GOVERNOR OFFERS BLEAK BUDGET PREVIEW
Budget projections released by the Quinn Administration during the week offer a bleak preview of the state’s fiscal situation.
Illinois’ ongoing budget woes continue to be the preeminent issue facing state leaders. When the 2012 legislative session gets under way later this month, one issue is likely to overshadow all others – the continuously weak position of the Illinois state budget.
That was reinforced when the Governor’s Office of Management and Budget on January 3 released preliminary revenue and spending projections for the next three fiscal years. While Governor Pat Quinn isn’t scheduled to deliver his formal budget address until February 22, the projections emphasize the severity of the financial challenges facing Illinois.
For the coming fiscal year, the Governor’s office promised a tightly balanced budget that would spend $33.7 billion, based on $34.1 billion in projected revenues. That budget would keep spending slightly under revenues, allowing for a modest surplus to reduce the state’s backlog of bills.
SENATE GOP HAS COMMONSENSE PLAN FOR FISCAL RECOVERY
The projections reinforce years of Senate Republican warnings that the state’s Democrat leaders have continued to spend well beyond the state’s means.
In response, last March the Senate GOP released a detailed “Reality Check” budget proposal to balance the budget, eliminate the state’s deficit, and phase out the Democrats’ January 2011 tax increase. While Democrats rejected the Senate Republican plan last spring, the road map of possible reductions could serve as a guide in 2012.
Echoing Senate GOP calls to draw the line on spending and eliminate non-essential state programs or services, the outline presented by the budget office indicated virtually all state spending must remain flat for the next three years. In order to achieve a balanced budget, there could be no increase in education, public safety, welfare or healthcare spending.
Still, there are achievable alternatives. The “Reality Check” plan offered by Senate Republicans last March has a menu of more than $6.5 billion in spending cuts and revenue generators to bring the budget into line with available revenues before the temporary income tax increase is supposed to expire in three years.
MEDICAID COSTS SKYROCKETING
However, keeping state spending static is easier said than done, unless changes are made. In just one area of state spending, Medicaid, current projections show that Illinois would need to spend about $3 billion more next year just to keep its current level of services and prevent the existing backlog of bills from growing.
Medicaid costs have skyrocketed during the Quinn-Blagojevich years, growing by $4 billion in just eight years. The current year’s budget pushes more than $2 billion in bills into the upcoming fiscal year and, even with that juggling of the books, the state will still end this budget year more than $500 million in the red, according to the Governor’s office figures.
Holding the state’s healthcare spending flat for four years, as the Governor suggests, will require taming the Medicaid monster. Senate Republicans outlined an extensive series of possible savings in the “Reality Check” plan. Just as Medicaid spending accounts for a major portion of the budget, large savings are also possible by trimming the program.
For example, it is estimated that simply aligning Illinois’ generous Medicaid benefits to the national average would save $1.6 billion. Other savings could be achieved by increasing patient co-pays, rolling back eligibility at the higher income levels, establishing asset tests across the board and reviewing optional services not mandated by the federal government.
Quinn’s latest budget outline would still leave the state more than $800 million in the red at the time the tax hike is supposed to end. But that is an improvement over the $3.4 billion annual hole ($14.6 billion cumulative) that was projected last March.
PENSION CHANGES NEEDED
There are also signs that the Governor’s office may finally come to the table to negotiate genuine savings in the state’s deeply-indebted pension systems. The Governor has announced a work group to negotiate further reforms to the systems.
The Governor’s budget office plan also anticipates level funding for education through 2015. To achieve savings in education, Senate Republicans last year proposed reviewing all programs not related to basic education and mandated categorical grants, reforming the special education formula that benefits Chicago schools over other schools in the state and bringing under control the massive growth in the state’s supplemental grants targeted to Chicago schools.
Other ideas Republicans put on the table last year included $90 million in savings by eliminating questionable programs and agencies, reducing costs in the state’s employee health insurance program, further reforms of the state’s workers’ compensation system and eliminating non-essential programs and policies put into place under ousted Governor and convicted felon Rod Blagojevich.
ILLINOIS HAS SECOND WORST CREDIT RATING
The need to address the state’s dire budget situation is further underscored by a new report released January 5 by a global credit rating agency. Fitch Ratings emphasized the importance of reining in the state’s Medicaid and pension obligations, and pursuing long-term solutions to finance state government operations.
The Fitch report highlights the importance of bringing the state’s spending in line with available revenues. According to the recent review, Fitch left Illinois’ credit rating as the second worst in the nation. Only California has worse credit than Illinois.
The ratings agency gave the state an “A-minus” rating and included a “stable” outlook, meaning that it does not anticipate that the credit worthiness of the state will change in the near future.
The rating did come with a warning that if the state uses one-time revenues to increase permanent spending, or pushes off payments to balance its budget (which Illinois did this fiscal year to the tune of $2 billion), the state’s credit could be downgraded.
The agency also warned that Illinois must get its financial act in order before the temporary income tax expires in 2015.
The rating agency noted that even with a 67 percent tax increase, Illinois will finish the current fiscal year with a $508 million deficit and although the state reduced its backlog of bills by about $1 billion last year, that progress will be more than offset this year when the state again pushes bills off into the next fiscal year.
The rating agency said Illinois must address its long-term pension liabilities and bring skyrocketing Medicaid expenditures under control. Fitch noted that state debt is above the national average and that Illinois’ unemployment rate was above the national rate in November.