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Representative Darin LaHood

Representing the 18th District of Illinois

LaHood Introduces Legislation to Protect Taxpayers for Federal Aid to States

September 24, 2020
Press Release
States relying on a federal bailout would need to make structural reforms to receive full forgiveness of Taxpayer Protection Program relief loans

WASHINGTON, D.C. – Congressman Darin LaHood (R-IL) today introduced the Taxpayer Protection Act of 2020, which would establish the Taxpayer Protection Program in the U.S. Department of Treasury, to provide forgivable loans to State, territory, Tribal, and local governments to support budget shortfalls caused by the COVID-19 pandemic, while protecting taxpayers from fiscal mismanagement engaged in by state like Illinois. States, metropolitan cities, and larger counties must have sound pension funds to receive forgiveness and must also have truly balanced budgets and enough rainy-day funds by June 30, 2022, to receive forgiveness.

Loans which are not forgiven must be repaid in quarterly payments beginning on June 30, 2022. Interest rates shall be set by the Secretary of the Treasury based on the credit strength of the recipient, using the same pricing as the Municipal Lending Facility of the Federal Reserve. Loans will be automatically forgiven for local governments with populations of less than 250,000 and counties with populations of less than 500,000.

“Through no fault of their own, state and local governments face significant challenges because of the COVID-19 pandemic and Congress has an obligation to support those in need. This pandemic did not create Illinois’ financial mess; however, it emphasized the long-term challenges that Illinois and other states face for failing to implement sound budget policy,” said Rep. LaHood. “For decades, politicians in Springfield have kicked the can down the road on addressing Illinois’ fiscal crisis, exploding the state's $140 billion in unfunded pension liability and piling up these problems on the backs of hardworking taxpayers. Illinois shouldn’t get a blank check to bail out decades of failing to do what most responsible adults can: spend less than you earn and save for a rainy day. The Taxpayer Protection Act will ensure American taxpayers aren’t on the hook for financial problems they did not create, help those in need, and can help chart a path for a better future in Illinois.”

“Illinois’ decades of disregard for basic fiscal responsibility stands as the best single argument against state bailouts without strings attached. The Taxpayer Protection Act responsibly offers states some relief, making federal aid contingent upon best budgeting practices and the promise that lawmakers cannot rack up more debt at the expense of taxpayers who are already struggling to recover from the COVID-19 downturn. With Illinois’ pension spending growing 500% in the past two decades while social services spending suffers, it’s time we support a system that prioritizes people over irresponsible spending,” said Adam Schuster, Senior Director of Budget and Tax Research at the Illinois Policy Institute.

Full text of the legislation can be read HERE. A two-page outline of the legislation can be read HERE.

Background:

Uses, limitations and transparency requirements:

  • Funds may be used to cover revenue losses caused by business interruptions, unemployment, or other economic hardship directly caused by the COVID-19 pandemic
  • Funds may be used for essential government service expenditures, including infrastructure and general operating expenses
  • Funds may NOT be used for the service of any debt obligation or unfunded retirement liabilities
  • Recipients must maintain a website and within 30 days of each expenditure of TPP funds post the purpose, date, and recipient of the funds. TPP funds must be accounted for separately from all other revenue sources.

Defining conditions for forgiveness:

  • Sound pensions: Means a recipient has a contribution schedule in place allowing for 100% funding of projected pension liabilities over no more than 25 years, using generally accepted actuarial principles as defined by the Secretary of Treasury. A recipient which does not have sound pension funds at the time of application must reduce liabilities to the amount that can be fully funded, without any increase in employer (i.e. taxpayer) costs.
  • Truly balanced budgets: States must have a constitutional or statutory requirement for end of year balance and may not carry a deficit from year to year. Revenue for the purposes of this requirement is limited to actual monies coming in and cannot include borrowing proceeds or transfers from other government accounts.
  • Sufficient rainy-day funds: States must have a target to maintain between 5-10% of annual revenues in a reserve fund when the economy is not in a recession and make automatic annual deposits to achieve this level of funding. States must have protections preventing the use of emergency savings for non-emergency purposes, such as a supermajority requirement to withdraw from rainy-day funds or another at least as effective limitation.

 

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