July 28, 2023
On June 22, 2023, Cook County Board President Toni Preckwinkle issued a preliminary budget forecast for fiscal year 2024. The fiscal year begins December 1, 2023, and ends November 30, 2024. The report provides end-of-year estimates for the current 2023 fiscal year and a forecast for the County’s operating funds in the upcoming 2024 fiscal year. This includes the General Fund, which accounts for administrative and public safety operations; and the Health Fund, which accounts for the health and hospitals system run by the County. The forecast indicates the financial condition in which Cook County government will be entering the next fiscal year and identifies any budget deficit that must be closed through corrective action.
Updated projections were provided during a budget hearing this week that incorporate the costs of pay increases to County employees. The projected budget gap for the upcoming fiscal year, FY2024, was initially estimated to be approximately $86 million based on the June preliminary forecast. The updated projections, however, have increased the anticipated FY2024 budget gap to $170 million. This blog post will focus on the data provided in the original June forecast, since it is the most complete data available to date.
FY2023 Year-End Forecast
At the time the County released its preliminary forecast in June, it projected a year-end surplus of $214.7 million in the General Fund and $402.1 million in the Health Fund, for a total positive budget balance of $616.8 million. This is a much better performance than was originally anticipated for this year. At this same time last year, Cook County projected it would end FY2023 with a budget deficit of $18.2 million, consisting of a $4.3 million deficit in the General Fund and a $13.9 million deficit in the Health Fund. During the year, the County’s FY2023 outlook improved due to several factors, including the effect of inflation on some tax collections, increases in one-time revenues, and payroll savings related to delays in hiring timeframes due to a tight labor market.
The table below shows the anticipated revenues and expenditures within the General Fund and Health Fund at the end of FY2023 compared to adopted budget figures.
In the General Fund, the $214.7 million surplus is the result of revenues exceeding budget expectations by nearly $98 million, or 5%, combined with expenditures coming in $116.7 million below budget.
Most of the revenue increase from the FY2023 budget is due to sales taxes and the Personal Property Replacement Tax (PPRT). County sales tax revenue is projected to be particularly strong because of inflation and a strong economy, increasing from the prior year by $33.0 million. PPRT is expected to exceed budget by $41.8 million due to strong performance of corporate income taxes. Rebounding hotel and entertainment sectors have also led to a $4.2 million increase in the hotel accommodation tax and a $3.7 million increase in the amusement tax over budgeted amounts. Rising interest rates have led investment income to be $24.4 million over budget as well. Property taxes, fee revenue and tax increment financing (TIF) surplus, on the other hand, are expected to remain relatively flat.
Expenditures, projected to end the year 6% below budget, are declining due to lower salary and wage expenses, the result of slow hiring and attrition. The deferral of planned projects has also decreased operations and maintenance expenses.
Within the Health Fund, the County forecasts a year-end budget surplus of $402.1 million. The Health Fund receives revenue from patient care provided at county hospitals and clinics, as well as through reimbursements for claims in CountyCare, Cook County’s own managed care plan. The Health Fund is experiencing increases in both revenues and expenditures compared to budgeted levels for FY2023, due largely to the State’s temporary suspension of the redeterminations process during the COVID-19 pandemic. This suspension in redeterminations has resulted in higher CountyCare membership as more people remained enrolled in their Medicaid plans, and therefore higher than budgeted Medicaid revenues and expenses. Cook County Health anticipates monthly CountyCare membership to average approximately 443,695 in FY2023 compared to the original projection of 391,000.
Revenues are set to exceed the budget by approximately $1 billion, or 25%, which is partially offset by expenditures also exceeding the budget by $605.5 million, a 15% increase. The revenue increase is attributed to the higher CountyCare membership as well as an increase in Medicaid Directed Payments, which are supplemental payments from the State. The expenditure increase is due to the higher than budgeted CountyCare membership enrollment, which results in an increase in health plan claims, as well as higher than anticipated contractual labor expenses.
FY2024 Preliminary Budget Forecast
Cook County projected a budget deficit of $85.6 million in FY2024 when the original June projections were released. As noted above, more recent projections that incorporate increased pay negotiated with unions grew that shortfall to $170 million. The projected shortfall will need to be closed by the time the county releases it FY2024 budget proposal this fall. Please note that the rest of this section will focus on the original numbers released in June 2023 because a more detailed breakdown of the updated numbers is not yet available.
The originally projected shortfall consists of an $82.6 million deficit in the General Fund and a $3 million deficit in the Health Fund, as seen in the table below.
The County expects General Fund revenues to decrease by $41.2 million from the adopted FY2023 budget, largely due to the declining availability of property tax revenue for the General Fund. Property tax revenue allocated to the General Fund is expected to decrease by nearly $76.6 million, or 29%, from the FY2023 adopted budget, in order to direct more property tax revenue to the pension fund to supplement a decline in the PPRT, which normally would support the pension fund.
In addition to property tax, several other General Fund revenue sources are also expected to decline in FY2024. Tax increment financing (TIF) surplus is expected to decrease by $7.8 million, contributing only $18.1 million to revenues in FY2024. Fee revenue in FY2024 is expected to be $10.4 million, or 6%, less than budgeted in FY2023. The main drivers of the lower fee revenue include a decrease of $5.8 million in County Clerk fees and a decrease in Circuit Court Clerk fees as higher demand for court services levels off post-pandemic. Miscellaneous revenues will also decline by $32.4 million because of fewer fund balance transfers to subsidize other funds. Cigarette taxes are expected to continue to decline in FY2024 to $6 million below the FY2023 budget.
Most other County tax sources are expected to increase in FY2024, which will partially offset the reductions in the other revenue sources. The County sales tax is set to rise by 3%, generating an additional $38.0 million over the prior year. Gambling taxes are expected to perform well in FY2024: the gambling machine tax is projected to rise by $3.0 million, or 77%; the sports wagering tax will rise by $3 million, or 43%; and the Illinois gaming casino tax is also projected to rise by 14%, generating an additional $2 million. The amusement tax will increase by $3.7 million, or 10%, and the hotel tax is also expected to generate an additional $3 million, or an 11% increase. Investment income is also expected to be very strong at $35.9 million in FY2024, compared to the $1 million budgeted in FY2023. Overall, however, the General Fund revenues outlook for FY2024 is negative.
The expenditures outlook for FY2024 was also originally projected to be negative compared to the FY2023 adopted budget. Expenditures were expected to rise by $41.4 million, or 2%, from the prior year. The expenditure increase was driven by personnel spending, the higher costs of goods and services purchased by the county due to inflationary pressures, and higher employee healthcare benefit costs. Non-personnel spending, however, was expected to see a decline of $56.2 million over the prior year because of decreasing contingencies and special purpose expenses. The expenditure increase also accounted for an increase of $13.7 million in supplemental pension contributions made to the Cook County Pension Fund, from $311.0 million in FY2023 to $333.7 million in FY2024.
The combination of the negative revenue outlook of $41.2 million and the negative expenditures outlook of $41.4 million resulted in an $82.6 million deficit the County will need to close before adopting a final FY2024 budget.
In the Health Fund, the County anticipates a $3 million projected deficit, driven by a $45.9 million increase in expenditures over the FY2023 adopted budget, partially offset by a $43.0 million increase in revenues. The projected increase in revenues is due to the rise in the capitation rate per member per month and net patient service revenue, even as the average membership rate for FY2024 is expected to decline. Medicaid public assistance revenue, which includes CountyCare revenue, is the primary driver for the increase in revenues for the Health Enterprise Fund, with an expected increase of $80.4 million, 3%, over the FY2023 adopted budget.
The expenditure increase is the result of the addition of medical costs associated with asylum seekers, totaling $26.0 million, as well as an $8.7 million increase in salaries and wages as a result of normal salary progression, along with expected cost increases for contracted labor.
FY2024 Next Steps
The County will need to identify measures to close the projected deficits in the General and Health Funds before releasing the recommended FY2024 budget in October. The County Board is holding a public hearing and departmental budget hearings in July. President Preckwinkle’s final budget recommendation will be presented in October 2023, followed by the adoption of a final budget by the Cook County Board of Commissioners. Members of the public can submit budget questions through the County website.