RESEARCH Business Economy

ILLINOIS ECONOMY
New taxes not on Illinois horizon, despite 'tighter fiscal position'

Mark Reutter, Business Editor
(217) 333-0568; mreutter@uiuc.edu

2/1/2001

CHAMPAIGN, Ill. -- Despite signs of a national slowdown, the state of Illinois will have enough tax revenues this year to support its current budget without major tax increases or spending cuts.

Restraint but not panic was the prediction of University of Illinois economists J. Fred Giertz and Therese J. McGuire for 2001. Illinois will be in a "tighter fiscal position than in the past year," the experts wrote in their annual review of state finances, "however, there will be no significant tax increases in response to this tightness."

The state is coming off of a historic high in tax revenues, which should cushion any blows during the second half of fiscal 2001. The general fund balance last June was more than $1.5 billion, up $166 million from 1999.

"The strong revenue performance provided the resources for the continued growth in state spending along with limited tax cuts in 2000," the economists noted. State finances started showing the impacts of a drop in business and consumer spending in the fall.

"For the first time in eight years, actual state revenues are not exceeding revenue forecasts," they wrote. "However, there is no evidence as yet of a recession. Consequently, revenue growth still appears to be adequate to support state activities, but there is unlikely to be the end-of-year windfall that the state has come to expect in recent years."

While sales-tax receipts have slowed, corporate-tax revenues are near forecast. Giertz and McGuire predicted that the general fund balance will be $1.2 billion when the fiscal year ends June 30, including the "rainy day fund" set up by the Legislature last year.

Several revenue streams not included in the general fund balance will favorably affect the state, including the national tobacco settlement. Last year, the state received $300 million from the settlement, the first installment of a projected $9 billion to be paid by tobacco companies to the state over the next 25 years.

Much of this money was used to pay for a one-year doubling of the income-tax credit for property taxes paid by homeowners, and a smaller portion went for tax relief for low-income working families.

"Given the recent weakening of state revenues, the focus on temporary tax-reduction measures had the fortuitous result of only marginally impacting future year revenues," Giertz and McGuire wrote.

The financial focus in Springfield likely will change from tax relief to the adequacy of revenues this year.

"Also, because of high heating costs, there will be continued interest in some type of tax relief in the public utilities area," the economists said in a paper prepared for the UI's Institute of Government and Public Affairs.

Nationwide, the combination of slowing business and rising health-care costs has put a pinch on some state budgets. Up to 10 states have been forced to cut spending, the National Governors’ Association reported recently.