Fiscal Year 2022 Budget Approved
At the tail end of May, legislators approved the Fiscal Year 2021-2022 budget. Illinois was originally set to receive roughly $7.5 billion from the American Rescue Plan Act (ARPA), however that amount was updated to approximately $8.1 billion.
The FY2022 budget includes approximately $42.2 billion in General Revenue Funds (GRF) and $2.5 billion from ARPA, with the rest of the ARPA funds to be spent after legislative action in Fiscal Years 2023-2025.
In order to reach the necessary revenue to deal with the projected deficit from GRF, the governor’s office had proposed closing or reducing many tax incentives, including the sales tax incentive for biodiesel. The budget incorporated only four from the original list:
- Elimination of accelerated depreciation allowed under the Federal Tax Cut & Jobs Act (TCJA). The state estimates that by removing this accelerated depreciation, it will generate $214 million for the state. TCJA allowed a business to take 100% depreciation deduction in the year of purchase for qualifying assets.
- Cap Corporate Net Operating Loss (NOL) deduction at $100,000 per year. This caps the amount a business can carry forward its NOL to future years. It is estimated the state will see an increase in tax revenues of $314 million.
- Align treatment of foreign-source dividends to treatment of domestic source dividends. This was another tax incentive provided by TCJA that allowed corporations to deduct foreign source dividends at 100% and global intangible low-taxed income at 50%. It is estimated the state will see an increase of tax revenue of $107 million.
- Eliminate the corporate franchise tax phase out. In 2019 legislation was approved to begin the gradual phase out of the corporate franchise tax by 2024. It is estimated this will cost businesses $20 million.
The budget was crafted to pay off Illinois’ federal short-term borrowing early, as well as pay back previous years’ state interfund borrowing. This totals approximately $3 billion in debt. Additionally, the budget allows Illinois to prepay its Medicaid payments (the largest state expenditure), so that it can utilize higher matching funds from the federal government, thus bringing in more state revenue.
The ARPA funds were essentially split into two categories: various recovery programs and the capital bill. The economic recovery funds total $1.5 billion and are appropriated to aid various industries such as tourism, hospitality, bars, and restaurants, as well as the state’s unemployment services. Additionally, these funds will be spent on programs to deal with the lasting effects of the pandemic, such as long-term care facilities, mental health services for first responders, substance abuse prevention, education, and college bridge programs.
The other $1 billion in funding will be injected into the capital program aimed to help jumpstart projects and create jobs. State revenues for the capital bill were significantly impacted negatively by the 2020 shutdowns.