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News

EYE ON ILLINOIS: States still need federal attention to prevent COVID-induced financial ruin

It’s been a month — has anything changed?

In early July, Comptroller Susana Mendoza predicted the current fiscal year would be “by far perhaps the most challenging year that I’ve had to manage” because of COVID-19’s suppression of revenue.

“Illinois is not the only one who’s looking at this type of financial disaster situation,” Mendoza added at the time. “Every single state in the country is going to require federal government sending financial aid. … I don’t mean loans. I mean specifically grants — money that does not have a million strings attached to it that would go specifically to help make up for lost revenues due to COVID-19.”

On Monday, Mendoza’s office released a report that reads like the second verse of the same song:

“Without question, Illinois — and every other state, frankly — will need financial support from the federal government to bring much-needed stability back to state and local government,” she wrote. “Taxpayers, bond houses, businesses, human service providers, schools and colleges and universities need to know that together we will pull through this unprecedented time.”

With unemployment near 15 percent, income and sales taxes are down. The state budget approved in May incorporated $5.5 billion from a federal coronavirus relief package passed in March, but it can’t be spent on replacing lost revenue.

Mendoza also noted the fiscal 2021 budget relied on short-term borrowing of up to $6.5 billion to prevent 35 percent across-the-board cuts in the event the feds don’t approve a second relief package permitting revenue replacement. She said the interest rates on those loans could exceed 4%, which on top of $2.66 billion in existing short-term loans is far from ideal.

Will Washington help? Not anytime soon. While the House approve a relief package that includes $500 billion in state aid, the Senate doesn’t want to authorize any new funding for states, favoring a retroactive tweak in how March funds can be spent. There are several other deep divides in how Capitol Hill Democrats and Republicans approach coronavirus relief, a stalemate that will move significant state and local government cuts from theoretical to essential in a fat hurry.

Such cuts would have drastic public service repercussions while also exacerbating the unemployment crisis and rippling through local economies by further reducing consumer spending power. Direct aid to the unemployed would seem a good way to keep spending afloat without explicitly helping governments, but Republicans are resisting that approach.

Mendoza has been optimistic about Illinois’ pre-pandemic deficit-reduction progress, but the White House will strongly oppose anything resembling a state bailout. Illinois would have to prove which losses are COVID induced, and even that might not be convincing.

Will anything change this month? Or will alarms again be ignored?

• Scott T. Holland writes about state government issues for Shaw Media Illinois. Follow him on Twitter at @sth749. He can be reached at [ mailto:sholland@shawmedia.com ]sholland@shawmedia.com.

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