Illinois will repay Fed loans with state funds, setting aside effort to use federal coronavirus relief money

·3 min read

Illinois will tap state coffers to repay roughly $2 billion in remaining debt on emergency coronavirus loans from the Federal Reserve, abandoning plans to use federal COVID-19 relief money, state officials said Thursday.

Illinois was the only state to borrow from the special Fed program, taking out two loans totaling $3.2 billion to plug holes in the past two state budgets. Officials had hoped to pay off the state’s remaining balance with a portion of the $8.1 billion in relief funds the state is receiving from President Joe Biden‘s American Rescue Plan.

But the U.S. Treasury Department threw Illinois a curveball last week when it issued preliminary rules that prohibit states from using the funds to pay off debt.

After initially asking the Treasury to give its blessing for Illinois to repay the central bank with the relief money, state officials now say they have a plan to repay the loans with state funds, thanks in part to better-than-expected revenues in the budget year that ends June 30.

“Repaying the federal government is an important step in our efforts to ensure the state remains on sound fiscal footing,” Gov. J.B. Pritzker said in a statement that announced the loan payback agreement with Comptroller Susana Mendoza and the top Democrats in the legislature, House Speaker Emanuel “Chris” Welch of Hillside and Senate President Don Harmon of Oak Park.

The state borrowed $1.2 billion from the Fed in June and another $2 billion in December. As of May 10, the state had $400 million remaining on the initial loan, with a June 5 due date, according to the Fed. The deadline for paying off the second loan is in December 2023.

The governor’s budget office said last week that the state was on pace to bring in nearly $1.5 billion more than expected in the current year and another $842 million in additional revenue in the budget year that begins July 1.

Pritzker has already promised to use a portion of that revenue to boost school funding by $350 million next year to meet a threshold established in state’s education funding formula.

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The comptroller’s office, which manages the state’s checkbook, says it will use a combination of the better-than-expected revenue and “effective cash management” to repay the Fed by June 30, 2022, saving an estimated $100 million in interest.

Negotiations over how to plug a projected $1.3 billion hole in next year’s budget of roughly $42 billion are ongoing ahead of the legislature’s scheduled May 31 adjournment. How the new debt repayment plan affects those negotiations remains unclear.

Pritzker’s plan calls for raising another $932 million by closing what he describes as “corporate loopholes,” an approach that has not been fully embraced by the supermajority Democrats and is opposed outright by Republicans.

House Majority Leader Greg Harris of Chicago, a lead Democratic budget negotiator, said earlier Thursday that some combination of cuts and new revenue will be needed to balance the budget and avoid hurting schools, universities and human services.

Looming over the debate on this year’s budget are discussions of how to spend the $8.1 billion in federal aid, now that the top priority of paying off debt has been taken off the table.

dpetrella@chicagotribune.com

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