Analysis of the Illinois FY 2023 Proposed General Fund Budget
Release: March 29, 2022
The FY 2023 Proposed General Fund Budget (the “FY 2023 GF Proposal”) makes one fact abundantly clear: spending on services is not driving the state’s fiscal problems. Big picture, Illinois’ ongoing disinvestment in General Fund services is harming communities across the state for one simple reason: over 95 percent of all such spending goes to the four, core areas of Education (including Early Childhood, K-12, and Higher Education), Healthcare, Human Services, and Public Safety. The FY 2023 GF Budget Proposal is a change of pace, reversing the trend of disinvesting in General Fund services by increasing spending for every single General Fund service category and making moves to get Illinois’ fiscal house in order.
Illinois Should Enhance its Earned Income Tax Credit and Create a Child Tax Credit
Release: February 2, 2022
The Earned Income Tax Credit, or “EITC,” rewards work and reduces poverty by targeting tax relief to low-income families with children. The EITC has become one of the more effective anti-poverty programs in the United States. The reason the federal EITC is so effective is because it is designed as a “refundable” tax credit. When a tax credit is “refundable,” the taxpayer who qualifies to receive it gets the full dollar value of the credit, even if that dollar value exceeds the income tax liability said taxpayer owes. The EITC effectively boosts the earnings of workers who qualify to receive it, thereby increasing their purchasing power and alleviating poverty. The Child Tax Credit (“CTC”) initially provided qualified taxpayers with a $400 per child nonrefundable credit and was intended to provide tax relief to middle-income families. In 2001, the CTC was made refundable, on a limited basis, with a maximum refundable benefit of $600. Its refundability feature also makes the CTC effective at making tax policy fairer, because like the EITC, the CTC functions to offset taxes other than income taxes—like sales, excise and property taxes—which place a disproportionate burden on lower income earners. Illinois currently does not have a CTC at the state level. In addition to alleviating poverty and stimulating the economy, the refundability feature of the EITC also creates a very effective, as well as administratively facile way to make tax burden fairer.
The Impending Fiscal Cliff of FY 2025
Release: November 9, 2021
This past Spring when the General Assembly and Governor were developing a General Fund budget for Fiscal Year (“FY”) 2022, there was a significant amount of new revenue on the table. For instance, Illinois state government received around $11 billion in federal aid for General Fund use under the American Rescue Plan Act of 2021 (“ARPA”). ARPA came on the heels of various other federal relief initiatives that passed in 2020—most notably the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Despite both record federal assistance and a boost in state-based revenue, Illinois’ long-term fiscal challenges are significant. Unfortunately, in addition to being significant, the state’s fiscal shortcomings are also nothing new. And in FY 2025, Illinois will no longer have federal pandemic relief aid to support its General Fund. The revenue shortfall, however, will be more significant than that because of the structural deficit in the state’s General Fund. A structural deficit exists when annual revenue growth is not sufficient to cover the cost of providing the same level of public services from one fiscal year into the next, adjusting solely for changes in inflation and population, and assuming a normal economy.
Illinois’ Continued Disinvestment in Higher Education
Release: November 9, 2021
For two decades, Higher Education in Illinois has been left behind. Despite the evidence and relationship between educational attainment and economic viability, Higher Education in Illinois continues to be divested. CTBA has updated and improved its prior report, Illinois’ Two-Decade Disinvestment in Higher Education, with Illinois’ Continued Disinvestment in Higher Education. This updated report highlights that General Fund appropriation for Higher Education in Illinois has been less than it was in FY2000. While FY2022 appropriations are more than FY 2021, the COVID-19 pandemic has only exacerbated the state of Higher Education funding with Illinois still not providing enough to make Higher Education affordable for many students in Illinois. This means that public universities and community colleges must rely more heavily on tuition and fees. In fact, average in-state tuition at an Illinois four-year public university has increased 149 percent from FY 2000 to FY 2020.
In Illinois’ Continued Disinvestment in Higher Education, CTBA shines a new light on everything from economic impacts of General Fund appropriations for Higher Education in Illinois, the reliability of public institutions on tuition and fees, which disproportionately affects low-income students and students of color, and how the growing cost of college has contributed to a decrease in enrollment in our public colleges and universities, only to be made worse by the COVID-19 pandemic.
Eschewing Supply Side to Spur Economic Growth
Release: October 18, 2021
In response to the economic challenges created by the pandemic, elected officials in both parties have expressed the desire to pursue fiscal policy initiatives that will help spur private sector growth. Historically, two very different approaches have been taken to stimulate the economy by changing fiscal policy—one focuses mostly on growing private sector demand by increasing public sector spending, while the other focuses primarily on growing private sector supply by cutting taxes.
The fiscal policies taken to boost demand through enhanced spending generally involve increasing investments in core public services and infrastructure, as well as providing direct income supports to low- and middle-income families. These income supports include a number of initiatives, covering everything from enhanced unemployment compensation benefits, to targeting tax relief solely to low-and middle-income workers—precisely because those workers are likely to spend any such tax relief on purchasing consumer goods and services.
On the other hand, the use of tax cuts to boost the economy has typically involved providing either general tax relief to all individuals and corporations—which initially was referred to as “Supply-Side” economics—or targeting tax relief to primarily benefit corporations and wealthy individuals—which initially was referred to as “Trickle-Down” economics. Interestingly, neither Supply-Side nor Trickle-Down is really an economic theory. Instead, both are concerned with how fiscal policy actions impact private sector behavior. Over time, the distinction between these two approaches has blurred, and they are now both generally referred to as “Supply-Side” economics.
Read CTBA’s most recent report to find out more about the impact of Supply-Side policies on the U.S. economy.