Illinois’ finances make state resilient if a recession occurs: report

Some economists are predicting that the country could fall into a recession within the next few years, but if it happens, Illinois is in a better place than it was in December 2007 or March 2020, which saw the "Great Recession" and the "COVID-19 Recession,” according to a recent report by researchers at the Illinois Economic Policy Institute and the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign.

“Despite dire predictions from many economic commentators, a national recession was avoided in 2022, 2023 and 2024,” says the report, ‘Resisting the Next Recession: Measuring Illinois’ Economic Resiliency.’ However, the risk of a recession remains elevated in 2025 and beyond.”

A recession is a downturn in economic activity that is usually defined by at least two consecutive quarters of decreasing inflation-adjusted Gross Domestic Product (GDP) and an increase in unemployment lasting more than a few months.  The worst recession in U.S. history was the Great Depression of the 1920s and 1930s.

The three recessions that have occurred since 2000 were the “dot-com bubble” of the early 2000s, the

Great Recession of 2007-2009, and the COVID-19 Recession, according to the National Bureau of Economic Research.

For Illinois, researchers Frank Manzo IV, Bob Bruno and Grace Dunn examined nine key fiscal and economic metrics "on which the state has made dramatic gains over the past several years."

Manzo, an economist with the Illinois Economic Policy Institute, says, "From significant improvements in budgeting and fiscal management to long-term investments in infrastructure, education, healthcare, and the stability of its pension system, Illinois has developed a far stronger resilience to economic downturns than at any time in recent history. Collectively, these improvements will help to mute the impact of any future national recession on critical public services, employment, and the economy as a whole."

The report concedes that “Illinois would not be immune to a national recession. The Illinois Commission on Government Forecasting and Accountability is currently projecting a $618 million budget deficit in Fiscal Year 2026. Additionally, the state’s unemployment rate remains above the national average.”

The scholars intentionally use the term “resilience,” first used in the 1970s to assess ecological systems. Studies categorize resilience into four different system outcomes: “ability to bounce back,” “ability to absorb,” “positive adaptability,” and “system transformation.” These outcomes in research about regional economic resilience have been defined as recovery, resistance, reorientation and renewal.

The report positive observations include:

* Illinois rebuilt its Unemployment Insurance Trust Fund balance to $2 billion.

“This is due to a $1.8 billion transfer of state funds due to better-than-expected state revenues, which was also used to pay off a federal loan borrowed during the COVID-19 pandemic,” the report says.

* Illinois improved the funded ratio of its State retirement systems to its highest level since 2008.

“Illinois has made important strides in its public pension system by making required contributions that had been jettisoned in prior years, offering $2 billion in buyouts to retiring employees and inactive members and making $700 million in supplemental contributions designed to reduce the system’s unfunded liabilities,” Manzo says. “It is important for the state to continue on this trajectory, which would bring the system 90% funded by 2045—well above the 80% standard used by the Government Accountability Office.”

* Through the expansion of Medicaid under the Affordable Care Act, Illinois has reduced its number of residents without health insurance by nearly 1 million, a 56% decrease.

Illinoisans who are covered increased from 86.2% in 2010 to 93.8% in 2023, the report says – a greater percentage of covered people than the nation.

* Illinois committed to investments in climate resiliency and carbon-free nuclear power that are creating thousands of jobs on the path to 100% clean energy.

* Illinois invested $2 billion more annually in public education—reducing the number of school districts in financial deficit by 55%—while increasing grants to make college more affordable by 77%.

* Illinois established dedicated revenue streams that, together with federal funding, will invest $41 billion in roads, bridges, public transit systems, rail, and aviation infrastructure over the next six years.

“In Illinois, every dollar invested in road and bridge construction returns $1.80, and every dollar spent on road and bridge maintenance returns $2.30,” the researchers say.

* Illinois implemented a work-share program that allows employers to avoid layoffs by temporarily reducing employees' hours while enabling workers to receive prorated unemployment insurance benefits.

* Illinois eliminated the General Fund deficit and bill backlog, earning a total of nine credit rating upgrades since 2020 that will allow the State to borrow at lower interest rates.

Illinois achieved its largest ever Budget Stabilization Fund (or "rainy day" fund) balance at more than $2 billion – almost 700% larger than it was prior to the Great Recession.

“The elimination of the bill backlog and reductions in the General Fund deficit, the improvement in the Budget Stabilization Fund, the dedication to making full pension contributions with supplemental payments when possible, and the rebuilt Unemployment Insurance Trust Fund are each positive factors making Illinois more resilient to the next recession,” says the report. “However, Illinois still lags the national average on these metrics, and lawmakers should consider ways to continue building on this momentum with each budget cycle that passes without an economic downturn.”

 

UIUC Professor Bruno, PMCR Director, adds that “Periodic economic contractions present real challenges to employers, working families, and policymakers alike. While no state is recession-proof, Illinois has prioritized prudence in its fiscal management, long-term competitiveness in its public investments, and has pursued public policies that prior recession resiliency research indicates can minimize the impact of economic disruptions.

“Illinois’ current tax structure is a mixed bag that can be both a help and hindrance when it comes to recessions,” he continued. “Our sales tax system doesn’t cover most services, which can invite fiscal headwinds during lean times. And, while our reliance on property taxes and flat income tax structure promotes more stable and predictable public service funding during downturns, it can also constrain the state’s ability to invest higher-than-expected revenues into rainy day reserves or other long-term economic fortifications during good times.”