Is Illinois better prepared for the next recession?

CHICAGO - The State of Illinois is in better position to endure a possible future recession than it was during the Great Recession that started in 2007 or the COVID-19 pandemic in 2020, a new study found.

Researchers based the assessment on nine fiscal and economic metrics in which the state saw significant improvements over the past several years. 

The nonpartisan Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign released a report on their findings this month.

State government bills

Among the improvements the study listed was the state paying down its bill backlog, which led to a significant improvement in the state’s credit rating since 2020. That will allow the state to borrow money at lower interest rates.

The state has also boosted the money it has in its rainy day fund. In 2007, the state’s "Budget Stabilization Fund" was about $276 million, about 1% of its general fund expenses, but this year, that fund reached about $2.2 billion, a nearly 700% increase.

Still, Illinois’s rainy day fund represented just 4% of its budget for fiscal year 2025. Fitch Ratings recommends that states maintain reserve funds equal to 10% of their annual budgets.

Illinois’ pension funds are also better funded than just a few years ago. All five of the state’s pension systems have seen improvement in the funded ratio between fiscal year 2019 and 2023. Still, the state has an unfunded liability of about $141 billion.

Taxes and spending

The study also pointed to Illinois’ tax structure as a reason for the state being more resilient to a potential economic downturn. 

Illinois has a flat state income tax, meaning every worker pays the same rate, and the state is more reliant on property taxes to fund schools and local governments. The state relies less on corporate income taxes, which tend to be more volatile during recessions as those sources are more likely to drop when economies slow. 

But the researchers noted that while a progressive income tax structure was more volatile, they also tend to produce more revenue, which can be used to improve infrastructure and public services that are important during a recession.

In 2021, Gov. JB Pritzker implemented a work-share program designed to allow employers to temporarily reduce workers’ hours instead of laying them off during economic downturns. Even though the program was approved in 2014, it had not been implemented by the time the COVID-19 pandemic began.

Research showed that if the program had been in effect in Illinois in 2020, it could have saved between 43,000 and 124,000 jobs and saved the state up to $1 billion in unemployment insurance costs.

Investing in infrastructure, clean energy

Illinois has also invested $2 billion more annually in its public education system, reducing the number of school districts in financial deficit by 55% while increasing grants to make college more affordable for students.

The report also noted the $41 billion the state is expected to spend on infrastructure improvement over the next six years thanks to the capital improvement legislation passed in 2019. The researchers said strong and continuous infrastructure investment retains and attracts new businesses, promotes good jobs, and fosters a more seamless flow of goods and people across the state.

The state’s passage of the Climate Equitable Jobs Act (CEJA) also aims to put the state on a path to 11% clean energy by 2050. That includes preserving the 24,000 jobs tied to keeping the state’s six nuclear plants open.