Push to further boost Illinois rainy day fund looms this fall

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Illinois should aim to build up a now $1 billion rainy day fund by more than $2 billion to manage through future economic crises, state Comptroller Susana Mendoza said in pressing for passage this fall of legislation that would funnel more revenue to the once-barren fund.

States on average hold reserves that would allow them to manage for 35 days. Illinois only this year tipped the scales over the $1 billion mark — reaching $1.039 billion — but that equates to just one week worth of operations, Mendoza said.

A target of $3.25 billion would still fall short of the 35-day mark, but Mendoza — whose office manages state bill, debt, and pension payments — said it would provide sufficient cushion to manage paying obligations during future economic downturns.

“Really, that money needs to be there in case of another economic collapse through no fault of our own,” Mendoza said during an address to the Chicago City Club Wednesday. That level would allow the office to reasonably manage bill payments. “I’m not going to feel comfortable until we are at about 7.5% in reserves.”

During the state’s two-year budget impasse, which ended in July 2017, the state’s backlog neared $17 billion, with some vendors waiting months for payment. Debt and pension payments were among those prioritized by the office. The oldest bill currently in the office is just seven days old and payables outstanding hit a low of $1.7 billion last month while the average has been about $2 billion to $3 billion.

Illinois Comptroller Susana Mendoza will press lawmakers this fall to support bigger infusions into the rainy day fund.

Continued reserves build up would also help win over rating agency analysts who cited the rainy day infusion and supplemental pension funding in a round of upgrades earlier this year that improved the state’s ratings to Baa1/BBB-plus, Mendoza said. The state’s rating sunk to the cusp of junk during the 2017 budget impasse. Reaching the single-A category will require a heavier lift on financial metrics, like the rainy-day fund.

With state coffers flush with higher-than-expected tax collections, Gov. J.B. Pritzker signed fiscal 2022 budget revisions and a fiscal 2023 spending plan in April that directed $1 billion to the state’s long-neglected budget stabilization fund.

A deposit last month of $180 million pushed the budget stabilization fund up over the $1 billion mark, its highest level ever, after dropping below $50,000 in 2018. The legislation also directed $500 million into the state’s pension stabilization fund that will go to pay down an unfunded tab of $139.9 billion. Starting next fiscal year, the legislature has agreed to deposit an additional $45 million annually.  

Mendoza will press lawmakers during their annual fall veto session to pass HB 4118, sponsored by State Rep. Michael Halpin, D-Rock Island, that puts in place triggers for bigger deposits.

Illinois is operating on a $46.5 billion general fund budget. Most states set a goal for their rainy day funds between 5% and 15%, according to the National Conference of State Legislatures, the Illinois legislature’s Commission on Government Forecasting and Accountability said in a report this month on the status of the rainy-day fund.

“Illinois’ goal of 5% of the total of general funds revenues estimated for FY 2023 would be approximately $2.3 billion,” COGFA said.

The proposed legislation calls for a $200 million deposit into the budget stabilization fund and $200 million into the pension stabilization fund — which would supplement scheduled contributions to pay down the unfunded liabilities — when the state closes out the fiscal year with its accounts payable log below $3 billion.

While the goal is to reach a 7.5% balance of general fund revenues when the budget fund hits a 5% level, a portion of the $200 million would go to the pension stabilization fund until the budget stabilization fund reaches 7.5%, at which point all the funds would then go to the pension stabilization fund. There’s no cap on the pension account.

Illinois first established the budget stabilization fund in 2000, according to COGFA. It was funded with a $226 million deposit from the tobacco settlement recovery fund in 2001. It received an additional $50 million infusion in 2004.

Deposits into the rainy-day fund were previously triggered by projected revenue growth of more than 4% from the prior year, which didn’t result in any material deposits. It held a modest $125 million in fiscal 2016, but that was drained during the budget impasse. When lawmakers approved the sale of recreational cannabis in 2019, they earmarked 10% of cannabis tax revenues, after various administrative expenses, for the rainy-day fund.

“With cannabis regulation fund transfers equaling $25.6 million, the end of year balance for FY 2022 was the highest ever for the BSF at $751.7 million,” COGFA said in its August revenue report that included a review of the rainy-day fund. With the fiscal 2023 general fund transfers and an estimated $34 million in cannabis regulation transfers “the budget stabilization fund could retain a balance of almost $1.1 billion in FY 2023, with no expected transfers out.”

The existing language lacks full clarity on future transfers but “even with the ambiguities in the statutes about the components for triggering funds to be put into the BSF and the 5% limit, the fact that the funding of the budget stabilization fund is again being discussed highlights the recent improvement in Illinois’ fiscal condition,” COGFA revenue analyst Lynnae Kapp wrote.

The state will hold an investor meeting on Wednesday, Sept. 21, in advance of an anticipated $700 million competitive general obligation bond sale. State officials will present information and answer questions from participants.

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September 15, 2022 at 09:03AM

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