During the "great recession" of 2008 and for some time thereafter, the states, including the State of Illinois, received a significant amount of funding from the federal government to make up for the shortfalls in state revenues caused by the recession.
The American Recovery and Reinvestment Act (ARRA) was passed by Congress and enacted into law as a result of the recession of 2008 and 2009.
The ARRA had two major grant funding streams for the states. The first, was the State Fiscal Stabilization Fund (SFSF) which was designed to relieve fiscal burdens on the states and local education agencies. This funding was made pursuant to an allocation formula that consisted of 61% based on the state's relative population of individuals aged 5 through 24, and 39% on the basis of relative total population.
The second program under the ARRA was an increase in the federal Medicaid match. All states received an additional 6.25% matching percentage on top of their normal match, plus an additional amount that varied by state, based on the state's unemployment level.
The combined value of the two programs distributed to the states for FY 2009, 2010 and 2011 was $147.9 billion.
To receive the funds, the states had to agree to "maintenance of effort" requirements.
The "maintenance of effort" requirement is a feature of a number of federal grant programs. Elementary and secondary and higher education funding had to be maintained at their fiscal year 2006 levels through 2011. Medicaid eligibility had to be maintained as a requirement for the receipt of funds.
I reviewed old budget reports of the Illinois General Assembly's Commission on Government Forecasting and Accountability ("COGFA") for information on how much federal stimulus funding the State of Illinois received under the ARRA. For FY 2009, Illinois received a bit over $2 billion in total federal stimulus payments. For FY 2010, the state received about $3.8 billion. For FY 2011, Illinois received $3 billion. The last year Illinois received payments under ARRA was FY2012, when the state received $800 million.
The Governor's Office of Management and Budget ("GOMB") recently revised the current FY 2020 revenue projections downward by $2.2 billion.(See
GOMB April 2020 Revenue Forecast Revision
) Of that downward projection, $1.1 billion results from Illinois moving the due dates for individual and corporate income tax payments to July 15 from April 15. The $1.1 billion in delayed income tax receipts will be received in Fiscal year 2021 instead of FY 2020.
The GOMB estimate of the projected budget shortfall for FY 2020 is net of additional payments to be received from the federal government. The Federal Families First Act increased the state's Medicaid match by 6.2% retroactively to January 1, 2020. GOMB estimated that this will increase FY 2020 federal receipts to GRF by $459 million. According to GOMB, the state is also scheduled to receive $2.7 billion under the federal CARES Act for its 'necessary expenditures' related to the COVID-19 response.
The Governor's Office of Management and Budget projects downward revisions of FY 2021 tax revenues of $4.6 billion - this is net of the additional $1.1 billion deferred from FY 2020 to FY 2021 because of the change in income tax return and payment due dates to July 15. GOMB explained that this number reflects an assumption that employment in the state will not show a significant recovery during FY 2021.
Adding to the projected FY 2021 budget shortfall is the requirement to repay $1.2 billion in short term borrowing the Governor is planning to borrow in May to balance the FY 2020 budget, and the repayment of $400 from the Treasurer's investment borrowing program that is being deferred from FY 2020 to FY 2021.
When you add in the projected increases in spending originally proposed by the Governor for FY 2021 of approximately $2 billion - that's how GOMB ended up with a projected shortfall of $7.4 if the graduated income tax amendment is not adopted, or $6.2 billion if the graduated income tax amendment is approved. (Recall that GOMB originally projected that the adoption of the graduated income tax would bring in an additional $1.4 billion during the second half of FY 2021 - the GOMB revised projection appears to reduce that projected amount to $1.2 billion.)
It should be noted that the Governor's revised FY 2021 projected budget shortfalls of $6.2 or $7.4 billion do not appear to take into account the receipt of additional federal funding during FY 2021. GOMB states specifically that the projections also do not take into account continuation of the additional federal Medicaid match enacted by the Federal Families First Act - the rationale is apparently that the increased Medicaid match was to stay in place through the end of the quarter when the emergency is determined to be over.
Apparently, GOMB is making an assumption that the COVID-19 emergency will be determined to be over by the start of the FY 2021 on July 1. However, this assumption seems to be at odds with their additional assumption that unemployment will not improve during the entirety of FY 2021. They appear to be saying that the emergency will end by July 1, but employment will not increase for the 12 month period after the end of the emergency. Call me cynical, but it appears that in each of these two instances they have made the assumption that leads to the greatest amount of revenue shortfall for FY 2021. I would be interested in GOMB's rationale as to how these two seemingly inconsistent conclusions can be reconciled.
If you go back to the federal assistance provided in FY 2010, Illinois received $3.8 billion in additional federal funds during that fiscal year as a result of the enactment of the ARRA. If the State of Illinois were to receive exactly the same amount for FY 2021, that $3,8 billion would wipe out all but $800 million of the GOMB downward tax revenue revision for FY 2021. (Also remember that the Governor's original FY 2021 budget proposed increased spending by about $2 billion for FY 2021 over FY 2020.)
Looking at the numbers, if the State of Illinois receives an amount of additional federal funding just equal to the highest amount it received during the Great Recession - $3.8 billion in FY 2010, the Illinois budget, while difficult, appears to be nowhere near as dire as the picture painted by GOMB in its April 15 report.
While it makes sense for the administration to paint a dire picture to maximize leverage for receiving federal funds, it also fits the Governor's narrative that he needs a graduated income tax in order to bring the state to fiscal stability.