Illinois Services Continue To Bear Brunt Of Further Budget Cuts
By Allison Flanagan, Director of Policy Analysis
On Tuesday, December 15, 2020, Governor Pritzker announced $711 million in cuts to the Fiscal Year (“FY”) 2021 budget.[i] This is likely only the beginning of additional budget cuts that will be required. But with the first half of FY 2021 coming to an end, let’s analyze what this series of budget cuts could mean for the second half of FY 2021 and state spending priorities beyond.
In the November General Election, the Fair Tax amendment, which would have allowed Illinois to implement a graduated rate income tax structure, failed to pass. Illinois’ FY 2021 budget relied on anticipated revenue from the Fair Tax that will now never be realized. As a result, an already-vast deficit for the year (the “Accumulated Deficit”) will likely be even larger, growing from a projected $13.4 billion at the end of FY 2021 to nearly $14.8 billion without the Fair Tax revenue, as seen in Figure 1.
Without the increase in much needed revenue, combined with the ongoing and evolving impact of the COVID-19 pandemic and lack of federal assistance for state and local governments, substantial cuts will now need to be made to the Enacted FY 2021 Budget. In the Chicago Tribune, Illinois House GOP leader Jim Durkin was quoted saying, “Instead of living within our means, they attempted to trick voters into raising taxes, and were sorely rejected by Democrat, Republican and independent voters across the state.”[ii]
However, this is confusing. Because, Illinois has been living within its means. The reduction in the budget only further decreases net appropriations for Current Services in FY 2021, exacerbating a long-term trend of cutting General Fund spending on Current Services in real terms that dates back to FY 2000, under Governor Ryan, as seen in Figure 2. The real problem is that Illinois’ means haven’t improved in the last 20 years, and public services are bearing the brunt.
Anti-Fair Tax groups were successful in preventing a change to the income tax structure in Illinois, which would raise taxes on the top 3% of income earners in Illinois. But they never put together a comprehensive budget plan to “live within our means” as an alternative to the Fair Tax. If the Illinois GOP believes we are not living within our means, what can be cut to reduce the budget expenditures?
Figure 3 highlights that about $14.8 billion of the FY 2021 budget is appropriated to “Hard Costs” — costs that must be paid by the state and the General Assembly has very little control over. Hard Costs include debt payments, transfers outs for contracts already rendered, contributions to the pension system for state employees, and health insurance for state employees.
The remaining $28 billion goes towards services as seen in Figure 4.
Governor Pritzker is reducing the budget primarily, “through freezes on hiring, travel and purchases; suspension of grants; cost savings at state prisons due to a lower offender population under civil-justice reforms; and included COVID-19 savings from canceled state and county fairs, and spending on state parks.”[iii]
Any future budget cuts would be detrimental to the most vital basic services in Illinois, like education. For example, school districts in Illinois were already in a dire straits when it came to their budgets simply because the expected increase in funding under the Illinois Evidence-Based Funding (“EBF”) formula for FY 2021 was not appropriated at the time the FY 2021 Budget was enacted. That means districts actually lost state funding after accounting for inflation. If further FY 2021 reductions in education occur, or new and expected funding is not available in FY 2022 and on, then Illinois is erasing much, if not all, of the progress it has made since the implementation of the EBF, and will actually be providing less funding for K-12 Education than over the course of the prior two decades.
Figure 5 highlights K-12 Education funding from FY 2000 to FY 2021, resulting in a FY 2021 scheduled appropriation of $8,352. That means, in the 20 years since, funding for K-12 Education has increased by only 1.39%, or by $115 million.
Understanding why nearly-level funding for K-12 Education is harmful needs to start with the basics of education funding. Education funding is the intersection of three resources: local, state, and federal revenue. Most local support for schools comes in the form of property tax revenue. State support varies widely by state, but Illinois distributes a majority of state funding for K-12 Education through a general state aid formula called the Evidence-Based Funding formula. Federal support is the smallest portion of funding received for K-12 Education. Federal funding is typically considered restricted, meaning this funding is tied to grants and must be used for a specific purpose.
Since 2006 in Illinois, Federal funding has declined, state funding has made up between 14% and 22% of total funding, and local funding, particularly from property taxes, has increased. When state funding does not increase at the level necessary to educate the students in a district (or worse, decreases), school districts are forced to rely on local property taxes or budget reductions to make up the difference in funding. This is precisely what has happened over time, as districts have relied heavily on local property tax revenue, that is, until the implementation of the Evidence-Based Funding formula in FY 2018.
While FY 2021 is unique in that K-12 Education received Federal Pandemic Relief — increasing federal funding and possibly offsetting a loss of state funding— without the additional new funding under the EBF, districts would need to rely on property tax increases or reducing budgets, which often is synonymous with reducing staff capacity. This means the progress made in the past few years under the EBF would be washed away, and funding for K-12 would once again drop below FY 2000 levels. It is hard to justify such a reduction given there is no less of a need for high-quality education for all students in the state today.
With that in mind, if we know cuts to education would be detrimental, then the state could reduce spending on Human Services. But Human Services spending includes unemployment insurance, the V.A., Dep. of Human Rights, and DCFS — all of which are vitally important given the current pandemic. Healthcare then? Given that the COVID-19 pandemic is a health crisis, reductions to health care services shouldn’t be an option.
That leaves Public Safety, which includes Illinois’ criminal justice system and Illinois’ Emergency Management Agency.
The four areas of Education, Human Services, Healthcare, and Public Safety make up 96% of the budget for current services provided by the state; all that is left are the agencies that are already being trimmed. So, why is the $711 million in budget cuts important? Because, if Illinois isn’t living “within its means,” the question becomes: what services will be provided to taxpayers in the end?
Please read CTBA’s Analysis of the FY 2021 Enacted General Fund Budget or The Impact of Underfunding the Evidence-Based Funding Formula for more information.
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[i] https://www.chicagotribune.com/politics/ct-pritzker-illinois-budget-cuts-20201216-2klogkjtdfhmpo6ayswjmfcv34-story.html;https://chicago.suntimes.com/politics/2020/12/15/22177043/j-b-pritzker-cuts-illinois-budget-afscme-furlough
[iii] https://www.chicagotribune.com/politics/ct-pritzker-illinois-budget-cuts-20201216-2klogkjtdfhmpo6ayswjmfcv34-story.html;https://chicago.suntimes.com/politics/2020/12/15/22177043/j-b-pritzker-cuts-illinois-budget-afscme-furlough
