If Illinois uses COVID-19 funds for its operations, expect a financial pitfall
A think tank has advised Illinois leaders not to use temporary federal COVID-19 relief for ongoing programs. This would lead to future funding shortfalls.
Illinois could face a financial cliff when federal taxpayer COVID-19 assistance expires if the state launches new ongoing programs using temporary relief funds, a nonpartisan think tank warns.
States such as Illinois, which have increased their annual spending while relying on excess funds from the U.S. bailout, could soon run into unsustainable deficits once that relief expires, the budget health official for Illinois said. the state to The Pew Charitable TrustsJosh Goodman.
Goodman evokes the post-Great Recession era when states relied too heavily on U.S. reinvestment and Law of recovery help to support expenses. Many states were unable to fund ongoing programs and services when this federal assistance 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 advise states is that they should always be aware of the long-term situation,” Goodman said.
Goodman cautioned elected leaders in Illinois 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 lag behind expenditures, the use of funds would be reasonable to pay existing obligations.
One suggestion was to replenish the state’s rainy day fund used to maintain programs and retain workers without major tax increases or spending cuts at the onset of an economic downturn. Illinois’ Rainy Day Fund contained just $60,000 at the start of the COVID-19 pandemic, enough to cover state operating expenses for 30 seconds.
This underfunding is primarily the reason Illinois was the only state in the nation to borrow from the Federal Reserve’s lending program, taking on $1.8 billion in debt at the start of the pandemic.
Illinois’ Unemployment Insurance Trust Fund also remains underwater at $5.8 billion after the state borrowed $4.2 billion in initially interest-free federal loans. But failure to repay that loan on time now has Illinois paying $60 million a year in interest.
“Putting money into the rainy day fund would be a way to save some of the money the state currently has in the surplus for future spending in tougher years,” Goodman said.
Illinois Policy Institute experts advise using relief funds to replenish the unemployment trust fund. In addition to the $60 million a year in interest on money borrowed for the fund, Illinois may automatically raise unemployment insurance taxes on companies that current law mandates until the trust fund is filled. These increases will slow the job recovery in a state that is already lagging the country’s economic recovery.
Governor JB Pritzker said heads of state spent no COVID-19 funds on recurring programs during the fiscal year state budget 2023. The governor is expected to provide details on the use of those federal funds during his state budget submission on Feb. 2.