If I had told you during the brief legislative session last May, while the state was still under a stay-at-home order and everything appeared to be collapsing, that Illinois would have an extra $2 billion laying around to pay off the remainder of a $3.2 billion federal loan, you might have thought I was insane. But here we are.
A couple of weeks ago, the federal government declared that states could not use any of the billions of dollars they're receiving from the American Rescue Plan (ARP) to pay off loans. That caused severe consternation in Illinois, which had planned to use part of its $8 billion federal aid package to eliminate what was left of the loans it received from the Federal Reserve's Municipal Liquidity Facility.
However, the General Assembly's Commission on Government Forecasting and Accountability revised its revenue estimate for the current fiscal year the same week. The new forecast moved COGFA's March projections upward by about $2 billion. The Governor's Office of Management and Budget revised its own forecast upward by about $1.5 billion the same day.
And then last week, the governor, the Democratic legislative leaders and the comptroller announced the state will use its own revenues to pay back the federal government, instead of relying on ARP money.
The loan repayment will save the state about $100 million in interest, but it also frees up $1 billion in Fiscal Year 2023 that would've otherwise had to go to the federal government if the state had remained on the original repayment timeline. "This sets us up for the future," a legislative budgeteer explained.
The repayment move was also deemed prudent by some because the newly "found" money was prompting a horde of spending requests from members, even though COGFA and GOMB both stressed that most of this revenue spike was one-time and would not recur in Fiscal Year 2022, which begins July 1.
Using the increased revenue to repay the federal loan, therefore, has the effect of short-circuiting that flood of new spending demands. It's a fiscally smart move, which is not something that one can usually say about Illinois.
But it's not a done deal yet because quite a few Democratic legislators will be upset that they can't tap into the new revenues to fund what they consider to be crucial programs.
Some are worried that immediate spending pressures will win out in the end and cause Democratic leadership to cave. House Higher Education Appropriations Committee Chair La Shawn Ford (D-Chicago) was pretty firm last week, however, when asked his opinion about using state revenues to pay off federal debt.
Rep. Ford warned about both the state's projected $1.3 billion deficit in the coming fiscal year and the absolute requirement to pay off the federal debt. He said both of those need to be addressed while also finding a way to "protect human services, public safety, education, and general services," adding, "There is a path to fulfill all our obligations before the end of session."
As far as next fiscal year goes, the House's top budget negotiator Majority Leader Greg Harris declared last week that new revenues were needed to prevent "severe" cuts to pretty much everything. Nothing, he said, will be left unscathed unless that projected $1.3 billion deficit is closed.
The governor has proposed closing almost a billion dollars in "corporate loopholes" to prevent severe cost reductions, and there is supreme reluctance to using one-time federal aid to patch holes in recurring state spending. Doing that would simply kick the can down the road and not allow the state to finally get its fiscal house on a path to a semblance of stability.
The chair of the Senate's lone appropriations committee, Elgie Sims (D-Chicago), has been telling me for several days that he hopes the budget produced this spring will result in an actual credit upgrade for the state.
Illinois has hovered just a tiny click or two above junk bond status for a very long time, so an upgrade would be a highly unusual and much-welcomed occurrence.
Comptroller Susana Mendoza has already argued for such an upgrade, but you gotta figure the New York raters will wait to see how the final week of session plays out before venturing into that territory.