Cook County, Illinois, is bracing for a $200 million tax blow due to the economic shutdown brought about by COVID-19, the county’s finance team said Friday.
That doesn’t account for an additional $60 million to $75 million whack to health system revenues, though some of that is expected to be reimbursed with hospital-related federal relief.
The tax estimates are also based on current results and projections done through modeling based on prior recessions, what’s been seen in other countries, and current economic forecasts. The county is also modeling potential long term changes in consumer habits that could influence economically sensitive taxes longer term so the numbers are fluid, the finance team warned.
“That’s a best case scenario” that anticipates activity resuming in June, the county’s chief finance officer Ammar Rizki said during a fiscal briefing that included members of his finance team and county board President Toni Preckwinkle. The county is operating on a $6.2 billion budget with its fiscal year beginning Dec. 1.
Several economically sensitive revenue streams in the budget include sales taxes which account for $849 million and motor fuel taxes at $160 million. Fees generate $200 million.
The budget relies on $840 million in property taxes. The next payment is due in August some lobbyists are pressing to delay the deadline. Any future decision on the timing would be complicated because the county collects the tax on behalf of itself and local taxing bodies.
The $200 million hit to the general fund stems from dwindling sales, motor fuel, hotel, parking, and amusement taxes based on a shutdown continuing through May. Gov. J.B. Pritzker on Thursday extended the stay-at-home order through May but will allow some non-essential businesses to reopen.
The additional $60 million to $75 million loss is estimated based on patient fee revenues dwindling through June at the county hospital due to the halt of elective procedures and surgeries to keep space free for COVID-19 patients. Pritzker on Thursday announced some procedures can resume.
Since mid-March the health system’s gross revenues have declined by 43% with uninsured charges falling by 52% and insured charges down 40%. Some of the healthcare tax losses will be covered by federal relief packages in place but it’s unclear how much. The system has incurred about $25 million in COVID-19 costs that are likely eligible for reimbursement.
Preckwinkle said the county hospital has 232 patients with half suffering from COVID-19.
The county expects at least $100 million in coronavirus related expenses that will be eligible for federal aid.
So far there is no compensation for lost revenue and like its counterparts nationally, Cook is clamoring for a fresh relief package that allows for revenue loss reimbursement.
“This does not apply to lost revenue…and that is where our biggest hole is,” Rizki said. “That’s going to be a game changer to help us survive” if the federal government passes a new package.
In addition to CARES funding for governments and hospitals, other existing aid packages and programs the county can apply for include various disaster relief, election security, and other hospital and health-care related grants.
It’s “too early” to say what actions will be taken to erase the gap and what’s on the table or not including whether the county will make future supplemental pension contributions, Rizki said. The county this year is making a $327 million supplemental payment on top of its $200 million statutory payment continuing a trend it began several years ago. The unfunded actuarial accrued liabilities are $6.8 billion for a funded ratio of 60.9%. Rizki said the county has managed large gaps in recent years and continued to make the supplemental payments while also building the ending balance.
Liquidity is not a problem. The county carried a roughly $300 million balance into the new fiscal year that began Dec. 1. It also has a $100 million credit line with BMO Harris Bank. “We have it ready, in case we need it,” Rizki said. The county has been planning to issue capital related debt later in the year and will monitor the market on timing.
The county expects to dip into its cash balance to help balance the budget but plans to leave some untouched as a cushion going forward amid uncertain economic prospects.
“It’s not just a challenge for this year in terms of how we use our reserves, but what we’re going to do in the next couple of years when we estimate that we’ll still be struggling with economic consequences of the pandemic,” Preckwinkle said.
The finance team is analyzing the Federal Reserve’s pending Municipal Liquidity Facility Program. The county estimates it would be eligible for up to $543 million of note issuance. Rizki said he’s still awaiting federal guidance and if the county would need to review whether the program was more affordable than borrowing on its own.
Liquidity was bolstered Friday with the infusion of $429 million in CARES funds. In addition to reimbursement for the $100 million it expects to spend on COVID-19, officials are examining the rules to determine how it can aid suburbs outside of Chicago.
That’s because only governments with a population of 500,000 receive funds. The state’s allocation is $4.9 billion with up to a maximum of $2.2 billion available for qualified local governments. Any funds not used would have to be returned later this year. Cook is the nation’s most populous county.
The situation is all the more acute for a public hospital system. Cook County’s bottom line has benefitted from expanded Medicaid under the Affordable Care Act but the system is still weighed down by rising uncompensated care costs that in turn threaten the county’s fiscal stability.
Pressures were already mounting on uncompensated health care costs which were projected to rise by $46 million to $590 million this year due in part to unaffordable, high-deductible health insurance plans offered on the insurance marketplace created by the ACA.
S&P Global Ratings lowered the county’s general obligation rating on $2.8 billion of debt to A-plus from AA-minus in January. The outlook is stable.
Fitch rates Cook County A-plus with a stable outlook. Moody’s Investors Service rates the county A2 with a stable outlook. The county has about $400 million of sales tax bonds that are rated AAA and stable by Kroll Bond Rating Agency and AA-minus and stable by S&P.