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ARP funds, state revenues higher than expected, but Leader Harris urges caution

Friday, May 14, 2021

* Dean Olsen at the State Journal-Register

House Majority Leader Greg Harris, D-Chicago, told reporters at a Statehouse news conference that the latest information from federal officials indicates Illinois state government will receive $8.1 billion in stimulus funds, not $7.5 billion as initially reported. […]

However, Harris and Zalewski said the additional federal stimulus funds and indications that the state’s economy is recovering quicker as the COVID-19 pandemic wanes don’t mean Pritzker’s proposed repeal of certain tax breaks for companies can be abandoned.

Harris noted that Pritzker now agrees with Democratic leaders that $350 million in spending needs to be added to the fiscal 2022 budget to boost the school-aid formula.

And $296 million more needs to be appropriated for the Medicaid program to deal with pandemic-related medical expenses for low-income residents, Harris said.

* Mike Miletich

Harris says lawmakers are looking at a $1.3 billion hole in the budget right now. That’s down significantly since last week. He explained appropriations groups already started to go through each of the over 12,000 spending lines in the budget.

“The choices are really clear,” Harris said. “We’re either going to find ways to cut to fill that hole or we’re going to have to review the proposals the governor made to close corporate tax loopholes on wealthy individuals and corporations.”

* Lynn Sweet

On Thursday, Durbin led a letter from most of the Democrats in the Illinois congressional delegation to Yellen, making the point the Federal Reserve created that fund to “help state and local governments manage cash flow pressures caused by the pandemic.”

Gov. J.B. Pritzker “and his administration have been in frequent contact with the Treasury Department” to overturn the ban, deputy chief of staff Emily Bittner told the Chicago Sun-Times on Thursday.

The White House should not be surprised at the Illinois pushback. Mendoza and Pritzker have been saying for months Illinois would use a chunk of the $8 billion to repay the debt from the Federal Reserve loan.

They are all asking the Biden White House and Treasury Department to recognize the special Illinois circumstances concerning this one specific debt offering and not apply fiscal handcuffs.

* From the letter

Dear Secretary Yellen:

While we appreciate the work that the Treasury Department is doing to implement the state and local aid provisions of the American Rescue Plan (“ARP”) Act, we write to raise concerns about limitations on the use of funds included in Treasury’s recently released Interim Final Rule on State and Local Fiscal Recovery Funds that will have negative economic impacts on Illinois. We ask Treasury to clarify this Rule to allow State and Local Fiscal Recovery Funds to be used to directly repay short-term borrowing necessitated by the pandemic.

Over the course of the pandemic, Illinois and state and local governments around the country have experienced significant budget shortfalls that impacted their ability to fund essential government services. During the most fiscally challenging times for the state’s cash flow during the pandemic, Illinois utilized short-term borrowing to prevent drastic cuts to healthcare, education, public safety, and key social services. As outlined in the attached letter to Treasury from Illinois Comptroller Susana Mendoza, the State of Illinois used $3.8 billion in short-term borrowing to continue necessary medical payments to the Illinois healthcare industry and purchase urgently needed PPE supplies and equipment at critical points in 2020. Without this short-term borrowing, the state’s recovery would have been jeopardized. These debts would not have been incurred except as a response to the pandemic, which is why Illinois utilized the Federal Reserve’s Municipal Liquidity Facility that was specifically created to help state and local governments manage cash flow pressures caused by the pandemic.

Despite the ARP’s clear intent to allow state and local funding to be used to pay for government services to the extent needed to replace the revenue lost during the last year, Treasury’s Interim Final Rule prohibits the use of funding to repay short-term borrowing even if that borrowing occurred as a result of the pandemic and was used to fund essential government services during the crisis. This limitation that uniquely impacts Illinois runs contrary to the intent of the ARP. We ask that you clarify this Rule to accommodate Illinois’ unique circumstances and allow the ARP’s State and Local Fiscal Recovery funding to be used to directly repay short-term borrowing by state and localities which was necessitated by pandemic and used to help mitigate their response to it.

- Posted by Rich Miller        

4 Comments
  1. - RNUG - Friday, May 14, 21 @ 9:30 am:

    Good move by Durbin and the rest of them.


  2. - the Edge - Friday, May 14, 21 @ 10:41 am:

    Common sense. Adhering to the “but for” principle these funds should be allowed to repay debt incurred to pay covid related expenses. “But for” the Covid pandemic the debt would not have occurred.


  3. - Commisar Gritty - Friday, May 14, 21 @ 11:10 am:

    If there was anything resembling a coherent response from the previous administration, the state wouldn’t have had to spend all that money on PPE. Seems logical to me, especially considering IL is a net contributing state to the Federal government.


  4. - Unconventionalwisdom - Friday, May 14, 21 @ 12:55 pm:

    The State should not depend on ever continuing Stimulus funds to fund ongoing programs.

    Any money necessary to truly compensate for Covid related costs should be on the table. Other than that use the money to pay all back bills.

    It will be interesting to see how the State handles this Stimulus money.


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