COVID-19 Has Dealt a Blow to Government Budgets. What That Means for Illinois

When it became evident this spring that the novel coronavirus was going to wreak havoc on state and local government budgets, the federal government established a lending program meant to serve as a backstop.

Through the Municipal Liquidity Facility, managed by the Federal Reserve, states and other large public entities could borrow, and pay back the loans within three years. 

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“The state of Illinois is the only state that has thus far taken advantage of the program,” said Howard Cure, the director of municipal bond research at Evercore Wealth Management. “That … speaks to the fact that the state didn’t have much in way of a lot of alternatives to how they’re balancing their budget.”

New Jersey is reportedly considering participating; Cure said the only other entity that also has is New York’s transportation authority, which is “in desperate need of extra money.”

There’s not much time should other states, counties or cities want to partake in the program; the deadline for notes to be purchased is Dec. 31 and Cure said it takes about a month for an entity to go through the process.

Illinois’ fiscal year 2021 budget authorizes up to $5 billion in borrowing through the MLF program.

Thus far, the state has used $1.2 billion of that.

Whether it uses any of the remaining $3.8 billion will be determined after the Nov. 3 election.

With slimming odds that the federal government will agree to another coronavirus stimulus package before the election, Illinois lawmakers are watching to see if political tides may change, raising hopes for a bailout to help it and other states cope with the free-falling revenues and increased spending instigated by the coronavirus.

The election will also determine whether Illinois voters want to change the state constitution to remove a requirement that all individuals be taxed at a single, flat rate.

Gov. J.B. Pritzker is behind a constitutional amendment that would allow Illinois to implement a graduated structure, in which different income brackets could be taxed at different — or progressive — rates.

It’s important that it pass, Cure said, because “otherwise, they’re (Illinois officials) are going to have to find another way to balance their budget.”

Should the amendment pass, a law is already in place that would set new tax rates. Most low- and middle-income residents would see their tax rates decrease by a hundredth of a percentage point or remain the same, while those making a million dollars or more would see their tax bills increase dramatically.

Pritzker is counting on that to raise $3.4 billion in revenue.

The nonpartisan Civic Federation on Tuesday came out against the change.

President Laurence Msall said the federation isn’t opposed to a progressive tax structure, but that it doesn’t believe that the rates set forth in the law attached to the change are progressive enough for those on either end of the economic spectrum. 

“It really pits different classes of Illinois citizens against each other. It doesn’t protect any group of citizens,” Msall said. “Low income citizens will, under this plan, continue to bear roughly the same tax structure as many of the middle and upper class … The Civic Federation has been urging that the lowest rate should be tied in fairness to the highest rate. So different tax groups of taxpayers couldn’t be targeted.”

Also absent, Msall said, was any willingness from proponents of the tax change to tether it to other measures that would allow the state to make headway on the long-term fiscal pressures like the $137 billion unfunded pension liability and structurally unbalanced budgets weighing down the state.

In the 16 months since the General Assembly approved the rate structure and voted to put the question on ballot before voters, “the state government has not done anything to build confidence that it’s addressing the core problems, besides revenue.”

“It doesn’t address the pension situation. It doesn’t address the overriding concerns about property taxes. It doesn’t look at consolidation of the 7,000 units of local government — more than twice  that we have in any other state,” Msall said. “If we’re going to be serious about structurally fixing Illinois, we’re going to have to do more hard things than just target one graduated income tax toward the highest earners.”

Msall also said only a slim portion of the revenue from the graduated income tax is set to go toward local governments, which are facing their own pressures both from the coronavirus and from mandates coming down from the state.

“We think that policymakers, in the decision to change the state constitution, should be tied with addressing the fact that there are only one group of taxpayers in Illinois: state, local, they’re all the same people,” he said.

Advocates, who call the graduated income tax a “fair tax,” dismissed the Civic Federation’s stance as one seeped in self-protection.

One of the federation’s members is Ken Griffin, known to be Illinois’ wealthiest individual. He is largely responsible for bankrolling the campaign to defeat the ballot referendum.

“Yet another organization made of the wealthiest people in the state has announced its opposition to the Fair Tax, which isn’t surprising considering they’re the select few our current tax system benefits. Members of the Civic Federation would rather keep the burden on our middle and lower-income families and implement a retirement tax on our seniors instead of finally paying their fair share,” said Quentin Fulks, chairman of the Pritzker-funded Vote Yes for Fairness campaign, in a statement. “It’s clear that despite their rhetoric today, the wealthy only care about protecting their own bottom line, even when that means denying 97% of Illinoisans a tax cut. They continue to advocate for policies that allow them to keep building their wealth on the backs of hardworking families, while opposing any effort to bring relief to millions of struggling Illinoisans.

Msall said the Civic Federation is an evidence-based organization with a broad membership of individuals from various economic means.

Follow Amanda Vinicky on Twitter: @AmandaVinicky

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