Jim Dey | State starts new fiscal year with revenue growth

State tax revenues got off to a strong start in July — the first month of the 2024-25 fiscal year — and that’s good news for Gov. J.B. Pritzker.

State budget analysts report that revenues increased by $387 million in July 2024 compared to July 2023, with much of the increase due to personal income tax payments.

Eric Noggle, revenue manager for the state Government Forecasting and Accountability Commission, said $360 million of the $387 million overall increase came from personal income tax payments.

He cited “two additional days of receipt collection compared to the same month a year ago” as the reason for the “significant increase.”

A definite drawback of the report was the continuing delay in sales tax and corporate income tax revenues.

July corporate income tax revenues were $242 million. This is a decrease of $81 million compared to July 2023.

Sales tax revenues in July were $942 million, down $45 million from July 2023.

This is a continuation of a disturbing revenue trend.

Corporate income tax revenue for tax year 2024 — July 1, 2023, through June 30, 2024 — fell 11 percent compared to the previous tax year. At the same time, sales tax revenue increased just 1 percent compared to the previous tax year.

These are the “Big Three” sources of income for the state. No other source of income comes close to them.

However, smaller tax sources can generate quite a lot of money.

The increase in interest rates led to $78 million in revenue in July, an increase of $37 million compared to July 2023. Insurance taxes also rose dramatically, increasing to $64 million in July from just $3 million in July 2023. Other revenue increases came from taxes on cigarettes, utilities and property.

Pritzker and lawmakers hope the July revenue boost will be no exception as the state needs fiscal leeway.

State officials are relying on budget assumptions that project revenue of $53.2 billion in the current fiscal year, compared with $52.5 billion in 2023-24.

The difference over the 12-month period was just $692 million.

Commission economist Benjamin Varner said Illinois benefited from “an acceleration in the national economy in the second quarter of 2024.”

Gross domestic product grew by 2.8 percent year-on-year in the second quarter (April-June) from 1.4 percent in the first quarter (January-March).

He added that the increase was mainly due to consumer spending and to a lesser extent to business spending.

But Varner said housing has once again become a drag on growth. He predicted the economy’s housing sector “will continue to struggle until interest rates decline appreciably.”

“Overall, the economy continues to expand,” he said, noting that economic growth has remained steady “since mid-2022, with the exception of the first quarter of 2024.”

Economists have been predicting an economic recession for more than a year, and it has yet to materialize. But inflation is a persistent problem, generating higher interest rates that stifle investment and slow the economy.

He added that these problems will persist “as long as the Federal Reserve views inflation as an urgent threat and keeps interest rates high.”

“Government payouts have also helped the economy grow in recent years, but the question is how long that trend will continue,” Varner said.