A hole less deep? State budget office expects $3.7 billion in deficits over next five years — nearly $5 billion less than earlier feared

The state’s financial outlook a few years down the road just got a bit brighter — nearly $5 billion brighter.

That’s the difference between earlier projections of the shortfalls in state finances for the next two fiscal years — a period that begins next July — and the latest forecasts.

The forecasts are not exactly sunny since they still expect the state to see less money coming in than going out, but they’re considerably less gloomy than earlier predictions for those years.

Overall, the forecasts of the state’s finances show an improved outlook for fiscal years 2023 through 2027, according to projections released Tuesday by the Governor’s Office of Management and Budget.

The state’s fiscal years begin July 1 of the preceding year.

In its annual economic and fiscal policy report, the management and budget office forecasts for fiscal year 2023 — which begins next July 1 — a shortfall in the state’s general funds of $406 million, down from the $2.9 billion estimate provided in 2019.

The budget gap in the state’s general funds for fiscal year 2024 — which begins July 1, 2023 — is now projected to be $820 million, a much lower figure than the $3.2 billion projected in 2019.

That means the combined shortfall for those two fiscal years is now expected to be about $1.2 billion, rather than the earlier forecast of $6.1 billion — or about $4.9 billion less.

For the following three fiscal years, the report shows deficits of a little over $1 billion for the 2025 fiscal year, $903 million for 2026 and $598 million for 2027.

That puts the combined deficits for those five fiscal years at a little over $3.7 billion.

Those predictions show the state has made “significant improvement in its structural deficit,” according to a news release on the report.

Gov. J.B. Pritzker said in a statement he and state legislators have “made tremendous progress in putting Illinois on the right fiscal path, supporting small businesses, and creating good jobs in every part of our state.”

“I am committed to building on this significant progress while tackling our remaining fiscal challenges,” the Democratic governor said. “Together, we can build long term fiscal stability for Illinois while ensuring economic opportunity in all of our communities.”

Scott P. Yates/Rockford Register Star via AP file

The improved deficit outlooks are the latest good news for the state’s finances. Illinois saw upgrades to its general obligation bond credit rating by Moody’s Investor Services and S&P Global Ratings during the summer.

In June, Fitch Ratings also improved its outlook for Illinois’ credit, a move the Wall Street credit rating agency said reflects the state’s “preservation of fiscal resilience” and “sustained economic recovery” since the start of the pandemic.

Moody’s marked the first upgrade from any of the three main rating agencies in more than two decades — a development Pritzker at the time said showed “we are well on our way.”

Tuesday’s fiscal predictions offer a far better outlook than forecasts released last November.

With a move to a graduated income tax rejected by voters, the office of management and budget foretold of “sizeable deficits” for fiscal years 2022 through 2026 on top of a $4 billion budget deficit for the 2021 fiscal year in their report from last November.

In last year’s report, the office also projected the state’s backlog of unpaid bills is projected to grow over the next five years, rising from about $10.1 billion for the 2021 fiscal year to a little over $33 billion in 2026.