CIVIC FEDERATION REPORT SERVES AS BUDGET ADDRESS PREVIEW
The Chicago-based Civic Federation has released a grim new financial analysis, setting the stage for Governor Quinn’s annual Budget Address, scheduled for March 6. The Civic Federation’s five-year budget projections warn that Illinois is on track to accumulate nearly $22 billion in unpaid bills by fiscal year 2018.
Like most recent analyses, Illinois’ growing pension debt was identified as a major contributor to the state’s fiscal problems. Medicaid costs and the state’s failure to properly plan for the expiration of the 67 percent tax hike were also cited as contributors to the anticipated shortfall.
The report was well timed as the Governor will deliver his annual Budget Address next Wednesday. In the address Quinn will be expected to lay out detailed spending recommendations for the fiscal year beginning in July. Projections from the Governor’s own budget office and the legislature’s financial forecasting agency detail a budget that is expected to see major cuts in programs as the state continues to struggle to meet its financial obligations including paying Medicaid bills, funding the state’s retirement systems, and funding education.
Expenditures are expected to grow by more than $1.8 billion, yet state revenues are expected to rise by only $600 million.
While the report paints a discouraging picture, it should be noted that it is actually slightly more optimistic than the Federation’s 2012 report, which predicted nearly $35 billion in unpaid bills by fiscal year 2017.
The improvement can largely be credited to the bipartisan Medicaid reforms that were enacted in 2012. However, the report did note that even with the implementation of those reforms, Illinois Medicaid costs remain difficult to control.
Despite significant federal funding that has been provided to implement the Affordable Care Act (Obamacare), Illinois is expected to see nearly $3 billion in additional state costs for Medicaid through 2020. Senator Brady and Republican lawmakers have expressed concerns that the Quinn administration has been slow to implement the savings approved in 2012, which is likely to result in a bigger budget hole going into the next fiscal year.
NEW PENSION REFORM PROPOSAL UNVEILED
Pension funding accounts for roughly $1 billion of the expected $1.8 billion in increased revenues over the next fiscal year and legislative leaders continue to strive to find a practical, legal way to control these growing costs. The most recent effort is a bipartisan revised reform proposal introduced this week by leaders in the Illinois House.
House Minority Leader Tom Cross (R-Oswego) and Rep. Elaine Nekritz (D-Northbrook) have combined efforts to offer pension reforms that would delay and reduce cost of living adjustments for current employees, increase the retirement age and require workers to contribute an extra week's pay to their retirement funds every year, phased in over two years.
While many components of the proposal are nothing new, a “hybrid” retirement plan for teachers and others hired after Jan. 1, 2014 is. Employees hired after this date would be offered a retirement plan that combines lower guaranteed payments (defined benefits) with a savings plan partially funded by employees (defined contributions). Also included is a proposal to require local school districts to pay employer contributions for these new employees.