Idaho uses CARES Act funding to save taxpayers $15 million

The state of Idaho is using some of the $1.25 billion it received from the federal government as part of the Coronavirus Aid, Relief, and Economic Security Act to save Idaho taxpayers up to $15 million.

“The COVID-19 pandemic is a once-in-a-100-year event, and it has changed much, including how the state looks at meeting debt obligations,” said Miguel Legarreta, president of the Associated Taxpayers of Idaho, in an email message. “Governor (Brad) Little, Treasurer (Julie) Ellsworth, and the Treasurer’s Credit Rating Enhancement Committee have found a novel way to save taxpayer dollars and meet state debt obligations. By utilizing funds dedicated to the states through the federal CARES Act in lieu of Tax Anticipation Notes (TAN), the state will save interest normally paid.”

Hang on. We’re going to talk about accounting

TAN is an arcane, little-known system in use for 38 years, according to Little’s office. It’s needed because, just like us, the state’s revenues and expenses don’t always line up.

“There’s an imbalance when revenue comes in and when funds go out,” said Alex Adams, administrator of the Division of Financial Management.

For example, early in the fiscal year, which begins on July 1, large amounts get paid out to schools and state agencies, he explained. At the same time, revenue is typically backloaded in the fiscal year, generally around Christmas or at tax time in April, Adams said.

Consequently, the state needs to borrow money on a short-term basis to support its cash flow in those early months of the fiscal year, Adams said. In the last few years, that has amounted to about $550 million, which has cost the state about $15 million a year for the past five years.

Updated guidance

Like other states, Idaho received $1.25 billion from the federal government, some of which it is spending on grants for Idaho small businesses, personal protective equipment and other purposes, Adams said.

“We’ve held back on spending quite a bit of it,” Adams said. “One way of viewing it is as a no-interest loan for cash management. Therefore, we saved the interest payment.”

While that might sound like a slightly hinky use of the funding, which is supposed to help states make it through the economic disruption caused by coronavirus, the federal treasury department issued updated guidance in early May explicitly giving states permission to use the funding to meet cash management needs, Adams said.

“They opened the door for it,” Adams said. “The governor recognized the opportunity and the governor moved quickly.”

It wasn’t just the governor, of course.

“There was certainly collaboration between the governor and the treasurer,” Adams said.

In addition, the state consulted with bond experts to ensure that not issuing the usual TAN bonds wouldn’t affect the state’s credit rating.

“We had to make sure it was truly the right decision,” he said.

Replacing unemployment insurance funding

States are supposed to use the funding by Dec. 30, but using current projections, state revenue should be coming in well enough to pay the loan back, Adams said.

“Everything is subject to change,” Adams said. “If there’s a second spike this fall, we’ll have to keep evaluating, but under current cash flow projections, I feel strongly about our ability to meet our cash flow needs.”

So what else might the state use the funding for?

“One of the things the governor is looking at is putting it in the unemployment insurance trust,” Adams said.

The trust is the repository for money employers pay, out of which money is paid to unemployed people.

Due to the sudden spike of unemployed people, some were concerned employers might have to pay a higher rate of unemployment insurance tax when the rate is recalculated next January.

If the federal funding isn’t needed for anything else, Idaho could use it to reimburse the unemployment insurance trust and reduce the likelihood, or the amount, employers will need to pay, Adams said.