This week Illinois Gov. Pat Quinn released his Fiscal Year (FY) 2012 $52.7 billion state budget recommendation. His proposal contains no new revenue increases or pension reforms, makes deep cuts to social services, including Medicaid, stresses the need for economic development and infrastructure, and relies on $8 billion in borrowing. Recommended General Fund spending, including $4.95 billion in pension payments to the state’s five retirement systems, is $35.38 billion.
Though the overall budget is $1.7 billion higher than last fiscal year, Quinn’s staff contends he made $1 billion in spending cuts. New budgeting rules require the governor to include funding for pension payments and employee health costs, which went mostly unpaid last year, in the General Fund budget.
Though the General Assembly approved an income tax hike in January that will result in an additional $7.2 billion in new revenues for FY 2012, the governor proposed no new programs; however, he did increase funding for several existing education, economic development, and infrastructure programs.
Spending Caps
This budgeting season is different than years past because in conjunction with the state income tax increased passed in January, General Fund spending caps were set for the next four fiscal years. The caps restrain growth to about two percent per year. If the legislature spends over the cap, the tax increase is nullified. The governor did not propose spending over the cap this year. Spending above the cap will most likely not occur over the next three years because the legislature set a nice cushion into the base, considering that, according to the Illinois Commission on Government Forecasting and Accountability, total enacted operating expenditures and transfers out in FY 2011 were $33.5 billion, a full $2 billion less than the FY 2012 cap. This year the cap is $36.8 billion, $1.4 billion less than the $35.4 billion proposal. The state is not required to meet the cap.
No Pension Reforms
The Governor recommended no pension reforms. However, House Speaker Michael Madigan appeared on the Illinois Lawmakers program hinting that changes to the pension benefit for new state employees could happen in this legislative session (current employees are guaranteed their pension benefits under the state constitution.) State employee retirees, however, could be charged more for their health care coverage, which is not constitutionally guaranteed.
Last fiscal year Gov. Quinn did sign Public Act 96-0889 into law, making significant changes to retirement benefits for new hires including increasing the retirement age from 60 to 67; using eight years’ average pay for benefit calculation instead of four; changing the cost of living adjustment from a flat three percent compounded rate to the lesser of three percent or 50 percent of the change in the consumer price index; and limiting covered earnings to $106,800, indexed to inflation.
New Budget Reforms
Unlike previous budget recommendations, where a governor could propose a new revenue source along with programs funded by that revenue source, budget reforms passed this year do not allow the governor to base his budget on revenue sources not already approved by the General Assembly. Gov. Quinn did not propose any revenue enhancements.
Borrowing
Gov. Quinn’s plan includes billions to pay down the state’s current backlog of bills, which are owed to social services providers, schools, and municipalities. Republicans quickly shot down the idea, which would require three-fifths of the Senate, and their votes, to pass.
Senate Bill 3, sponsored by Senate President John Cullerton (D-Chicago), would authorize the borrowing of $8.75 billion and allow the state to make payments to vendors that are at least 60 days past due. The borrowing plan was first proposed in connection with the income tax increase. The lender would pay all of Illinois’ bills immediately, and the state would repay the lender over a period of 14 years through 0.5 percent of the January tax increase.
As Eric Zorn points out correctly, the state is informally borrowing from its vendors right now by not paying them on time. The borrowing plan in SB 3 saves on late payment penalties to vendors, which can go as high as 12 percent, because the state can lock-in a significantly lower interest rate on the borrowed debt. It’s also important to realize that not paying vendors, schools, and social services agencies what they are owed has led them to cut thousands of jobs and some business to close. According to a study by the Illinois Dept of Human Services, the state’s delayed payments have meant a loss of 50,000 jobs for Illinois social service providers.
What’s in the Budget
Education
Gov. Quinn recommends an increase of $262 million for general state aid for schools, which would raise the state foundation level by $148 per pupil. The budget proposal also includes a $38 million increase for early childhood education. Quinn’s proposed increases for higher education rests mostly with providing $25 million in additional investment for the Monetary Award Program (MAP), the state’s primary student financial assistance program for needy students.
Economic Development
The Governor proposes major spending increases for the Dept. of Commerce and Economic Opportunity, an agency with the task of creating new jobs. The state funding expansion includes increases of (total state funding in parenthesis):
- $3.7 million to promote energy efficiency ($6 million)
- $27 million for energy assistance ($120 million)
- $4.4 million to double Illinois exports by 2015 by restructuring the state’s international trade offices ($8 million)
- $22 million to promote state tourism ($56 million)
- $22 million for workforce development and job training including additional training to support renewable energy industries and green jobs ($34 million)
- $95 million for the energy efficiency portfolio standards program ($95 million)
- $2.5 million to promote the construction of intermodal transportation facilities ($3 million)
- $1.8 million for renewable energy resources program ($9 million)
- $3.4 million for solid waste planning and recycling ($10 million)
- $5.6 million for improving coal technology ($24 million)
- $20 million for Metropolitan Pier and Exposition Authority Incentives ($20 million)
Transportation
State funding for the Dept. of Transportation is also bumped up from FY 2011 in the recommendation, including (total state funding in parenthesis):
- $92 million for the Division of Public and Intermodal Transportation ($739 million)
- $11 million for rail passenger and rail freight ($38 million)
- $168 million for central administration and planning ($273 million.) Most of this funding will go toward hiring new staff, which is necessary to implement the Illinois Jobs Now! state capital program. The budget makes no reference to the recent appellate court ruling that the Illinois Jobs Now! program, approved last year, is invalid because it violates Illinois’ single-subject clause.
- $40 million in grant to the Regional Transportation Authority for reimbursing service boards for reduced fares to students, handicapped persons, and seniors ($40)
- $37 million for Amtrak intercity passenger rail ($37 million)
- $8.5 million for PACE paratransit
Social Services Cuts
Many programs are slated to receive cuts, with Medicaid-funded social services taking a major hit. The governor recommends cutting the state’s Medicaid reimbursement rate that health care providers are paid to treat Medicaid patients by about five percent, which he says will save the state $550 million.
He’s also proposed $53 million in cuts to substance abuse programs, which according to the Illinois Alcoholism and Drug Dependence Association would mean almost 19,000 people would lose access to treatment. Quinn saves $107 million by eliminating the Illinois Cares Rx program, which provides state prescription assistance to people with and without Medicare; and $24 million by eliminating the Illinois Circuit Breaker program, which grants subsidies to senior citizens and persons with disabilities to help reduce the impact of increases in property taxes and prescription medications. He also would limit eligibility for those who qualify for subsidized childcare.
Education Cuts
Though the governor proposes increasing the overall education budget, Quinn does propose cutting state funding for specific programs including $95 million in state support of transportation costs to bus students to schools, $14 million from eliminating the regional superintends offices, and $100 million from consolidating school districts. Several superintendents across the state have taken issue with the consolidation proposal in conjunction with the transportation cut, because if schools consolidate students must be bussed on longer routes.
Gov. Quinn’s proposal is just the first step to approving the FY 2012 budget, which begins Jan. 1, 2011. It now moves through the General Assembly.