Policy Report Examines COVID-19 Effects on Illinois Finances

A solitary rider wears a mask while waiting for a CTA train at an underground station in Chicago.

The University of Illinois System’s Institute of Government and Public Affairs (IGPA) released a report on April 9 focused on the potential impact of the COVID-19 pandemic on the state’s budget.

At the request of U of I System President Tim Killeen, IGPA assembled more than four dozen interdisciplinary faculty experts from the three system universities to serve on IGPA’s Task Force on the Impact of the COVID-19 Pandemic.

SPH's Lisa Powell, PhD, professor of health policy and administration, was one of 27 scholars across the university system who prepared this first report from the Economic and Fiscal Impact Group.

The report draws comparisons to the 2007 to 2009 recession. The authors also used new, national models of the possible economic outcomes from the COVID-19 pandemic to project the potential impact on the three biggest sources of state revenues: individual income tax, corporate income tax and sales tax.

In all but the best-case scenario, the negative impact on state revenue is projected to be worse than during the Great Recession, from 2007 to 2009. Under the most severe model of a protracted downturn followed by a weak recovery after a severe pandemic, Illinois could lose more than $28 billion between calendar years 2020 and 2023.

The COVID-19 crisis will also likely harm the finances of all local governments: counties, municipalities, school districts, transit agencies and special districts.

Declines in state revenues, which are shared with local governments, are especially concerning because municipalities in Illinois are more reliant on state revenues than municipalities in most other states.

As state revenues drop, spending on public health and human services is expected to increase. The biggest impact on spending is expected to be a several-billion-dollar increase in Medicaid expenditures.

The authors note that the recently approved federal stimulus package will likely fall short in some key ways. For instance, the increase in federal matching funds for Medicaid is much smaller than the enhanced match Congress approved as part of the response to the 2007 recession.

The report emphasizes there will be no easy answers, but suggests that policymakers focus on five basic principles: transparency, protection of the vulnerable, economic efficiency, minimizing borrowing for operating purposes and flexibility.