Nonpartisan think tank advises Illinois to look to the future with federal funds

[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.

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.

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.