COVID-19 Could Cost Illinois “Tens of Billions of Dollars”
The ongoing COVID-19 pandemic could end up costing Illinois state government as much as $28 billion in revenue over the next few years. That’s just one of the key takeaways from the latest report from the University of Illinois’ Institute of Government and Public Affairs.
To reach that estimate, researchers used economic models to determine how Illinois would fare under three types of pandemic scenarios: low, moderate and severe. A “low severity” pandemic, for example, is one with mild disease spread and few social distancing measures.
Moderate and severe pandemics, on top of being more deadly and capable of spreading disease more quickly, are those that cause a state’s annual gross domestic product to fall between five and eight percent.
A team led by University of Illinois Springfield Professor Ken Kriz then estimated how the virus might impact income and sales taxes under each scenario.
The results are stark: Illinois realistically could lose anywhere between $4 and $28 billion by 2023, on par with or up to several times the amount it lost during the Great Recession.
Kriz said that’s bad news, especially since Illinois has almost no savings.
“One of the reasons why you keep an adequate fund balance and a rainy day fund is for rainy days, and right now it seems to be pouring,” he said.
Less tax money from the state’s three main sources of revenue, individual and corporate income taxes and sales taxes, would likely put state leaders in a tough spot.
“[The COVID-19 pandemic] just has increased the risk,” Kriz explained. “It has increased the risk that state government is either going to have to do something draconian in order to balance their budgets or...they’re going to run into severe financial difficulties.”
The report notes those difficulties are likely to trickle down to other areas in both state and local government as well. For instance, even though the federal government provided matching funds for Illinois’ Medicaid insurance program in the coronavirus stimulus package, researchers argue the amount is less than what was provided to bolster states during the Great Recession.
Local and state officials may also see lower market returns for pension funds as well, meaning they may have to pony up more money over the next few years to keep funds solvent.
Kriz acknowledged how long it takes Illinois’ economy to recover from the damage caused by the virus - and the measures used to control it - ultimately determine how it fares. If its economy rebounds quickly once social distancing orders are lifted, the lasting damage to its finances may be less severe than if the recovery takes several years.
“[But] even if we have the most optimistic recovery scenarios,” Kriz added, “We’re still going to be under our potential and so we’re going to be losing revenue.”
The IGPA said it will be releasing more reports soon with suggestions for how state and local governments should approach the impending financial hits.
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