Illinois one of six states with long-term deficits: Study

(The Center Square) – A new report highlights just how bad the state of Illinois has been with the budgetary process over the years.

Pew Charitable Trusts found only two states with annual deficits in fiscal year 2022, a record low. Senior associate Page Forrest said Illinois is one of just six states that recorded a 15-year shortfall at the end of fiscal 2022.

“The good news is that fiscal year ‘22 is the first time in at least two decades that Illinois recorded an annual surplus,” said Forrest. “The bad news is that the surplus, while substantial, wasn't enough to move the needle for the state long term.”

The report notes that because of chronic deficits, Illinois lawmakers regularly delayed payments to hundreds of vendors for more than a decade. This only made the problem worse, with the backlog peaking at $17 billion in 2017 because Illinois pays up to 12% annual interest on unpaid bills.

At the beginning of the pandemic, the federal government quickly approved financial support to states facing a slump in tax collections and a spike in spending demands. But despite the additional federal funds, 19 states, including Illinois, closed fiscal 2020 with an annual deficit, the most states since the Great Recession.

In 2021-2022, there was a quick recovery with massive surpluses across the country.

“Several states benefited from the revenue wave, including Illinois, and this wave was characterized by huge surges in tax revenue as well as an increase in federal funds,” said Forrest.

Pew said that states can withstand periodic deficits without endangering their fiscal health over the long run, but chronic shortfalls are one indication of a more entrenched structural deficit in which, without policy action to correct the imbalance, revenue will continue to fall short of spending.

Nationally, state tax revenue rose 1.8% in the fourth quarter of 2023, but if you exclude California, state tax collections continued to fall. As a result, the fourth quarter saw an increasing number of states underperforming their long-term trends.