Illinois Prepares To Enter COVID-19 Induced Financial Storm
While public health workers continue to combat the new coronavirus that has ravaged communities across Illinois, Governor J.B. Pritzker and others are predicting the virus will deal a long-lasting blow to the state’s finances.
I explored what analysts are expecting, and what state lawmakers are planning to do about it for this week’s Illinois Issues report.
The sophomore governor made no bones about saying what Illinois’ financial fallout from COVID-19 might look like.
He appeared with other state finance experts at a press briefing earlier this month, saying Illinois will have a “$2.7 billion shortfall of revenues for this fiscal year, and a $4.6 billion shortfall for next fiscal year.”
Pritzker explained those numbers are just estimates, but keep in mind the state’s current fiscal year will end in about two months. The state treasury could have several billion dollars less than what it was supposed to by then.
Why’s all this happening? It’s simple, according to Pritzker. States like Illinois get the lion’s share of their money from three sources: income, sales, and corporate taxes. But while hundreds of thousands of residents remain out of work, and businesses of all kinds are temporarily closed, both are likely to contribute to a big drop in Springfield-bound cash.
“This is a public health crisis, but it is accompanied by massive economic disruption that’s unprecedented in modern history,” Pritkzer remarked earlier this month.
Financial analysts and even state officers themselves have said Illinois would be pressed to find extra cash in a downturn like the one the pandemic has produced. Comptroller Susana Mendoza admitted back in February the state has a little more than $60,000 in cash on hand in a rainy day fund.
“It is not enough to cover 30 seconds worth of expenditures for this state,” Mendoza said. “It’s laughable. It’s actually very sad.”
As if that weren’t enough, a big chunk of cash Illinois has already earned won’t even come in for another few months. The income tax deadline was delayed until July 15th to give residents financial flexibility during the pandemic. So while plenty of workers are still getting paid, the state won’t see a share of that money until the next fiscal year.
Ralph Martire, who directs the Center for Tax and Budget Accountability, explained that amounts to the state being dealt a one-two punch: less money to go around, and more time for some of it to be collected.
While the federal CARES Act included more than $450 billion in debt acquisition for states like Illinois to get through the crisis, but much of it will have to be paid back.
“The change in timing, in collecting that revenue, is going to make a difference for the state,” Martire said.
The problem with both is a lot of people are relying on that money to trickle down to their communities to fund essential services. Martire explained every place from firehouses to neighborhood schools may feel the pinch if the state doesn’t pass on enough funding in the next fiscal year.
“The public sector has to be the primary purveyor of those [services], or low to moderate income families won’t have access to quality schools, won’t have access to healthcare, [and] won’t have safe communities,” he said.
That brings us back to the state budget. Lawmakers will have to approve a spending plan by July 1st, but what it will look like remains more of an open question than it usually does.
Mike Klemens, who’s a tax policy consultant and who worked for twenty years at the Illinois Department of Revenue, said with several billion dollars to make up -- and fast -- hard choices will have to be made as that plan begins to take shape.
“Illinois, to get out of the fiscal hole it’s in that just got exacerbated, will face very difficult decisions on raising taxes and cutting spending,” Klemens said. “It’s probably going to have to be some combination of both.”
So if you’re a state lawmaker, what do you do when a multi-billion dollar budget hole is staring you in the face?
Rep. Mike Zalewski (D, Riverside), who’s one of the lawmakers crafting that plan, said it’s easier when you’ve had some practice. He remembers the Illinois of just a few years ago, when there was no budget at all and $14 billion in late bills had piled up. Several billions-worth still remain.
“I’m not looking forward to doing this again, but we do know what we’re up against and I think it’s taken a little bit of the sting out of what’s coming our way to know that we’ve dug ourselves out of this before,” Zalewski said.
As to what “hard choices” are being considered, Pritzker told reporters earlier this month state agency heads have so far come up with about $1 billion dollars in savings altogether. Those were supposed to be phased in over three years, but are expected to start being realized a lot sooner.
“This is not the path any of us would choose under normal circumstances, but it is the best path available to us with the two and a half months left in this fiscal year,” Pritzker said.
State lawmakers, meanwhile, are meeting right now in remote working groups. But it’s still unclear if and when they’ll return to the statehouse to vote on spending.
Needless to say, there’s still plenty left to do.