The Taxpayer Protection Act introduced by Rep. Darin LaHood (R-Illinois) in the U.S. House of Representatives would create a program that would prevent blank-check bailouts of local and state governments.
The program, called the Taxpayer Protection Program, would be like the Paycheck Protection Program, which requires businesses to use the aid to keep their workforce, Illinois Policy reported. If employers used the funds on workers, they would receive loan forgiveness.
"States with unsustainable pension debt and a history of fiscal mismanagement would be required to implement reforms to protect their residents and ensure federal money achieves its intended purpose of supporting essential government services during the COVID-19 pandemic," Illinois Policy reported. To be eligible for loan forgiveness from the Taxpayer Protection Program, states and counties would be required to create sound pension policies.
"States and counties with populations of 500,000 or more and local governments with populations of 250,000 or more must be able to eliminate 100% of pension debt over no more than 25 years, using best practices for funding schedules and realistic accounting assumptions. States such as Illinois and New Jersey with unsustainable levels of pension debt must reduce pension debt to the level they can truly afford, without increasing taxpayer costs," Illinois Policy reported.
States would also have to have balanced budgets to be eligible for forgiveness. This means they would have to have a constitutional or statutory requirement for their end of the year budgets.
"Only actual revenue, such as from taxes and fees, would count toward the balancing requirement," Illinois Policy reported. "States would not be able to count borrowing or money swept from other government accounts toward the requirement, preventing the budget gimmicks that have allowed Illinois politicians to avoid balancing the budget for 20 years."
Lastly, states need to have a sufficient rainy-day fund to be eligible for forgiveness. They will have to be able to save on their own for emergencies and recessions, holding 5 to 10% of their annual revenue in the fund. This will let the state cover revenue shortfalls if need be.
"The bill prohibits states from using federal money to bail out legacy debt and deficits that are unrelated to the COVID-19 pandemic," Illinois Policy said on its website. "The bill also guarantees no state or local government would receive more revenue than they actually lost as a result of the pandemic, limiting quarterly payments to the difference between current own-source revenue collections and collections during the same period in fiscal year 2019. It allows for up to $186 billion in federal and state aid, with $100 billion for states, $75 billion for local governments, $8 billion for tribal governments and $3 billion for the District of Columbia and U.S. territories."
If states can't meet conditions to repay the loans, they will receive an increasing interest rate.
Alerts Sign-up