Not all is well with state finances

Doug Finke

Illinois state government revenues for the first two months of the fiscal year are up over $1 billion from the same period a year ago, giving rise to calls that improved finances could avert state worker layoffs and closure of state facilities.

However, the improvement is partly the result of how bad finances were for the state a year ago. And the higher figures still reflect only the first two months of a 12-month fiscal year.

The General Assembly's Commission on Government Forecasting and Accountability's monthly report of state finances showed increases in state revenue for August and for the July-August period. In August alone, revenues from state taxes, like income, sales and utility taxes, as well as from the lottery and gambling taxes, were up by $531 million from the same period a year ago. Since July 1, those revenues are up $1.1 billion.

But the gains have been offset by steep drops in the money the state gets from the federal government. So far this budget year, that is down by $668 million. Take away money that must be set aside to pay income tax refunds, and revenues for the year are only about $409 million higher than a year ago.

Even those numbers can be deceiving. At this time last year, Illinois hadn't raised its income tax rate by 67 percent. Most of the revenue increase so far this year is from income taxes, and the bulk of the income tax increase is needed for the state to meet its pension obligations.

COGFA revenue manager Jim Muschinske said sales taxes also are showing good returns compared to a year ago. But he said sales taxes last year at this time "did pretty poorly."

"We're going up against some pretty bad months (by comparison)," Muschinske said. "That will fall off in the second half."

However, the second half could also produce an extra $500 million to $550 million in income tax revenue, according to COGFA. Income tax rates went up Jan. 1, but it took the state time to get new withholding tables in place. As a result, many taxpayers will end up owing money - or get a smaller refund - when they file their Illinois income tax returns next year.

The COGFA revenue report has been cited by the American Federation of State, County and Municipal Employees, as well as some lawmakers, as evidence the state can cope with a budget shortfall without resorting to layoffs and closures. Gov. Pat Quinn has said he will soon announce a plan to close facilities and lay off employees, something he said he must do because the General Assembly passed a budget that doesn't contain enough money to get the state through the entire year.

AFSCME executive secretary Henry Bayer issued a statement that it shouldn't have to come to that.

"The necessary funding is available if the legislature takes action when it returns for the veto session," Bayer said. "The Commission on Government Forecasting and Accountability reports that revenue is coming in this year at higher than projected levels."

AFSCME spokesman Anders Lindall said the union believes the state will have enough money to avoid layoffs and closures. The question is whether lawmakers will be willing to spend it.

Already, House Republicans have noted that the House - with both Republican and Democrat support - approved a resolution last spring calling for any surplus revenues to be used to reduce state government's backlog of overdue bills, not to increase state spending.