CHICAGO -Illinois faces a $750 million shortfall in its current budget and another $91 million in fiscal 2009 as the state grapples with an economic slump that is hurting sales tax and corporate income tax collections, according to updated revenue estimates released yesterday.
The state now expects to collect $29.4 billion in base revenues for fiscal 2008 that runs through June 30. That figure is nearly half of the $1.6 billion increase previously projected over the last fiscal year, leaving a roughly $750 million hole to plug, according to Jim Muschinske, revenue manager for the bipartisan Fiscal Commission on Government Forecasting and Accountability. The current fiscal year started out strong in the first half, but some tax collections have plunged in the start of the second half and the slowdown in growth is expected to continue into the last quarter of the fiscal year.
In the next fiscal year, the commission projects that revenues will fall about $91 million short of the $721 million of additional base revenues from natural growth estimated in the proposed fiscal 2009 budget. The new projection forecasts revenues of $30.1 billion for a growth rate of 2.1%. The fiscal year is expected to start off with flat tax collections with some pickup expected in the latter half.
"Further moderation in revenue inflows from economic sources can be expected to continue well into the next fiscal year," the report says.
Personal income tax collections, which were strong early in fiscal 2008, are expected to drop to about 3.2% in the next fiscal year with little growth in corporate income taxes and 2.2% growth in sales taxes. "Given the current uncertain status of the economy, the revenue picture for fiscal 2009 is far from clear," the report cautions.
Gov. Rod Blagojevich anticipated a $750 million deficit when he unveiled his $58 billion budget and would wipe it out by closing corporate tax loopholes to raise $200 million. He would dip into various state fund balances for another $500 million. To trim costs in the new fiscal year, the governor proposed 3% in across-the-board spending cuts with the exception of public safety, health care, and education.
In addition to $721 million in base revenue growth in fiscal 2009, Blagjevich has proposals that would increase revenues by another $678 million, but those require legislative approval. Lawmakers have blasted many of the governor's new spending proposals as unaffordable.
The current estimates reflect the housing market slump and slowing corporate profits and consumer spending that impacts sales tax collections. Unemployment of 5.6% in Illinois exceeded the national average in January of 4.9%. The state is expected to continue to lag the nation given its historical performance in economic slowdowns.
On the capital front, Blagojevich yesterday continued to push his proposed $25 billion capital budget that relies on $3.8 billion of new borrowing and $7 billion proceeds from a partial privatization of the state lottery. Local and federal matching funds and pay as you go financing would cover the rest.
The governor named a coalition to be led by former Republican Speaker of the House Dennis Hastert and former Democratic congressman Glenn Poshard to push for passage of the plan.
"We are at a critical time in Illinois. We have an economy that is mirroring the slowdown we see across the country. We have bridges that desperately need to be fixed, roads and schools that need to be repaired, and men and women eager to work,"Blagojevich said in announcing the coalition.
"It's time we help Illinois communities that have been waiting nine years for critical capital investments," Hastert said.