David Merriman, former interim director of IGPA and James J. Stukel Presidential Professor in the Department of Public Policy, Management, and Analytics at UIC, focuses his research on helping state and local governments develop fairer and more efficient mechanisms to raise revenue and implement public policy. His work has contributed to policy discussions about property tax reform in Cook County, tax increment financing, and Medicaid’s impact on health care spending.
Merriman responds to a Civic Federation report regarding Governor Pritzker’s recent Illinois state budget proposal.
Some economists claim Governor Pritzker’s proposed $55.2 billion budget relies on optimistic revenue projections. How sustainable are these projections, particularly considering uncertainty regarding federal funding?
Merriman: The idea that this revenue projection is optimistic is somewhat controversial. The path of future economic activity, which largely drives revenue, is currently highly uncertain. In Illinois two groups typically provide revenue projections: the Governor’s Office of Management and Budget (GOMB) and the Commission on Government Forecasting and Accountability (COGFA). Historically, COGFA has projected higher revenues than the governor’s office, but this year, that trend reversed, with GOMB projecting higher revenues than COGFA. This doesn’t necessarily mean that GOMB is overly optimistic—it simply reflects the high level of uncertainty in today’s economic environment.
Because economic conditions remain unpredictable, any adopted budget should be flexible. Some economists predict strong economic performance, while others foresee a potential recession. Given this uncertainty, the state must be prepared to adapt. I trust that both GOMB and COGFA conduct professional and credible revenue projections, and based on that, I believe the budget projections are as sustainable as they can be given current conditions.
Illinois’ state pension system is underfunded by approximately $5 billion for the next fiscal year and $144 billion over the long term. How does the proposed budget address—or fail to address—this growing gap, and what steps should the state take to ensure long-term pension sustainability?
Merriman: I believe Illinois is on a path toward long-term pension sustainability. The state has a funding ramp designed to bring pension systems to a 90% funded ratio. Historically, Governor Pritzker’s budgets have exceeded legally required pension contributions, which aligns with this trajectory.
The immediate concern is less about general pension underfunding and more about disparities between Tier 1 and Tier 2 pension systems. Tier 2, implemented in 2011, provides lower benefits than Tier 1. Additionally, some Tier 2 benefits may be insufficient under Social Security rules, which could create legal and financial issues. Many Illinois public employees are not eligible for Social Security, so they must receive retirement benefits at least equivalent to Social Security, as determined by a “Safe Harbor” test. Addressing this discrepancy may require modest additional funding, potentially increasing the pension liability by a few billion dollars. Despite this, I don’t see a pension crisis—rather, we need consistent political will to stay the course over the coming decades to reduce the pension systems’ share of the overall budget.
Governor Pritzker claims to have improved Illinois’ business climate, yet data compiled by the Civic Federation shows minimal private-sector job growth since he took office. How do you reconcile this with findings that Illinois’ tax structure and high tax burden may limit business investment and economic growth?
Merriman: Illinois’ economic growth has been slow compared to the rest of the nation. While the governor highlights certain economic successes, the state continues to face challenges such as stagnant population growth, a higher-than-average unemployment rate, and lower-than-average economic output growth.
Some argue that Illinois’ tax structure and high property taxes hinder growth, but I don’t think there’s definitive evidence that taxation is the primary cause. Illinois’ total tax burden is comparable to other states, though its tax distribution differs—property taxes are high, while income taxes are relatively low. I don’t believe the governor’s policies are explicitly anti-business, but it’s also true that no one has identified a clear solution for accelerating Illinois’ economic growth. The state must continue exploring ways to modernize its tax structure and incentivize investment while maintaining fiscal responsibility.
What economic strategies could Illinois implement to ensure long-term fiscal sustainability?
Merriman: There’s broad consensus that Illinois could modernize its tax system, particularly by expanding the sales tax base to include more services, such as haircuts and gym memberships. While this idea has been discussed for years, it remains politically challenging. Some proposals suggest pairing a broader sales tax base with a lower overall tax rate to minimize additional burdens on taxpayers.
Strategic financial planning is crucial, and Illinois has taken steps in this direction through the Budgeting for Results program, which assesses expenditures rigorously. On the revenue side, the debate continues over whether Illinois should adopt a more progressive income tax structure, but previous attempts to do so have been rejected by voters.
What major fiscal concerns will Illinois need to address in the upcoming year and beyond?
Merriman: A major looming issue is the financial sustainability of public transit, particularly in the Chicago metropolitan area, due to declining ridership from increased remote work. The state and local governments must collaborate on a long-term solution.
Additionally, the potential for federal Medicaid cuts is a significant risk—Medicaid accounts for about 20% of Illinois’ revenue, and substantial federal reductions could outweigh any other economic developments. The state must remain flexible to navigate these uncertainties effectively.
