Illinois’ borrowing through the Federal Reserve’s Municipal Liquidity Facility provided a lifeline for critical services during the COVID-19 pandemic, so the state should be allowed to use its incoming federal coronavirus relief money to pay it off, Comptroller Susana Mendoza tells the federal government.
The state’s $3.8 billion of short-term borrowing, including $3.2 billion through the Federal Reserve’s Municipal Liquidity Facility “was essential for the continued performance of government services during the most fiscally challenging times for the state’s cash flow during the pandemic, all directly related to the COVID-19 crisis,” Mendoza wrote in a letter to Treasury Secretary Janet Yellen.
“We want to promptly repay federal taxpayers for the crucial help they provided us during the pandemic,” wrote Mendoza, the elected constitutional officer who manages state debt, pension, and bill payments. The state’s updated American Relief Plan share is $8.1 billion.
Mendoza fired off the letter Wednesday, two days after the release of a 151-page guidance on how states, local governments, and tribes can spend their shares of the $350 billion Coronavirus State Fiscal Recovery Fund and the Coronavirus Local Fiscal Recovery Fund that’s built into the American Rescue Plan.
The guidance imposes a sweeping ban on using funds to cover principal and interest repayment, even when the borrowing was directly related to the COVID-19 crisis.
It caught Chicago and Illinois off guard because both opted for some form of short-term borrowing to manage through the crisis and both intended to avoid adding to their structural budget strains by using the federal relief to repay. Those choices were welcomed by rating agencies and the buy side. Illinois is rated at the lowest investment grade.
The Treasury’s guidance in an Interim Final Rule also lists as “ineligible” uses the funding of tax cuts, reserve deposits, and pension fund deposits that reduce an unfunded liability.
Stakeholders have 60 days to submit comments to the Treasury Department on the rules, which took effect immediately but can be revised.
Chicago and Illinois are now tasked with showing how the borrowing supported government services which are designed to be supported with the new relief. Both turned to borrowing to avoid deep service cuts and layoffs — which can be restored with ARP funds under the guidance.
Mendoza and the administration of Gov. J.B. Pritzker are also enlisting that state’s congressional members including senators Dick Durbin and Tammy Duckworth, both fellow Democrats, in the effort to revise the guidance.
Mendoza’s letter is a direct response to question 17 in the guidance: “In the Interim Final Rule, paying interest or principal on government debt is not considered provision of a government service. Discuss the advantages and disadvantages of this approach, including circumstances in which paying interest or principal on government debt could be considered provision of a government service?”
“My specific request is for the Department of the Treasury to clarify this Rule to accommodate this unique circumstance; allowing Fiscal Recovery Funds to be used to directly repay Covid-19-necessitated short-term borrowing,” Mendoza wrote. “The Department of the Treasury’s timely approval of this request is critical for Illinois’ path toward fiscal recovery.”
Short-term borrowing to manage revenue blows in fiscal 2020 and 2021 totaled $3.8 billion including a $1.2 billion one-year loan for fiscal 2020 from the MLF, a three-year loan for $2 billion for fiscal 2021 from the MLF, and $600 million from non-general fund accounts that the state must repay. About $2.175 billion of MLF loans remain outstanding.
Most of the borrowing went to cover Medicaid and other healthcare bills which in turn allowed the state to leverage federal funds as the state struggled with pandemic-related tax blows. It also funded the purchase of personal protective equipment, Mendoza said.
Pritzker wants to repay much of that short-term borrowing and some of the current $4 billion bill backlog. The guidance would bar repayment of the $2.175 billion MLF balance.
Illinois lawmakers face a May 31 deadline to wrap up a new budget so the guidance throws a wrench in negotiations and opens the door to legislative attempts to earmark funds elsewhere.
Rating agency analysts and other market participants stress that it’s the size of the ARP aid that benefits the state’s fiscal position and that the state retains broad flexibility to use those funds to make up for lost tax revenue, but should stay focused on using it for non-recurring costs.
Moody’s Investors Service and S&P Global Ratings recently moved their outlooks on Illinois to stable from negative due to the relief package and better-than-projected revenue collections. Those numbers are again on the rise, according to two new forecats.
In early March, the legislature’s Commission on Government Forecasting and Accountability adjusted the previous 2021 base general fund revenue estimate up by $2.9 billion that along with federal borrowing lifted expected revenues by $4.7 billion based on an improving economy and collections.
“Since then, actual receipts for both March and April have been booked, and despite final payment deadlines for personal income tax being slightly delayed, revenues have been interpreted to continue to significantly outpace expectations,” COGFA reported this week.
The agency revised the numbers for fiscal 2021 up by another $2 billion to $45.6 billion. The improved outlook, in turn, prompted an upward revision in the fiscal 2022 forecast by $792 million to $41.2 billion.
The Governor’s Office of Management and Budget followed with the release Thursday of revised estimates that raised general fund revenues by $1.469 billion this year and $842 million for fiscal year 2022 due to strong individual income, corporate income and sales tax collections that were tracking 5% up to February estimates. Prior estimates were used to craft Pritzker’s budget proposal released in February.
The state’s total revenue figures differ somewhat from the COGFA estimates because the governor incorporates the impact of measures proposed in his budget while COGFA bases its estimates on existing law.
“While the increase in revenues is good news, and a sign our economy is coming out of the pandemic, much of these funds are one-time in nature and should not be expected to recur in FY2022,” Deputy Gov. Dan Hynes said in a statement. The revisions were published in GOMB’s April 2021 Report to the Legislative Budget Oversight Commission.
via The Latest https://ift.tt/2pcNi5q
May 13, 2021 at 03:01PM