By: Mark Glennon*
To make its current budget, Illinois pretended it had already pocketed about $5 billion of help from Congress to make up for tax revenue shortfalls caused by the pandemic. It will need at least that much to repay short term borrowing it plans on taking from the Federal Reserve Bank.
Politicians are making their case for the federal help. Governor J.B. Pritzker and other officeholders are warning of what Pritzker calls “extraordinarily painful” budget cuts if the federal government does not come through.
There’s a reasonable case to be made for some federal money, but it’s not the one politicians are making. Thanks to absurdly oversized demands and a pointless blame game, the entire debate has become political melodrama and the legislation is stalled in Washington, jeopardizing any federal help whatsoever.
Here are the details:
There’s probably bipartisan support in Congress for at least some federal help on pandemic-induced revenue losses sustained by the state and local governments, common sentiment being that they bear no blame for those losses.
The total estimated cost of compensating state and local governments for those losses is much less than you might think.
Last month, The Tax Foundation estimated the combined state and local loss across the nation to be $280 billion. That includes losses for both last fiscal year, which ended on June 30, and the entire, current fiscal year. That estimate is roughly consistent with two other studies cited by the foundation, including one by The National Conference of State Legislatures. “The picture these new data continue to paint is one of a significant, but not catastrophic, says the foundation in its most recent update.”
That $280 billion isn’t so much when you consider how much Washington has been dishing out lately. Congress has already authorized over 25 times that – about $3 trillion in new spending since March for various forms of coronavirus relief, $150 billion of which has already gone to state and local governments.
And $280 billion spread across the nation would be plenty for Illinois if it got its proportionate share based on population, which is about 4%. Illinois would get over $11 billion, which would be more far more than enough to cover the $5 billion it needs to make its budget, and far more than enough to share with Illinois towns and cities that also want compensation.
But the demand from Democrats who control the House in Congress isn’t for $280 billion, it’s for $1 trillion!
It’s part of their bill calling for a new relief package with a total cost of a stunning $3.5 trillion.
Republicans, who control the Senate in Washington, entered the negotiations with a total plan of $1 trillion that included only increased flexibility on how states and local governments can spend the $150 billion they already got, which many think covers the problem. However, some within their own ranks are pushing for as much as $500 billion in additional state and local help, as recently reported by the Wall Street Journal.
The two parties remain far apart on other key issues, particularly the amount of extended federal jobless assistance. Both sides have included unrelated spending in their bills, though far more is in the Democrats’ bill.
It’s entirely possible Democrats don’t really want a bill at all. “[House Speaker Nancy] Pelosi’s advisers are confident that if there is no deal, President Donald Trump and Republicans will be blamed,” reported Politico. Asked if she has an idea on the price tag she’s willing to settle for, Pelosi told CNN bluntly: “Yeah, $3.4 trillion.” If she’s serious that means she wants no bill because the GOP would never go for that. And she can be confident the national press will help by blaming Trump.
And watch Pelosi snap when asked about it Thursday by Judy Woodruff of PBS. Woodruff asked a simple question about Republican claims that they are flexible about aid to states and the rest of the package, but Pelosi accused Woodruff of being a Republican “advocate.”
Closer to home, Pritzker is blaming Republicans, as you would expect, but specifically, Republicans in the Illinois Congressional delegation, which is crazy talk. Illinois has no Republican in the Senate and those in the House have no real input on the Democrat’s bill there.
Then there’s Comptroller Susana Mendoza. Her case for federal money is based on her usual revisionist history. In a lengthy report, she claimed again that Illinois was on the right path until the pandemic came along, and that most problems stem from Bruce Rauner and the budget impasse while he was in office. As we detailed before, while Rauner and the impasse hurt, Illinois was a basket case before he became governor.
And Mendoza added the claim, which Pritzker has also used, that Illinois deserves federal money because it has long been a net donor in its balance of payments to the federal government. That’s a myth, as we recently explained.
As with Pelosi and the national press, Pritzker and Mendoza needn’t worry that the Illinois media will challenge them on any of that.
Their blame game may work, but that doesn’t mean they will get the federal legislation they want.
Our view on any federal aid remains as we have written earlier:
- First, fairness and consensus demand that no state get more than its share based on population. Illinois was among the least prepared for a recession having reserves sufficient to cover just one hour of its spending. Chicago was also rated, along with Detroit, as least prepared among large cities for a recession. To give Illinois and other poorly managed states more than their share would be unfair to those who sacrificed to be prepared.
- Second, in no circumstances should federal taxpayers be asked to bailout Illinois or any other state by providing more than what is needed to compensate for pandemic losses. That is, no bailouts for pre-pandemic mismanagement. Some Republicans in the Senate have been adamant about that.
- Third, even if aid is limited to pandemic losses and fairly spread with other states, conditions should be attached demanding reforms.
It’s on that third point that Illinois request for federal aid is galling. Other states and cities are making the hard choices, slashing payrolls and costs to make ends meet.
They include Democratic states like New York, which said its spending cuts “have no precedent in modern times.”
But not a dime of spending cuts or other reforms have been undertaken by the Illinois.
So, if Illinois genuinely wants to ensure that federal help comes through, it should change its tune:
First, tell Nancy Pelosi and House Democrats that getting a bill passed is more important than embarrassing Trump. Tell them that what the real number needed is and to forget their inflated requests and unrelated items. Tell Illinois’ Democratic delegation to get that message across in Congress instead of blaming the Illinois GOP delegation, which has no influence.
Second, ask for no more than what is needed to cover pandemic losses, and no more than a fair share of federal aid based on population.
Third, de-prioritize the political blame game.
Fourth, put some skin in the game. Make spending cuts. Make reforms or at least commit to them if there’s no time, ideally, including a state constitutional amendment to allow for pension reform.
This article was updated to add the paragraph about the Pelosi interview by PBS’s Judy Woodruff.
*Mark Glennon is founder of Wirepoints.