No Magic Bullet: Constructing a Roadmap for Illinois Fiscal Sustainability

March 1, 2018

No Magic Bullet: Constructing a Roadmap for Illinois Fiscal Sustainability


The state of Illinois finally ended its two-year budget impasse in July 2017 but continues to face a structural fiscal imbalance. We use comprehensive data supplied by the Illinois Comptroller to construct a time series showing Illinois state revenue and expenditures on a consistent basis since FY1998. We find that during this period Illinois’ expenditures have grown faster than its revenue and the state has had large budgetary gaps, with spending significantly exceeding sustainable revenue, since FY2000. In FY2016, when no budget was in place, the budgetary gap shrunk primarily because the state failed to reimburse medical providers for state worker healthcare, cut payments to universities and human service providers and made other unsustainable cuts. In FY2017, the state expenditures soared compared to FY2016 despite little change in revenue. FY2017 spending exceeded revenue by $13.5 billion.

Illinois’ five largest spending categories are Medicaid, K-12 education, state pension contributions, revenue sharing with local governments and human services. Together, these five categories accounted for 62.6 percent of total FY2015 spending. Significant reductions in any of these will be very difficult to achieve due to a combination of legal and political constraints. Illinois’ major revenue sources are the personal and corporate income tax, the sales tax, and federal Medicaid reimbursements. These accounted for about 61 percent of total FY2015 revenue. Of these, only Medicaid reimbursements are growing more rapidly than expenditures. This imbalance will continue unless Illinois makes structural changes to raise the rate of growth of revenue or to lower the rate of spending growth. Even if Illinois exercises extreme fiscal discipline and reduces its long-term spending growth rate as low as any state in the nation, it could require nearly two decades to eliminate the structural budget gap it faces.

Despite these significant fiscal challenges, objective assessments show that Illinois has substantial economic resources that can enable it to flourish. Illinois must embark on a multi-year plan that restrains spending growth and enhances revenue growth if it is to attain a fiscally sustainable path. To do this, Illinois elected officials and residents will need honesty, commitment, compromise and cooperation.

Download the full report by clicking the link below.



(.PDF 486.55 KB)

Research Area: Politics & Government & Economic Policy

Policy Initiative: Fiscal Futures Project


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