Analysis of the Proposed FY2015 Illinois General Fund Budget

Why, on March 26, 2014, did Governor Pat Quinn make the unusual move of introducing two different proposals for the fiscal year (FY) 2015 General Fund budget? The answer is simple. The Governor proposed two very different spending plans because the state faces two very different potential fiscal realities in FY2015. That is because both of the temporary state income tax increases that became law under the Taxpayer Accountability and Budget Stabilization Act of 2011 (TABSA)  are scheduled to begin phasing down this coming fiscal year. Under TABSA, the personal income tax rate will decline from 5 percent to 3.75 percent, and the corporate income tax rate will drop from 7 percent to 5.25 percent on January 1, 2015, halfway through the fiscal year. Collectively, those rate reductions will cause the state to realize a loss of $2 billion in revenue from FY2014 levels.  

Given Illinois’ already shaky fiscal condition, that loss of revenue will be impossible for the state’s General Fund to absorb without significantly reducing FY2015 spending on core services from FY2014 levels. Here is why: before losing the revenue from the phase down of the temporary tax increases, Illinois already has an accumulated deficit of $6.8 billion. That is roughly 27.8 percent of total FY2014 spending on the core services of education, healthcare, human services, and public safety, which collectively account for 90 percent of all FY2014 General Fund appropriations. Illinois has that significant accumulated deficit despite the new revenue generated by the temporary tax increases (personal and corporate) that passed under TABSA, and the $4.7 billion in service cuts made over the last five years.  So if the temporary tax increases are in fact allowed to phase out, the Governor will have no choice but to implement significant spending cuts.

That somber fiscal reality led the Governor to introduce two different spending proposals for FY2015. The first, which is the Governor’s “Recommended Budget,” is built on the assumption that rather than be allowed to phase down, the income tax rate increases passed under TABSA are either extended or made permanent. The second is a “Doomsday Budget” in which the Governor identifies the type of significant cuts—particularly funding for education and human services—that would have to be made if the temporary tax increases are allowed to phase down as currently provided in TABSA.