February 15, 2011
Know Your Income, Then Budget
The people of Illinois deserve a balanced state budget they can afford
Since the record tax hikes were passed last
month, everyday staples have become less
affordable for many families. Will state
Tax & Budget Brief
lawmakers respect the sacrifices they are
making and budget responsibly?
An honest budgeting process requires some
idea of long-term revenue expectations. Public
agencies in Illinois have not fully produced
such estimates, although various data can be
combined to create reasonable projections.
That data is used in this report to predict state
revenues.
Revenue projections are risky and imprecise.
That’s why lawmakers must budget cautiously,
not spend every penny predicted to enter
state coffers – and certainly not spend beyond
projected revenues.
The report creates several revenue scenarios,
using data from an array of government
entities and the Institute’s own projections.
Each scenario runs through the 2016 fiscal year
for one obvious reason: that’s the year during
which the 2011 tax hikes will begin to sunset,
creating a drop-off in state revenue. To put
Illinois on a path towards a balanced budget,
general revenue spending must be set at levels
that are sustainable after that drop-off.
The projections that follow suggest that Illinois
will have – at the most – about $33.2 billion to
dedicate to operational spending, debt service
and employee pensions in FY2016. In fact, it’s
highly likely that revenues will fall short of that
mark.
Collin Hitt is Director of Policy for the Illinois Policy Institute. Amanda Griffin-Johnson and Ashley Muchow
are Public Policy Analysts for the Illinois Policy Institute.
The recent tax hike will create a sudden influx
of cash to the state. That cash is scheduled to
run out. But budget proposals – including those
from the governor – include operating budgets
that cannot be maintained without additional
tax increases and a permanent extension of the
tax increases that thousands of taxpayers are
already demanding be repealed.
Now is the time to lower spending to
appropriate levels. Additional borrowing and
additional taxes cannot be part of a responsible
budget. Thus, the projections in this report are
based on one fact – Illinois’s tax structure will
remain in place as is and the state will no longer
play budget tricks using long-term borrowing to
pay the cost of today’s government.
Projecting Revenue
Three separate state entities have released
revenue forecasts for the state of Illinois.
Though no one has offered projections that
extend to the 2016 fiscal year—the year in
which revenues are scheduled to decline as
recent tax hikes sunset—the Governor’s Office,
Office of the Comptroller, and the legislative
Commission on Forecasting and Government
Accountability have each released figures over
the past year.
• The Governor’s Office of Management
and Budget (GOMB) has released revenue
estimates for FY2011 through FY2014.1
• Comptroller Judy Baar Topinka’s office
released rough revenue estimates to media
outlets for FY2012 through FY2015.2
• The Commission on Government
Forecasting and Accountability (COGFA)
 Page 2 of 6

Table 1. Base Revenues (FY2011-FY2016)

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016
GOMB $27,283,000,000 $27,920,000,000 $28,636,000,000 $29,650,000,000 N/A N/A
COGFA $27,294,000,000 N/A N/A N/A N/A N/A
Comptroller N/A $27,000,000,000 $27,810,000,000 $28,644,000,000 $29,504,000,000 N/A
Source: Governor’s Office of Management and Budget; Commission on Government Forecasting and Accountability; and
the Office of the Comptroller.

has released two sets of FY2011 revenue
It’s estimates—one before the passage of
the income tax hikes3 and one examing
unfortunate the additional revenues the tax hikes will
that official provide.4
state None of these revenue estimates extend to the
projections are 2016 fiscal year, a vital time for state finances.
But together they can be used to create a
that might result from the increase in income
tax rates.
Base Revenues
Presented in Table 1 are the most recent
revenue estimates provided by each of the
agencies mentioned previously. There are
obvious holes in each projection.

incomplete. foundation for several revenue scenarios, It’s unfortunate that official state projections
calculated below, that extend to 2016. are incomplete. Any responsible budget
Any recommendation requires that FY2016 be
responsible Some basic definitions are in order, before
discussions of revenue projections can begin.
kept in mind, since that is the year in which
revenues are expected to decline and smooth
budget Essentially, revenue estimates are the sum out.
of two figures: “base” revenues and “new”
recommendation revenues. Base revenues are those that the state For the sake of this paper, each agency’s
requires that could have reasonably expected to receive if base revenue estimate will be extended from
2010 tax rates had remained in place (i.e. if no its last point, assuming a 2.3 percent annual
FY2016 be tax hike had passed). New revenues are those increase5 thereafter. Table 2 presents three
kept in mind,
Table 2 and Graphic 1. Projected Base Revenues (FY2011-FY2016)
since that is
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016
the year in GOMB $27,283,000,000 $27,920,000,000 $28,636,000,000 $29,650,000,000 $30,331,950,000 $31,029,584,850

which revenues COGFA $27,294,000,000 $27,921,762,000 $28,563,962,526 $29,220,933,664 $29,893,015,138 $30,580,554,487

Comptroller N/A $27,000,000,000 $27,810,000,000 $28,644,000,000 $29,504,000,000 $30,182,592,000
are expected
to decline and
smooth out.

Dashed lines represent

projections from Table 2

Source: Source: Governor’s Office of Management and Budget; Commission on Government Forecasting and Ac-
countability; Office of the Comptroller; and Illinois Policy Institute calculations
Note: Figures in blue have been calculated by the Illinois Policy Institute, based upon each agency’s most recent rev-
enue estimates and other assumptions stated in this report.
 Page 3 of 6

Table 3. New Revenues (FY2011-FY2016)

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016
GOMB $2,882,000,000 $7,252,000,000 $7,516,000,000 $7,726,000,000 N/A N/A
COGFA $2,647,000,000 $7,009,000,000 $7,258,000,000 $7,418,000,000 N/A N/A
Comptroller N/A $7,000,000,000 $7,210,000,000 $7,426,000,000 $5,048,000,000 N/A On December
Source: Governor’s Office of Management and Budget; Commission on Government Forecasting and Accountability; and
Office of the Comptroller. 31, 2014,
different projections of revenues, based upon COGFA’s numbers in particular were found in
tax rates are
that assumption. their January 2011 newsletter. However, in an scheduled to
analysis provided earlier that month, COGFA
By extending each revenue estimate forward published new revenue estimates for FY2016 fall to 3.25
using clear assumptions, a relatively consistent
picture of base revenues is formed. The highest
and the following ten fiscal years. That COGFA
report estimates that new tax hike revenue in
percent for
FY2016 estimate lands 3.5 percent higher than FY2016 will be 35.7 percent of the FY2014 individuals
the lowest estimate—a significant but credible totals.6
margin of error. and 5.25
New Revenues
If each agency’s FY2014 estimates of new
revenue are reduced to 35.7 percent of its total,
percent for
Each agency has provided estimates of how the figures in Table 4 emerge as reasonable corporations.
much new revenue the tax hikes will generate. estimates of new revenue FY2016.
The most recent estimates available from the When that
Governor’s Office of Management and Budget Table 4. FY2016 Tax happens,
run through FY2014; so do the estimates from Revenue Estimates
the Commission on Government Forecasting
FY2016
revenues will
and Accountability. Estimates from the
comptroller office run through FY2015. Table
GOMB $2,754,881,986 fall as well.
COGFA $2,645,057,542
3 presents those figures.
Comptroller $2,647,910,125

The recent tax hikes increased the individual
income tax rate to 5 percent from 3 percent,
and the corporate income tax rate to 7 percent
from 4.8 percent. On December 31, 2014,
mid-way through FY2015, those tax rates are
scheduled to fall to 3.25 percent for individuals
and 5.25 percent for corporations. When
that happens, revenues will fall as well. State
collections will decline partially in FY2015, and
will fall further in 2016 – leveling off thereafter
if tax rates remain at their scheduled rates.
The new law also includes a three-year
suspension of a valuable business write-off
which previously gave Illinois employers the
ability to deduct net annual financial losses
from their taxable income in future, profitable
years. That suspension will fully expire before
FY2016.
Table 3 presents only the newest estimates
from GOMB, COGFA and the Comptroller
for new revenue created by the tax hike.
Source: Governor’s Office of Management
and Budget; Commission on Government
Forecasting and Accountability; Office of
the Comptroller; and Illinois Policy Institute
calculations
Note: Figures in blue have been calculated by
the Illinois Policy Institute. These figures are
based on each agency’s most recent revenue
estimates and other assumptions stated in
this report.
In order to complete a five-year budget
outlook, 2015 estimates must be created as well.
The Comptroller provided her own projections
for FY2015, which reflect the partial revenue
decline the state will experience as the tax hikes
begin to sunset midway through the fiscal year.
To close the gap between FY2014 and FY2016
in the COGFA and GOMB data, FY2015
revenue in Table 5 is a straight-line average
of FY2014 and FY2016. Though this is an
indelicate approach, without detailed month-by-
month revenue projections for 2015—which do
 Page 4 of 6

Table 5. Projected Tax Revenues (FY2011-FY2016)

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016
GOMB $2,882,000,000 $7,252,000,000 $7,516,000,000 $7,726,000,000 $5,240,440,993 $2,754,881,986
COGFA $2,647,000,000 $7,009,000,000 $7,258,000,000 $7,418,000,000 $5,031,528,771 $2,645,057,542
Comptroller N/A $7,000,000,000 $7,210,000,000 $7,426,000,000 $5,048,000,000 $2,647,910,125

Source: Governor’s Office of Management and Budget; Commission on Government Forecasting and Accountability;
Office of the Comptroller; and Illinois Policy Institute calculations.
Note: Figures in blue have been calculated by the Illinois Policy Institute, based upon each agency’s most recent rev-
enue estimates and other projections used in this report.
Under
current Table 6. GOMB Revenue Adjustments (FY2012-FY2016)
tax law FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

and modest GOMB $7,100,000,000 $(845,000,000)

Source: Governor’s Office of Management and Budget
$(40,000,000) $(944,000,000) $(540,000,000) $(540,000,000)

economic not exist—it is the most reasonable approach
growth, the available. The following picture emerges.
state’s general As with the projections of base revenues,
revenues in the various estimates of new revenue vary by
roughly 4 percent.
FY2016 will
Revenue Adjustments
likely near One final adjustment is needed. In a three-
$33 billion. year spending plan, the Governor’s Office of
Management and Budget has published revenue
However, adjustments that largely reflect lost federal
several factors revenues. These lost revenues will result from
the decreased Medicaid spending made possible
should make by incremental entitlement reforms passed in
conjunction with the tax hike. The GOMB’s
lawmakers projection of lost federal Medicaid dollars
cautious increases steadily between FY2012 and FY2014.
Since no detailed information is available from
about GOMB on whether the lost federal aid will
continue to change beyond FY2014, in the table
counting below the FY2014 adjustments are simply held
heavily on constant through FY2016.
that figure. These adjustments will in turn only be made to
the GOMB revenue projections. The estimates
based on the Commission on Government
Forecasting and Accountability do not
contain sufficient nuance to allow for such
modification.
Total Revenues
Figures provided by the Governor’s Office
of Management and Budget, Commission on
Government Forecasting and Accountability,
and the Comptroller are used as foundations
for three different revenue scenarios.
Responsible assumptions were used to fill in
various gaps and to extend those figures to
FY2016.
Completing revenue projections simply requires
us to combine the base revenues in Table 2,
the new revenues in Table 5, and the GOMB
revenue adjustments in Table 6. The totals
appear in Table 7 on the next page.
A remarkably similar revenue picture emerges.
The highest estimate of revenues stems from
GOMB’s projections, and the most modest
estimate stems from the Comptroller’s more
cautious but less nuanced figures. The $620
million difference between the highest and
lowest shows a total difference of less than 2
percent.
Under current tax law and modest economic
growth, the state’s general revenues in FY2016
will likely near $33 billion. However, several
factors should make lawmakers cautious about
counting heavily on that figure.
Additional Factors Impacting Revenue
None of the projections—not even those from
the Governor’s Office of Management and
Budget—make clear whether they take several
recent developments into account.
Tax Amnesty
During FY2011, the state created a tax amnesty
program that allowed past due tax debt to be
paid to the state without penalty if done so
 Page 5 of 6
Table 7. Total Revenues (FY2011-FY2016)
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016
Base Revenues
None of the
GOMB $27,283,000,000 $27,920,000,000 $28,636,000,000 $29,650,000,000 $30,331,950,000 $31,029,584,850 projections—
GOMB
Adjustments $7,100,000,000 $(845,000,000) $(40,000,000) $(944,000,000) $(540,000,000) $(540,000,000) not even those
COGFA
Comptroller
$27,294,000,000
N/A
$27,921,762,000
$27,000,000,000
$28,563,962,526
$27,810,000,000
$29,220,933,664
$28,644,000,000
$29,893,015,138
$29,504,000,000
$30,580,554,487
$30,182,592,000
from the
New Revenues Governor’s
GOMB
COGFA
$2,882,000,000
$2,647,000,000
$7,252,000,000
$7,009,000,000
$7,516,000,000
$7,258,000,000
$7,726,000,000
$7,418,000,000
$5,240,440,993
$5,031,528,771
$2,754,881,986
$2,645,057,542
Office of
Comptroller N/A $7,000,000,000 $7,210,000,000 $7,426,000,000 $5,048,000,000 $2,647,910,125 Management
Total Revenues
GOMB $37,265,000,000 $34,327,000,000 $36,112,000,000 $36,432,000,000 $35,032,390,993 $33,244,466,836
and
COGFA $29,941,000,000 $34,930,762,000 $35,821,962,526 $36,638,933,664 $34,924,543,909 $33,225,612,029 Budget—
Comptroller N/A $34,000,000,000 $35,020,000,000 $36,070,000,000 $34,552,000,000 $32,830,502,125
Source: Source: Governor’s Office of Management and Budget; Commission on Government Forecasting and Accountabil- make clear
ity; Office of the Comptroller; and Illinois Policy Institute calculations.
whether
Note: Figures in blue have been calculated by the Illinois Policy Institute, based upon each agency’s most recent revenue
estimates and other assumptions stated in this paper. they take
within a specified time frame. Early estimates poker machines, a privatization of lottery
several recent
suggest that more than $400 million was management and incremental increases to developments
collected through the program. While some various excise taxes. An Illinois appellate court
argue the tax amnesty generated needed cash, unanimously struck down the capital plan and into account.
it can also skew the revenue outlook for future its accompanying revenue sources in January
years. This is a non-recurring revenue source 2011. However, the state has already issued
that should not factor into the tax base for bonds to allow construction to begin on several
future years. projects. Those bonds must be repaid. If the
Illinois Supreme court upholds the appellate
It appears likely, but isn’t certain, that this court decision, then $500 million that the state
total was included in the Commission on was counting on to repay those bonds and
Government Forecasting and Accountability other construction costs will disappear.
projections for FY2011 that were used in this
report to create one scenario for future years’ Other Economic Factors
revenue (Table 2). It is unclear whether GOMB Tax hikes hurt commerce. It has been debated
or the Comptroller took this disappearing how significant of an impact the recent
revenue source into account. tax hikes will have on Illinois, and whether
businesses will leave en masse. No matter which
Any projection that fails to take this into side of the debate one takes, it’s a fact that the
account could overestimate future revenues by tax hikes mean businesses and individuals will
$400 million annually. Over the five-year period have less capital to reinvest in Illinois. This
examined, that could create a total error of dynamic effect could in fact erode the overall
$2 billion. Lawmakers should use appropriate tax revenues to the state. Arriving at a precise
caution when budgeting, and the state’s various number is impossible, but none of the revenue
fiscal agencies should take this loss of revenue estimates take into account the detrimental
into account when forming concrete revenue effect that a tax hike will likely have.
projections.
Moreover, beyond the control of Illinois
Capital Plan Revenues lawmakers is the larger national economic
In 2009, the state passed a massive capital plan climate. Many economists and forecasters
to be funded by revenues from new video believe that the nation is slowly climbing out
 Page 6 of 6

Graphic 2. Total Revenues (FY2011-FY2016)

*

Lawmakers
must take Dashed lines represent
projections from Table 7

steps to * The GOMB FY2011 adjustment figure includes $5.35B in short-term borrowing and pension borrowing. The short-
term borrowing was repaid during the same fiscal year, and the pension payment will be repaid over the following
ensure that, decade. Both are temporary measures to generate cash used to sustain state spending for another year.

under any of a devastating recession – by allowing for expenditures.

scenario, the modest revenue growth, the projections also
make this assumption.
government
has a positive If for some reason the national economy grows
more quickly—and if Illinois grows with it—
cash flow. then state revenues will exceed projected totals.
However, equally likely to a dramatic increase in
fortunes is the possibility of a second economic
dip. In the instance of another economic
slowdown, state revenues will fall below
expected levels.
Using Appropriate Caution
FY2011 and FY2012 are the base years upon
which every agency’s revenue projections are
built. If those base years include non-recurring
revenues or revenue sources now eliminated
by the courts, then estimates based upon those
figures will dramatically overstate revenues.
An economic downturn should be considered
plausible if not probable. These events, taken
together or separately, should shaped budget
plans.
Conclusion
Illinois cannot afford to overspend any longer.
State vendors are exhausted and the bond
markets are still wary of lending the state more
money. Lawmakers must take steps to ensure
that, under any scenario, the government has a
positive cash flow. They must keep the numbers
in mind—within five years Illinois will have
little more than $33 billion to use for general
fund appropriates. That money must be used to
pay pension costs, bonded debt and operating
As budget proposals are considered for
FY2012, it should be obvious that a general
fund budget that nears $33 billion takes too
little caution.
A general fund budget that exceeds that figure
places Illinois on an unsustainable path.
Endnotes
1 Illinois Governor’s Office of Management and Budget, 2011,
“Three-Year Budget Projection.” http://www.state.il.us/budget/
Three%20Year%20Projection%201.20.11.pdf
2 See a memorandum published on www.capitolfax.com: http://
capitolfax.com/Spending%20Projection_11%20Tax%20Increase_
final-3.htm.
3 Commission on Government Forecasting and Accountability,
March 2010 Monthly Briefing: http://www.ilga.gov/commission/
cgfa2006/Upload/0310revenue.pdf.
4 Commission on Government Forecasting and Accountability,
January 2011 Monthly Briefing: http://www.ilga.gov/commission/
cgfa2006/Upload/0111revenue.pdf.
5 The 2.3 percent figure is repeatedly recommended by
Commission on Government Forecasting and Accountability in
projections of “new” revenues.
6 Commission on Government Forecasting and Accountability,
“Revenue Bill Analysis, P.A. 96-1496 (SB 2505),” January 13,
2011.