Forefront remains committed to bringing you the latest policy news and is working to integrate public policy across all of our programs. Over the next few weeks, we will summarize important takeaways for the social impact sector from the 2022 state legislative session. In this two-part series,  Part 1 is dedicated to the budget, and Part 2 is dedicated to other significant legislation. Send questions and feedback to [email protected]. 

Jump to:

1. The budget impacts the health of our sector
2. The big picture
3. Needed reforms
4. Record-breaking budget components
5. Unfinished business
6. American Rescue Plan Act (ARPA) funds
7. Racial and economic justice
8. Tax relief for all
9. The Nonprofit Security Grant Program
10. How to stay up to date

1:  The budget impacts the health of our sector

The state budget is the biggest piece of policy passed each year. Much of our sector does business with the state, delivering services to communities across Illinois with state-appropriated funds. This includes health and human services providers, arts organizations, museums, environmental services, and funders that distribute public resources and stand in the gap when public investment falls short.

The enacted budget generally funds important programs in a manner consistent with the Governor’s budget recommendations. Forefront has observed almost universally positive reactions to the budget from social impact sector stakeholders. While not everything was achieved for everyone, from our perspective, this year’s enacted budget includes substantial budget and legislative reforms many deem favorable.

2:  The big picture looks better than it used to

Many data points suggest a dramatic improvement in the state’s overall financial position, resulting in more spending and more relief. Forefront notes that some analysts suggest the FY23 budget package may improve Illinois’ bond rating again, while others cite continued concerns about the impact of Illinois’ corruption on credit ratings. The state’s overall fiscal position has improved in several ways:

• The final FY23 budget is built on a projected $2 billion surplus. The FY22 budget was enacted on a projection of merely $88 million.
• COVID-era debt is mostly repaid. In February, the State repaid its entire $3.2 billion federal loan for COVID-era expenses two years early, saving $82 million in interest.
• In March, under SB2803, the legislature appropriated $2.7 billion to repay the roughly $4.5 billion owed to the Illinois Unemployment Insurance Trust Fund.
• The Governor is expected to sign HB4292, which extends the state employee pension buyout program until the end of FY26. This early buyout program has already reduced liabilities by $1.4 billion.
• SB2803 also appropriated $250 million for remaining unfunded liabilities in the College Illinois! Tuition Plan, and $900 million to pay down past-due group health insurance bills.
• The State’s overall payment backlog is significantly reduced overall with further reductions projected.

3:  …But we still need structural budget reform

Still, we believe, the state’s long-term problems persist.

• According to the Illinois Department of Revenue, the surplus comes from consumers recently spending more on taxable goods than untaxed services. As inflation swells, those gains compound. These trends may not continue.
• State collections also increased due to more federal unemployment benefit payouts, which are subject to state taxes, as well as concurrent increases in both personal and corporate income tax revenues. These trends may also change in coming years.
• Finally, COVID-era federal aid is ending. When that change is factored in, the overall state revenue will decrease in FY23 compared to FY22. In other words, the surplus should be considered temporary until we know more.

For these and other reasons, the Responsible Budget Coalition, of which Forefront has long been a partner, continues to call for meaningful, permanent, structural reforms. The most recent Three-Year Budget Forecast from the Commission on Government Forecasting and Accountability (March 2022; prior to the budget passing) discusses available options for tackling the structural deficit in Illinois. As the representative of the entire nonprofit sector and the philanthropy serving organization in Illinois, Forefront should—and will—be at the table for decisions about structural reform.

4:  The FY23 budget sets some records

Illinois’ FY23 budget package includes HB900 (appropriations), HB4700 (budget implementation [BIMP]), and SB157(revenue/tax). This year, the appropriations and BIMP bills passed mostly along party lines, while the revenue provisions received bipartisan support. Forefront and observers have noted that the bills set some records:

• FY23 will be the first year this century that the state begins a fiscal year with a projected surplus.
• The final $46.5 billion budget constitutes a record spend. It is $1.1 billion more than the Governor’s FY23 budget proposal and offers $1.8 billion in total (mostly temporary) tax relief.
• For the first time since 1994, the state will pay more than the minimum required for pensions. The enacted budget makes additional payments in both FY22 ($300 million under SB2803) and FY23 ($200 million), reducing the total unfunded liabilities by an estimated $1.8 billion by FY45.
• The enacted budget makes a $1 billion deposit into the Budget Stabilization Fund (BSF) aka “Rainy Day Fund,” which is a threshold never reached before in Illinois. (Note: the State Comptroller advocated for additional ongoing reforms to the BSF [see HB4118] that were not enacted; namely, directing payments into the Budget Stabilization Fund whenever the bill backlog falls below $3 billion.)

5:  The legislature left some business unfinished

$1.8 billion is still owed to the Unemployment Trust and is subject to ongoing negotiations with labor and business. SB157 extended the deadline for those negotiations until Jan. 1, 2023, buying more time. Forefront has learned that this issue may be taken up via special action after the June primary elections but before veto session, since by November, when veto session occurs, the state won’t have much time to implement negotiated changes. Here’s a good primer on this issue.

6:  The State’s American Rescue Plan Act (ARPA) Funds Have All Been Allocated

HB900 contains a long list of very specific line-item appropriations for previously unallocated American Rescue Plan Act (ARPA) funds, many of which are helpful to the social impact sector. Arts Alliance Illinois, for example—one important Forefront policy member and stakeholder—is touting the use of ARPA to fund an unprecedented $50 million in relief and recovery grants dedicated to the creative sector. This is consistent with the level of relief offered to other industries (hotels got $75 million; restaurants got $50 million). $235 million was dedicated to early crime intervention. The National Council of State Legislatures and the Center for Budget and Policy Priorities both track the use of states’ ARPA funds, but as of the time of writing, their databases do not reflect Illinois’ FY23 budget appropriations. ARPA funds were also used to repay the UI Trust Fund debt and allocations made last year.

7:  The budget aims to improve economic justice for lower-income households

Forefront is committed to working alongside partners to help advance racial equity in Illinois. These aims are heavily driven by the state’s budget and other policies. The FY23 budget includes a major shift in tax policy to support the lowest income Illinoisans who are more likely to be people of color.

SB157 permanently expands the size of the state’s Employee Income Tax Credit (EITC) from 18% to 20% of the federal credit. The bill also expands EITC eligibility to now include ages 18-24 and 65+, as well as taxpayers using an Individual Taxpayer Identification Number (ITIN) instead of a Social Security Number. In contrast, New Jersey’s earned income tax credit is 40% of the federal rate, and Maryland, Massachusetts, New York, and Ohio are ~30%. While there remains room for improvement, Forefront applauds the EITC expansion and recognizes the leadership of the Economic Security for Illinois’ Cost of Living Refund Coalition in this effort, which includes many key Forefront stakeholders.

8:  Everybody else will get a little money back too

The enacted budget includes a series of tax relief maneuvers that will impact nearly all Illinois residents, most of them temporary and short-term, including:

• Suspension of the 1% grocery tax until 6/30/23 (local governments will be kept whole)
• Delay in the automatic inflation-adjusted increase to the motor fuel tax until 1/1/23
• Up to $300 property tax rebate for qualifying homeowners
• Direct rebate up to $50 for adults up to $200,000 single/$400,000 joint
• $100 per dependent child (up to 3 children)
• Suspension of state’s portion of sales tax on school supplies and clothing costing less than $125 between August 5-14, 2022

The revenue bill also included a list of more targeted new and extended tax credits, including:

• Update the electric vehicle tax credit to include the manufacturing of battery components
• Tax credit for microchip manufacturers
• $250 School supplies tax credit for teachers
• Sales tax exemption for breast pumps
• Bigger film and theater tax credit for productions brought to Illinois
• $500 tax credit for volunteer firefighters who have worked at least nine months in the last year
• Extension of an expiring Economic Development for a Growing Economy tax credit for another five years.

Some other important credits were excluded, for reasons that aren’t entirely clear. Part two of this series will examine a couple of those excluded proposals.

9:  Nonprofits get a new $20M Nonprofit Security Grant Program

There is $20 million in new funding for grants to nonprofit organizations. These funds are earmarked for security improvements to combat the recent increase in hate crimes targeting Latinx, Black, LGBTQ, Asian, and Jewish residents. See fact sheet.

Forefront supported this measure in committee as a member of the Safeguard Illinois Communities Coalition and applauds the leadership of Jewish United Fund/Jewish Federation of Chicago in this effort. Forefront will work with JUF later this year to help educate the nonprofit sector about this new opportunity. Watch our communications for more details.

10:  Watch for more information

Next week Forefront will debrief key legislative actions that occurred outside of the budget process. Stay up to date by signing up for Forefront’s newsletter, joining Forefront’s Social Impact Action Center, and following Forefront on Twitter, LinkedIn, and Facebook.

Those interested specifically in the details of the health and human services budget may register for Illinois Partners for Human Service’s budget debrief webinar on 4/22/22 at 12pm.