Because of the pandemic, Illinois’s budget picture isn’t exactly rosy.
Our operating budget is about $40 billion a year. Most of that money comes from three sources: personal income tax, corporate income tax and sales tax. This year, of course, staggering numbers of people and corporations aren’t making any income, and many places that sell things have been closed. As a result, we’re projected for a shortfall of about $7 billion. That’s considerably worse than the deficit in the Bruce Rauner-induced budget crisis that nearly destroyed our state.
So, how do we solve it? Well, when states look to balance our budgets, we usually start in the obvious places: increasing revenues or decreasing expenditures. Make more, spend less.
But there’s another place we might consider looking: debt service, the money we pay each year on loans we’ve previously taken out.
A lot of that money is principal. But a good deal of it is interest and fees that go straight to investors and big banks like J.P. Morgan Chase and Bank of America.
And debt service is what we call an "above the line" expenditure, meaning a big chunk of your tax dollar is taken by these massive financial institutions before we can even consider spending it on schools and hospitals and human services.
Just the way you might refinance your mortgage to reduce your monthly payment, we could refinance our debt to stop paying so much money to the big banks and focus on providing services our communities need.
But where could we get a better deal, especially when our bond rating is still in the tank from those awful Rauner years?
Well, we happen to know the folks who make the money.
The Federal Reserve has the statutory authority to provide zero-interest loans to state and local governments. They could simply make more money, lend it to us and let us pay it back at cost. No interest, no fees. And we’d use that money to refinance our debt.
According to a recent report by the Action Center on Race & the Economy, that would save Illinois a staggering $1.7 billion a year. The city of Chicago would save $1.1 billion a year by wiping out its interest payments to banks, enough to house every single homeless Chicagoan.
Across the country, state and local governments would save $160 billion annually—taxpayer dollars that could go to serving taxpayers instead of increasing investors’ rate of return.
The Fed can do this. Congress gave it the power to offer zero-interest loans in the Federal Reserve Act several decades ago and reaffirmed it in the CARES Act. But so far, they’ve chosen to keep their interest rates as high or higher than rates on the market, so almost no governments have taken them up on the refinancing.
They need to set the rate at zero. That way, we can divert taxpayer dollars from Wall Street to Main Street and focus on serving the people who need us most in this unprecedented moment.
Will Guzzardi, D-Chicago, is a member of the Illinois House of Representatives.
via Crain’s Chicago Business https://ift.tt/1mywUHL
October 28, 2020 at 05:26PM