Government Affairs Roundup
“Your Timely Roundup of Local, State, and Federal Updates”
Chamber members:
I hope you all had an enjoyable and safe 4th of July holiday! Thanks to those that joined us last week for our State Legislative Session Panel recap luncheon. State Senators Meg Loughran Cappel and Rachel Ventura, as well as State Representatives (newly named Deputy Majority Leader) Natalie Manley, Larry Walsh Jr., and Dagmara Avelar all joined in for the conversation on about 10 to 12 topics.
July 1 marked the start of a new fiscal year in Illinois. The final numbers for the recently concluded fiscal year 2023 will be out in the coming weeks, at which time we will have further analysis. However, as you’ll read below, the state is reportedly on better ground with a rainy-day fund of over $2 billion.
*Government Affairs Roundup brought to you by CITGO & Silver Cross Hospital*
President Biden Visit
President Joe Biden reminded supporters about his economic accomplishments helping the middle class after the country experienced “failed” policies of his Republican predecessor during his time here in Chicago last week. “You’ve got to brag a little more about what you do,” he said about his administration’s economic policies. President Biden repeated many themes of his speech when he took the stage at the JW Marriott hotel, where 200 high-profile guests and donors gathered for a fundraiser hosted by Gov. JB Pritzker.
Governor Pritzker Announces the State’s ‘Rainy Day’ Fund Will Make History, Exceeding the $2 Billion Milestone
As required by the Governor’s and General Assembly’s Fiscal Year 2023 budget, the final deposit for FY23 will be made into the Budget Stabilization Fund, and the State of Illinois’ Fiscal Year 2024 budget will deposit an additional $138 million, boosting the fund to over $2 billion, its highest balance in state history. The Budget Stabilization Fund held less than $60,000 when the Governor took office.
“Just six years ago our state had nearly nothing in our rainy-day fund, $17 billion in unpaid bills, and had suffered 8 credit downgrades,” said Governor JB Pritzker. “Today, we have no bill backlog, a $2 billion rainy-day fund, and eight credit upgrades. Illinois is finally finding its fiscal footing, and with an economy that has now reached over a $1 trillion in GDP, we are among the top states for workforce and business.”
Illinois created the Budget Stabilization Fund in 2001 with the intent to use it as a ‘rainy-day’ fund for future fiscal emergencies or economic downturns. Very little was deposited into the fund following its creation and its balance never exceeded $276 million – a small fraction of the state’s budget. It was used as a tool to assist with cash flow until it was nearly drained during the budget impasse in Fiscal Year 2017, when the $275 million balance was used to pay bills.
Strong revenue performance enabled the State to reduce unpaid bills, repay short-term borrowing, and set aside resources for future fiscal stability. During Fiscal Year 2022, the Governor worked with the General Assembly to deposit $746 million into the Budget Stabilization Fund, and the State will tomorrow finalize its deposits of another $1.18 billion in Fiscal Year 2023.
The balance in the Budget Stabilization Fund will grow an estimated $138 million in Fiscal Year 2024 under current law and is expected to have a $2.1 billion balance at the end of Fiscal Year 2024. Additionally, PA 102-1115 raised the targeted balance of the fund from 5 percent of general funds revenues to 7.5 percent of revenues, demonstrating Illinois’ commitment to responsible fiscal planning.
Ongoing dedicated revenues to the Budget Stabilization Fund and estimated FY2024 amounts include:
- 10% of state cannabis tax revenues ($25 million)
- Monthly transfers of $3.75 million from the General Revenue Fund ($45 million)
- Repayment over 10-years from the loan of $450 million to the State’s UI Trust Fund ($45 million)
- Interest earnings on the fund’s balance ($23 million)
State Pension News
A recent study of Illinois state employee pensions returned an unwelcome message in June. The report concluded that it’s going to take a little longer than formerly thought to catch up the state’s unfunded pension liability.
The deficit between what’s available for pension payouts and what is needed to pay the system’s obligations, now estimated at around $140 billion, could grow by an additional $5.6 billion in order to correct a systemic shortfall in funding contributions the state has been making for employees covered under Tier 2ofits pension plan.
Since 2011, new employees covered by three state pension plans –the Teachers’ Retirement System, the State Employees Retirement System and the State University Retirement System –as well as certain Cook County and other public employees have been operating under rules that were significantly modified in an effort to keep from eventually bankrupting the system. The new system, however, apparently did not accommodate regulations affecting some higher-income employees that require their pension income to at least match what they would receive from Social Security, a policy referred to as “safe harbor.”
Because neither the employees nor the state makes payments to the Social Security system, the discrepancy violates federal law, so it must be addressed. The study produced for the state by the Segal consulting firm estimated it will cost about a quarter of a billion dollars a year for the next 22 years to cover the difference.
In order to shore up the troubled pension system, Governor Pritzker has for years been diverting to pensions an extra few hundred million dollars a year more than required by law. The new demands will make catching up even more difficult and send state law makers back to the drawing board to create a stable fix.
State Rep. Stephanie Kifowit, an Oswego Democrat and chair of the House Personnel & Pensions Committee, introduced legislation for just that purpose during the previous session, but her bill never made it out of committee, apparently because lawmakers were waiting to find out how big a hit the system was taking.
“Everybody knew Tier 2was in violation of safe harbor. It was kind of like Captain Obvious. But now we have a number,” said Kifowit. “And it’s a small part of the unfunded liability that already exists in those pension systems because of fiscal mismanagement of the past.”
Small Business Optimism Remains Resilient
Small business optimism grows, despite inflation and higher interest rates, the latest MetLife and U.S. Chamber Small Business Index shows. The Index score rose in the second quarter to 63.1 from 60. Small businesses are showing remarkable resiliency. A majority report their business is in good health, and many have high expectations for the future.
- 71% of small business owners expect their revenue to increase in the next year, a record high.
- 47% expect to hire more staff in the next year, also a record high.
- 42% plan to increase investment in the next year.
Small businesses still face plenty of challenges, the Index finds. Inflation tops the list for the sixth-straight quarter. More than half (54%) say it is a top challenge followed by interest rates rising (23%), supply chain issues (23%), and revenue (20%). Half (50%) report that they have delayed plans to grow their business in response to higher interest rates.
The challenges of our current economy may have delayed some small business owners’ plans to expand or hire more staff, but now they see the opportunity for growth on the horizon.
Durable Goods Orders Surge
New orders for durables goods are on a strong run. They surged 3.3% in March, rose 1.2% in April, and increased 1.7% in May. This trend is an encouraging sign for the economy.
Durable goods are an important economic indicator because they are long-lasting, more expensive items that consumers and businesses purchase. Consumers and businesses buy more of them when they feel better about their long-term prospects and that of the broader economy. They often use credit to buy them due to their large price tags.
For consumers, they include computers, appliances, and cars. For businesses, durables include bigger items like airplanes, heavy machinery, and other capital goods necessary to manufacture products.
All categories of durables saw gains in May. Some of the bigger increases came in cars (2.2%) and airplanes (33%). Capital goods (excluding planes) rose a respectable 0.7% on the month. The last three months of impressive sales of durables tell us businesses and consumers have confidence the economy will be strong going forward.
Stay well,
Mike Paone
Executive Vice President
Joliet Region Chamber of Commerce & Industry
mpaone@jolietchamber.com
815.727.5371 main
815.727.5373 direct