Nonpartisan think tank advises Illinois to look to the future with
federal funds
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[January 27, 2022]
By Kevin Bessler |
(The Center Square) – A nonpartisan think
tank says Illinois should be wary of falling off a financial cliff after
their federal taxpayer COVID-19 relief aid expires.
Pew Charitable Trusts points to the Great Recession when states plowed
through federal aid without looking to the future. In 2009, with state
finances in distress, Congress offered them money through the American
Reinvestment and Recovery Act (ARRA). The funds provided critical
relief, but when most of the money ran out at the end of 2011, states
suddenly lacked the funds to support ongoing programs and services.
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In the era of COVID-19 relief, Josh Goodman, Pew senior officer for
State Fiscal Health, said states face the risk that spending will
increase to levels that will prove impossible to sustain once the
federal relief money expires in 2024. Goodman adds states that plan
ahead and act responsibly can avoid that risk and position their budgets
and economies to be on stronger footing.
“What we are counseling states is that they need to still be mindful of
the long-term picture,” Goodman said.
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Goodman thinks Illinois should be cautious about using American Rescue
Plan Act (ARPA) money to create new ongoing programs. However, if
ongoing spending is below what a state is likely to be able to sustain,
then using some of the federal tax funds for ongoing expenses is a
reasonable choice.
One suggestion is to replenish the state’s rainy day fund. In 2020,
Illinois’ rainy day fund contained about enough for 30 seconds worth of
state operating expenses.
The lack of rainy day savings is a major reason why Illinois was the
only state to borrow from a Federal Reserve lending program during the
pandemic. Illinois also has $4.5 billion in outstanding unemployment
trust fund debt.
“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.
Illinois Comptroller Susana Mendoza has introduced a plan to strengthen
the rainy day fund. The proposal calls for triggering monthly transfers
into the Budget Stabilization Fund and the Pension Stabilization Fund
when the state’s bill backlog is less than $3 billion. That is the point
in which Mendoza’s office estimates the state is paying bills within a
30-day cycle, which is customary in business.
Goodman understands that Illinois and other states are eager to use the
ARPA money to fund ambitious initiatives to improve their economic
competitiveness. By acting responsibly now while maintaining a long-term
perspective, Goodman said states can ensure that future challenges and
crises will be less painful. |