Comparing FY2024 State Revenue Forecasts

March 24, 2023

On February 15, 2023, Governor Pritzker released the State of Illinois FY2024 Operating and Capital Budgets. The proposed budget noted revenue collections post-pandemic have continued to exceed expectations. This strong performance has prompted the both the Governor’s Office of Management and Budget (GOMB) and the Commission on Government Forecasting and Accountability (COGFA), the fiscal analysis unit of the Illinois State Legislature, to make several upward revisions to both FY2023 and FY2024 revenue projections.

On March 7, 2023, COGFA released its updated economic forecast and revenue estimates, which included an additional month of data than was available at the time of the Governor’s budget proposal. The COGFA forecast projected even higher FY2024 revenues due to the incorporation of continuing stronger-than-expected economic performance in January 2023 for some of the State’s largest revenue sources (GOMB’s projection was released in February and included data through December 2022). It is important to note that both the GOMB and COGFA forecasts were issued before the recent banking sector turmoil and therefore do not incorporate any potential impact on State revenues.

The following chart compares the most recent GOMB and COGFA forecasts for General Funds revenue for FY2024, which supports the regular operating and administrative expenses for most State agencies and are the funds over which the State has the most control. General trends are largely consistent with those released in the FY2024 budget, as both COGFA and GOMB rely on many of the same economic sources when formulating their predictions.

Overall, COGFA predicts an additional $465 million in revenue above the February GOMB estimates, largely stemming from net individual income taxes and sales taxes. 

Income Taxes

Individual and corporate income taxes represent, respectively, the largest and third-largest individual revenue sources and account for more than half of all General Funds revenue. Since 2017, the individual income tax rate has been established at 4.95% and the corporate rate at 7.0%.[1]

COGFA predicts an additional $237 million in net individual income tax revenues than was included in the Governor’s proposed budget for FY2024. This increase is attributed to continued wage growth, but also reflects anticipated lower employment numbers (GOMB’s forecast cites similar trends).[2] In terms of corporate income tax returns, COGFA estimates $75 million less in revenue than GOMB, citing anticipated declines from historically strong performances in recent years.

Sales Taxes

Sales taxes remained strong throughout the pandemic, as personal disposable income increased with the infusion of federal stimulus dollars and expanded unemployment benefits. The pandemic also brought about a shift in consumption patterns to goods, which are taxed by the State, from services, which largely are not. More recently, higher prices in taxable goods from inflation brought near-record revenue growth.[3] Both COGFA and GOMB expect these trends to shift back toward normalcy in the coming years.

COGFA’s net sales tax revenue predictions from March exceed those of GOMB by $178 million, or 1.7%. However, COGFA projects an overall weakening of the economy due in part to increased interest rates by the Federal Reserve, which are intended to reduce demand and therefore could impact revenues. An increasing transfer of revenues to the State Road Fund in FY2024 will also offset net increases in sales tax revenue.[4]

Transfers In

Revenue estimates also include transfers from other funds such as lottery, gaming, and adult-use cannabis into the General Fund based on received revenues or incurred costs in a given budget year.[5] The most recent COGFA estimates show lower transfers by $17 million, or 0.8%, from the GOMB estimates the month prior based on an expected return to normal levels in the Income Tax Refund Fund, which will offset projected gains in other taxes.[6]

Federal Sources

Federal revenue sources consist mainly of reimbursement for State Medicaid spending and fluctuate from year to year depending on the level of Medicaid spending. Both GOMB and COGFA estimates project revenues at just over $4 billion.

Looking Forward

While COGFA’s analysis of the State’s February 2023 revenue numbers – released in March 2023 – showed continued revenue growth, there are a number of potential factors that they noted could negatively impact revenue outlooks for FY2024. More than a year into the Russian invasion of Ukraine, the U.S. and world economies continue to see ongoing economic impacts and geopolitical instability. These effects have contributed to high U.S. inflation rates, prompting the Federal Reserve to raise interest rates seven times in calendar year 2022 and another two times so far in calendar year 2023. Both COGFA and GOMB have incorporated a potential recession into their projections for the coming fiscal year, but vary on the timing and severity. Other potential disruptions include the ongoing possibility of a new COVID-19 variant and the aforementioned turmoil in the banking sector that could put additional pressures on the State economy.

The Civic Federation will release its analysis of the State of Illinois’ proposed budget in the coming weeks, as well as the enacted budget after its expected passage in April and continue to monitor other economic developments.

Related Links:

Illinois State FY2024 Budget

FY2024 Economic Forecast and FY2023 Revenue Estimate Update (COGFA)

November 2022 Illinois Economic and Fiscal Policy Report (GOMB)

Governor’s FY2024 Proposed Budget Includes Increased Spending for State Agencies, Moderate Revenue Projections (Civic Federation Blog)

Civic Federation State of Illinois FY2023 Budget Analysis and Recommendations