(The Center Square) – With the COVID-19 relief dollars spigot off, some states that used the one-time taxpayer boost for short-term purposes will fare well. A recent report from the Volcker Alliance suggests Illinois, however, faces an elevated risk of a fiscal cliff.
The Volcker Alliance report, “On the Edge, Balancing Budgets in a Postpandemic World,” looks at how each state used COVID-19 federal taxpayer-funded relief dollars through 2022. Thirty-eight states have a low risk of a fiscal cliff because of how they used the one-time federal funds for temporary needs. The most populous states like Illinois, which got more than $8 billion in one-time relief funds, have an elevated risk of facing a fiscal cliff when the funds run out because they used some of the one-time relief dollars on recurring expenses.
“So Illinois has used $1.8 billion, which is about 3.4% of their fiscal year 2022 spending, for recurring costs,” researcher and University of Illinois Springfield professor Beverly Bunch told WMAY.
The report said the use of one-time funds for ongoing operations appears to have freed up non-federal recurring tax revenues that were then applied, at least in part, to one-time purposes. Some examples of such spending in Illinois were on things like debt repayment, rainy day fund contributions and anti-violence programs.
Gov. J.B. Pritzker’s office told political blog Capitol Fax the research uses old assumptions.
“FY24 General Funds budget is balanced and does not use any of these federal recovery dollars in the budget,” Pritzker’s office told Capitol Fax. “So Illinois is already beyond the theoretical ‘cliff’ and the hypothetical situation analyzed by the Volcker report did not occur.”
Bunch said one-time funds were used as recently as the fiscal year that ended in June. There were some one-time uses of the temporary funds in Illinois, like paying off unemployment debt.
“So, that was prudent, that’s a one-time use,” Bunch said. “And when we looked at it initially, it was $2.7 [billion] and now more recently, it’s $4 billion.”
COVID relief funds have to be obligated by 2024 and spent by 2026.
Compounding costs for things like legacy pension debt in Illinois add to the fiscal uncertainty in the absence of such federal relief dollars, Bunch said.
“It’s not just the loss of these federal funds, it’s what else is happening,” Bunch said. “Illinois is certainly making progress in paying down its debt, but as you note, they still have a very large unfunded pension liability.”
While the state’s post-pandemic revenues are strong, Bunch said it’s difficult to gauge the economic future.
“As long as revenues are strong, then the state can replace those federal funds and everybody will be content,” she said. “But the question is, what if that’s not the case?”
Among the report’s recommendations are clearly identifying one-time funds for short-term purposes and maintaining sufficient rainy day funds to preserve critical services in the event of sudden revenue losses.
