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Jan. 26, 2021
FOR IMMEDIATE RELEASE

Contact: Jamey Dunn-Thomason
               jdunn3@uillinois.edu
               (217) 300-8409

 

 IGPA report finds COVID-19 impact on state revenues not as severe as expected

URBANA — NOTE: The prior version of this release linked to a past report. The link has been corrected. A new report from the University of Illinois System's Institute of Government and Public Affairs (IGPA) found that Illinois’ state tax revenues have fared much better through the COVID-19 pandemic than originally projected last spring

The report, titled Data Indicate COVID-19 Impact on State Revenue Not as Severe as Feared, comes from IGPA’s Task Force on the Impact of the COVID-19 Pandemic. Report lead author Kenneth Kriz, who is the University Distinguished Professor of Public Administration and the director of the Institute for Illinois Public Finance at the University of Illinois Springfield, analyzed state data on tax receipts through November 2020.

What Kriz found may be good news for the state’s budget. The net loss to the General Funds from major revenue sources during the pandemic was $868 million. That’s less than 2% of total receipts for the General Funds, the state’s main accounts for general spending on things like education, healthcare, operations and more.

Several early projections, including an earlier report from the task force, anticipated much larger revenue losses. Most forecasters were predicting a prolonged recession that would cause revenue losses of up to 20%.

“There was a General Funds revenue loss in fiscal year 2020, but much of that was caused by the delay of the federal tax filing deadline,” said Kriz, who is an IGPA affiliate and a faculty lead for the Economic and Fiscal Impact Group of the task force. “Well over half of that revenue loss has been recouped in fiscal year 2021, and General Funds revenues are actually running above what might have been expected for fiscal year 2021.”

The loss across all state funds was $1.44 billion, which is still less of a loss than even conservative estimates projected in the spring.

Kriz said that the economy recovered more quickly than expected, with help from federal stimulus and recovery programs. The report also considered credit card spending data, and what it showed aligned with the findings on revenue. “There was a steep fall in spending in most categories in April and May, then a recovery toward pre-COVID-19 levels. Spending has not recovered completely, but it is near what it likely would have been in the absence of COVID-19,” Kriz wrote.

Still, Kriz warns that as long as COVID-19 is a threat, tremendous uncertainties remain. “If the virus surges again and the economy must be locked down, there will be another round of revenue losses,” he said. 

The report notes that the unequal impact of the pandemic on low-income households was also a potential factor in the lower-than-expected revenue losses. “The labor market effects of the virus and mitigation measures fell more heavily on low-income households. High-income households have maintained their income levels or even seen them rise,” Kriz wrote. “And stimulus programs have buffered low-income household finances. Therefore, aggregate incomes and consumption have continued to grow, leading to stable or increased state revenue.”

At the request of U of I System President Tim Killeen, IGPA assembled more than four dozen interdisciplinary faculty experts from the three system universities to serve on IGPA’s Task Force on the Impact of the COVID-19 Pandemic.

This is the fourth report from the task force’s Economic and Fiscal Health Impact Group. The group’s first three reports focused on the pandemic’s effects on state and local finances, the pandemic’s effects on the state’s economy, and the pandemic’s effects on small businesses. All the task force’s reports and other work can be found on its webpage.

 
 
 

About the Institute of Government and Public Affairs
IGPA seeks to improve public policy discussion through non-partisan, evidence-based research and public engagement in Illinois. Learn more at igpa.uillinois.edu and follow @IllinoisIGPA for the latest updates.