Nonpartisan think tank advises Illinois to look to the future with federal funds | Granite City News
A nonpartisan think tank says Illinois should be wary of falling off a financial cliff after federal taxpayer COVID-19 relief assistance expires.
Pew Charitable Trusts evokes the Great Recession when states dipped into federal aid without looking to the future. In 2009, with state finances in trouble, 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 in late 2011, states suddenly ran out of funds to support ongoing programs and services.
In the era of COVID-19 relief, Josh Goodman, Pew’s senior officer for state fiscal health, said states run the risk of spending rising to levels that will prove unattainable. maintain once federal relief money expires in 2024. Goodman adds that planning ahead and acting responsibly can avoid that risk and put their budgets and economies on a stronger footing.
“What we advise states is that they should always be aware of the long-term situation,” Goodman said.
Goodman thinks Illinois should be careful about using American Rescue Plan Act (ARPA) money to create new ongoing programs. However, if current expenditures are less than a state is likely to be able to support, using a portion of federal tax funds for current expenditures is a reasonable choice.
One suggestion is to replenish the state’s rainy day fund. In 2020, the Illinois Rainy Day Fund contained approximately enough for 30 seconds of state operating expenses.
Lack of rainy day savings is a major reason Illinois was the only state to borrow from a Federal Reserve loan program during the pandemic. Illinois also has $4.5 billion in outstanding unemployment trust funds.
“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 Comptroller Susana Mendoza outlined a plan to bolster the rainy day fund. The proposal calls for triggering monthly transfers to the Fiscal Stabilization Fund and the Pension Stabilization Fund when the government’s backlog of bills falls below $3 billion. This is when the Mendoza office estimates that the state pays the bills in a 30-day cycle, which is usual in business.
Goodman understands that Illinois and other states are eager to use 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.