A credit ratings agency’s outlook for Illinois and other states in 2022 is neutral relative to surprisingly strong 2021 underlying business conditions.
Fitch Ratings says state and local governments will benefit this year and beyond from their share of the $350 billion in direct aid federal taxpayers provided under the American Rescue Plan Act’s (ARPA) Coronavirus State and Local Fiscal Recovery Funds and $122 billion under the Elementary and Secondary School Emergency Relief Fund.
“In terms of pandemic aid, while most of the $350 billion in direct funding under the ARPA fiscal recovery funds went out to state and local governments last year, most of it actually hasn’t been spent and ends up providing an important fiscal cushion for downside risks this year,” Fitch Ratings’ Senior Director Eric Kim said.
It is no secret that Illinois has a history of financial missteps. Its pension liability has ballooned to $140 billion and its unfunded retiree health care costs are tens of billions of follars more.
For fiscal 2022, Illinois has forecast a surplus bigger than an earlier estimate, citing cutting costs, the use of part of its more than $8 billion in ARPA money, and higher revenue from sales and income taxes.
“When we look at tax collection data, we can see that states were ending calendar year 2021 in a strong position, setting the stage for continued gains this year,” said Kim.
While nonfarm employment is trending up, Illinois has yet to fully recover all the jobs lost during the pandemic. Inflation also remains a risk as persistently large price increases could dampen consumer spending and eat into the household liquidity cushion, but Kim is not overly concerned.
“We anticipate inflation will start to drop steadily over the year, but will still be above the long-term Fed target of 2%,” Kim said.
Gov. J.B. Pritzker delivers his State of the State and budget 2023 address Wednesday. The Chicago Tribune reports the governor is expected to propose nearly $1 billion in relief to taxpayers, like freezing the annual increase in the state’s gas tax and offering up to $300 of property tax rebates.
This article was originally posted on Federal taxpayers cushion state, local government budgets
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