decline in estimated FY23 revenues – such as the reallocation of certain business tax related payments starting in FY24 – mean that FY24 budget forecasts currently remain the same.