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 Illinois could be facing a financial cliff when federal taxpayer COVID-19 aid
expires if the state launches new, ongoing programs using temporary relief
funds, warns a non-partisan think tank.
States such as Illinois that increased annual spending while relying on surplus
American Rescue Plan funds could soon see unsustainable shortfalls once that
relief expires, said the senior officer for state fiscal health at The Pew
Charitable Trusts, Josh Goodman.
Goodman points to the post-Great Recession era when states placed an
overreliance on American Reinvestment and Recovery Act aid to prop up spending.
Many states were unable to fund ongoing programs and services when that federal
relief ran out.
States that act responsibly with the temporary funds currently in their hands
could instead put their economies on a more competitive footing in the future,
he said.
“What we are counseling states is that they need to still be mindful of the
long-term picture,” Goodman said.
Goodman cautioned Illinois elected leaders against using temporary federal
dollars to create new, ongoing programs – such as the universal basic income
program being piloted in Chicago. He said if state revenues are lagging
expenses, using the funds would be reasonable to pay for existing obligations.
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One suggestion was to
refill the state’s rainy-day fund used to maintain programs and
retain workers without major tax increases or spending cuts at the
start of an economic downturn. Illinois’ rainy-day fund had just
$60,000 in it at the start of the COVID-19 pandemic, enough to cover
state operating expenses for 30 seconds.
This underfunding is primarily why Illinois was the only state in
the nation to borrow from the Federal Reserve lending program,
taking on $1.8 billion in debt at the onset of the pandemic.
Illinois’ unemployment
insurance trust fund also remains $5.8 billion underwater after the
state borrowed $4.2 billion in initially interest-free federal
loans. But a failure to repay that loan on time now has Illinoisans
on the hook for $60 million a year in interest.
“Putting some money in the rainy-day fund would be a way to save
some of the money the state has in the surplus right now for future
expenses in years that are more challenging,” Goodman said.
Experts at the Illinois Policy Institute advise using the relief
funds to replenish the unemployment trust fund. Besides the $60
million a year in interest on money borrowed for the fund, Illinois
risks automatic unemployment insurance tax hikes on businesses that
current law mandates until the trust fund is refilled. Those hikes
will slow jobs recovery in a state already lagging the nation’s
economic recovery.
Gov. J.B. Pritzker said state leaders have not dedicated any
COVID-19 funds to recurring programs in the fiscal year 2023 state
budget. The governor is expected to provide specifics on the use of
these federal funds during his state budget proposal Feb. 2.
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