Illinois Passes $40 Billion Budget Counting on Federal Help (1)

Illinois lawmakers early Sunday approved a budget of about $40 billion for the year starting in July that relies on federal loans to close the revenue shortfall exacerbated by the coronavirus pandemic.

The budget for fiscal 2021 maintains most funding levels from a year earlier, and boosts pension payments and spending on health and human services along with some other agencies that are seeing increased demand due to the pandemic and resulting unemployment. It expects to close the projected deficit of as much as $7.4 billion partly by borrowing as much as $5 billion from the Federal Reserve’s Municipal Liquidity Facility.

Democratic Governor J.B. Pritzker has also said he’s seeking more than $7 billion in federal aid to make up for revenue lost amid the virus outbreak. The pandemic “blasted a hole” in budgets and has led Illinois, which ranks third-highest for Covid-19 cases in the U.S., to make hard choices, he said. He also emphasized the need for further federal aid to state and local governments.

“The irony, the terrible irony is that during a pandemic, during an emergency, your revenues go down in a state and need goes up,” Pritzker told reporters on Sunday. “Remember, this is in the frame of vastly increased needs.”

Pritzker Finds Running Most-Troubled U.S. State Only Gets Harder

The stakes are high for Illinois, the U.S. state with the worst credit rating. The state has reported nearly 4,800 deaths due to Covid-19, and has lost more than a million jobs. Officials last month lowered this year’s revenue fund projections by $2.7 billion, and another $4.6 billion in 2021, after the stay-at-home order brought a near halt to economic activity.

All this, in addition to Illinois’s record $138 billion of unfunded pension liabilities, lack of rainy day fund and $7 billion in unpaid bills, has returned the indebted state back to the brink of a junk rating.

“These are unprecedented times,” Senator Heather Steans, a Democrat, said late Saturday before the vote. “We have many unknowns right now. This budget is in fact, then, putting in place a preservation mode so that we don’t drastically cut resources and services and programs at a time that we desperately need to provide those services to folks around the state.”

The roughly $40 billion budget doesn’t include about $1.2 billion in fiscal 2020 short-term borrowing and $400 million in interfund borrowing by the state treasurer’s office that will have to be repaid in fiscal 2021, according to Steans.

Federal Aid Hopes

Steans said legislators are watching for additional federal stimulus aid to replace lost revenue. Those funds, if forthcoming, could then reduce the amount Illinois needs to borrow from the Fed.

The new budget “begins to address the financial upheaval” Illinois faces and more “hard choices” about how to spend and save remain, Pritzker said. Illinois and likely all 50 states will have to revisit their budgets given the uncertainty if the federal government doesn’t come through with additional aid, he said.

Many Illinois General Assembly GOP members opposed the budget, given its reliance on short-term borrowing, and also have concerns that Pritzker has gained too much executive authority over funds, Representative Tom Demmer, a lead budget negotiator for the state’s House Republicans, said in an interview Sunday. He said the authority given to Pritzker is “notable” and unlike anything seen in Illinois before.

Cuts Wanted

Demmer also expressed concern about the lack of budget cuts under consideration. While agencies such as the Illinois Department of Public Health shouldn’t be the subject of cuts during a pandemic, ideas for other agencies should be put forward to consider pros and cons, he said.

The coming year’s plan maintains spending on education and increases funding for the Department of Children and Family Services, as well as programs for seniors and the developmentally disabled. Unknown factors like the amount of federal stimulus for states could also impact the budget’s numbers going forward, Steans said.

“This budget package provides needed flexibility to keep services running during the crisis,” Illinois House Speaker Michael Madigan said in a statement.

Lawmakers came to Springfield for the first time since March in an effort to approve the fiscal 2021 budget before the end of May, after which the threshold for passage rises to three-fifths from a simple majority.

Casino Plan

On Friday, lawmakers voted to give the state authority to borrow as much as $5 billion through the Fed’s lending program. The so-called Heroes Act passed by the U.S. House, which mobilizes another $3 trillion to rebuild the country in response to the Covid-19 pandemic, may include as much as $18.7 billion over two years for Illinois, according to a recent analysis by the Center on Budget and Policy Priorities. That bill’s chances in the U.S. Senate look dim, though.

Also on Saturday, lawmakers passed legislation to change the tax structure of a proposed casino in Chicago, making the project more attractive for potential operators. It marks a win for Chicago Mayor Lori Lightfoot, who had been lobbying legislators for months to adjust the rates. Pritzker said he planned to sign the gaming legislation.

“The Illinois state legislature has passed a bill that makes the possibility of a financially viable Chicago casino a reality,” Lightfoot said in an emailed statement. “This moment is decades in the making, and represents a critical step toward shoring up our city’s pension obligations, as well as driving huge levels of infrastructure funding and fueling thousands of new jobs for all of Illinois.”

(Updates with Pritzker, Demmer comments from fourth paragraph.)

To contact the reporter on this story:
Shruti Date Singh in Chicago at ssingh28@bloomberg.net

To contact the editors responsible for this story:
Elizabeth Campbell at ecampbell14@bloomberg.net

Ros Krasny

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