Prairie State Wire

Wirepoints reports that Illinois will be the first state to tap into a Federal Reserve lending program to help the state raise the funds it needs due to the COVID-19 economic shutdown as well as the income tax collections postponement.

The lending program is called the Municipal Liquidity Facility (MLF). The state will raise money for one year from the Federal Reserve at 3.83 percent. The agency reports that the program is supposed to be used only as a last resort.

"The Federal Reserve must obtain evidence that participants in the MLF are unable to secure adequate credit accommodations from other banking institutions," the Federal Reserve site states. "In certifying whether the issuer is unable to secure adequate credit accommodations from other banking institutions, issuers may consider economic or market conditions in the market intended to be addressed by the MLF as compared to normal conditions, including the availability and price of credit. Lack of adequate credit does not mean that no credit is available."

The agency reported in May that, the state attempted to raise the $1.2 billion it needed but wasn't able to, and the deal was postponed and then put on a day-to-day basis.

State Senate President Don Harmon (D-Oak Park), along with the Democratic caucus, sought a direct bailout from the federal government, the agency reported. They were seeking $42 billion, which included $20 billion for pensions.

U.S. Senate Majority Leader Mitch McConnell (R-Ky.) suggested bankruptcy for Illinois and states in its position, Wirepoints reported.

The news agency says it doesn't expect many states to actually use the last resort funding program.

Illinois passed a budget in May that relies heavily on federal loans and grants amounting to $5 billion. The budget does not have any cuts or spending reforms either, which Standard and Poor's criticized, Wirepoints reported.