IL To Borrow $2 Billion from Fed for FY20 Budget Shortfall

By Benjamin Cox on November 26, 2020 at 12:45pm

Governor J.B. Pritzker says the state will be borrowing $2 billion from the federal government to help offset revenue losses during the COVID-19 pandemic.

The state is facing a nearly $4 billion hole in the budget year that ends June 30th due in part to voters’ earlier rejection of Pritzker’s proposed graduate-rate income tax plan in the General Election. Pritzker says that much of the state’s spending currently is wrapped up into 2 categories. The first is the need to provide protections to the public in the form of goods such as PPE distribution to first responders and ventilators, as well as financial support for small businesses and rental assistance programs. Pritzker said that tax revenues have fallen by job losses, fewer purchases of goods, and a complete shutdown of the travel and tourism industry.

The spending plan approved by the General Assembly and signed into law by Pritzker also relied heavily on uncertain aid from Washington, which has been blocked by Republicans in the U.S. Senate.

The plan authorizes the state to borrow up to $5 billion from the Fed program, but Pritzker said he doesn’t want to saddle the state with that much short-term debt: “Our goal with this short-term borrowing is to continue to manage our backlog responsibly and fight to rebuild jobs and the economy over the coming year.” Pritzker emphasized the borrowing wouldn’t be a part of the state’s long-term fiduciary problems.

While Pritzker says he’s optimistic that President-elect Joe Biden and Congress will reach a deal on an aid package to help offset the revenue states have lost due to the pandemic, the state is going ahead with more borrowing. Pritzker says the plan is to repay the Fed as quickly as possible if federal aid comes through or if revenues rebound more quickly than expected. Pritzker says he will be looking at spending cuts at all of the state’s agencies, echoing a call he placed early in the summer for department heads to look at 10-20% cuts. Illinois so far has been the only state to tap the government’s Municipal Liquidity Fund for borrowing, which will expire at the end of the year. The fund was set up as a part of the CARES Act that passed in March.

According to The Southern, the state previously borrowed $1.2 billion from the Fed’s MLF program to cover losses from the last quarter of the previous fiscal year. According to officials in the Pritzker Administration, The state has paid $200 million toward the first $1.2 billion federal loan at a 3.82% interest rate.

The governor did not directly respond to a question about the possibility of a tax hike during a lame-duck legislative session in January.