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How federal money can be used to indirectly repay the remainder of the state’s Federal Reserve loan

Wednesday, Nov 24, 2021

* May 21

Illinois Democratic leaders announced Thursday that they have agreed to repay federal pandemic-relief loans more than a year earlier than scheduled, saving taxpayers $100 million in interest.

The plan was announced as Democrats who control the House and Senate head into the final 10 days of the legislative session, still struggling to find ways to close a $1.4 billion deficit for the budget that begins July 1.

Washington lent money to in early 2020, as the COVID-19 pandemic and containment measures left economies battered and hundreds of thousands on the unemployment line. Illinois borrowed $3.2 billion and has repaid $2 billion. The rest was due by December 2023, but the state has money to pay it earlier.

“The federal loan was a lifeline to keep our state and our economy afloat,” said Senate President Don Harmon, an Oak Park Democrat. “That our economy has rebounded so strongly that we can now pay it off early is a testament to the resilience of the people and businesses of the great state of Illinois.”

$870 million is remaining on the principal as of today. But the rebounding economy may not be enough to pay the rest of it off, along with $928 million in interfund borrowing.

* Tribune

During the brief debate over a $42 billion state spending plan introduced in the closing hours of this year’s spring session, the Illinois legislature’s Democratic majority outlined less than $3 billion in spending in the coming year from a massive infusion of federal coronavirus relief money.

With the state in line to receive $8.1 billion from President Joe Biden’s American Rescue Plan, Democrats said they wanted to spend the money judiciously and avoid creating programs that would continue to demand funding after the one-time federal cash influx was gone. They said this year’s plan for the relief money called for $1 billion in infrastructure spending, with the remainder going to items such as hospitals, violence prevention, and tourism and business recovery.

Left unmentioned as lawmakers were approving the budget, however, was the creation of a state fund that gives Gov. J.B. Pritzker authority to spend billions of dollars from the federal aid without first getting approval from lawmakers.

In the end, the state’s spending plan for the budget year that began July 1 counts on using at least another $2 billion from the pandemic relief funds to make up for “lost revenues,” leaving less than $3.6 billion to budget out over the next three years.

If you go the very last paragraph of the story, you’ll see that $144 million has been spent so far to make up for operational costs last fiscal year at the Department of Corrections and Department of Juvenile Justice.

* Fitch Ratings explained how the Essential Government Services Support Fund works last week in its positive outlook on the state’s credit rating…

Illinois’ legislature also enacted a spending plan for American Rescue Plan Act (ARPA) aid, focused on one-time investments rather than recurring operating needs. The plan uses $2.8 billion of Illinois’ $8.1 billion ARPA direct aid distribution on infrastructure and other one-time, or pandemic-specific needs. With this initial allocation, the state appears to have avoided the use of ARPA aid for any material ongoing program costs in this budget.

Additionally, as part of the enacted budget, the state created the Essential Government Services Support Fund (EGSSF) and allocated $2 billion of the more than $5 billion in remaining ARPA aid to flow through the fund. Fitch anticipates the state will primarily use the EGSSF as a cash flow management tool that will assist in ensuring compliance with U.S. Treasury guidelines for ARPA direct aid.

The $2 billion is essentially offset from a budgetary perspective with planned repayment of the MLF loan ($1.045 billion) and interfund borrowing ($928 million), though ARPA aid will not be used for the actual repayments. Fitch will carefully assess the state’s plans for the remaining ARPA direct aid which we anticipate will be focused on non-recurring uses.

* Governor’s office…

The Essential Government Services Support Fund was set up to hold funds that are allowed under federal rules to replace lost revenues of the State. At the time the budget was enacted in May, the final rules and guidance from US Treasury was not available – and the Interim Final Rule was only just released shortly before the end of session.

* US Treasury guidance for states on how to calculate lost revenues from the pandemic that was issued shortly before the end of session…

a. States should look at Fiscal Year 2019 base year revenue by looking at the state’s “own source” revenues to calculate (excluding for example, federal revenues or revenues that are passed through to local governments)
b. Using the same base, calculate state’s average annual growth of the past three fiscal years (FY16 – FY19)
c. Apply average annual growth rate multiplier to annual revenues collected
d. Multiplier applies to the revenue collected in each calendar year
e. Calculate each December 31 for actual revenues
f. Compare projected growth revenue to actuals collected

* And using that formula…

GOMB estimates that Fiscal Year 2019 base revenues according to the US Treasury definition/guidance was approximately $47B, and with the multiplier applied, Calendar Year 2020 revenues should have totaled about $53B. Actual revenues in Calendar Year 2020 totaled about $50B.

* Also from the governor’s office…

This mechanism was created for flexibility for the State to adapt to the rules as understanding of them evolved over the course of the year. Including the replacement revenues in a separate account assists the state in reporting to US Treasury as funds are spent.

At least one Republican was quoted in the story saying the General Assembly should have direct spending authority on that pile of cash. From the governor’s office…

GOMB provides monthly reports to the Legislative Budget Oversight Committee and testifies in front of the committee quarterly.

* The point of all this is that the Trib and Fitch both point out that the governor’s office can use the aforementioned $2 billion to make allowable expenditures in order to free up money to do things like repay the $1 billion left on the Federal Reserve loan. The governor’s office, however, says it’s too early in the fiscal year to say how much it will use.

- Posted by Rich Miller        

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