Quinn prepares 'what you can do without' budget
For two days, budget whiz Sen. Donne Trotter, D-Chicago, presided over a special Illinois Senate committee called to discuss ways for the state to cope with an unprecedented budget hole, initially projected at $9 billion but now standing at more than $11 billion.
During those two days, interest groups from education and health care talked mainly about ways to keep the status quo, possibly including tax hikes to avoid draconian cuts.
At one point, Trotter felt obligated to tell the groups that, because of the times, this was not a traditional legislative committee where “more” is the only word that matters.
“Nothing will be expanded until we fill that hole,” Trotter said as a reminder of just how tough the economy has gotten. “We are just halfway paying our bills.
“This is not a (program) protection committee,” he said. “This is a ‘What can you do without?’ committee.”
Filling state government’s budget gap will be as complicated as what created it. The deficit is the result of a combination of overspending in some areas, not spending enough in others and a recession-created slowdown in state tax collections.
Trotter’s warning that people will have to expect less hit home Friday, when aides to Gov. Pat Quinn laid out a general outline of what Quinn will propose Wednesday in his first state budget. That budget, the aides said, will be designed to bring spending under control and end the state’s growing reputation as a deadbeat to the businesses that supply it with material and services.
This is the first of two reports on the fiscal problems faced by Illinois state government. This story examines where the state stands in terms of money owed and for what. Sunday’s will look at alternatives available to deal with the state’s deficit, now pegged at $11.5 billion.
Quinn will try to cut $850 million from programs financed through the state’s general fund, the all-purpose checking account that pays for most state services. How Quinn will do that was not answered – especially because, although the general fund totals about $28 billion, $22 billion of that is spending for health care and education, two areas Quinn has declared off-limits for budget reductions.
Nor is that the end of it. Quinn said about $500 million in cuts have already been identified for the current state budget, and they will go through as planned.
Not all of the factors that led to the crisis are under the control of state government. They include:
The state pays part of the cost for five public employee pension funds. (Other funding comes from employee contributions and investment income.)
For years, the state did not put its full share into the systems, diverting some of the money to pay for other programs that might not have been affordable otherwise. The practice has left the systems with an enormous debt, money that actuaries said will be needed some day to pay pension benefits, benefits that are guaranteed by the state constitution.
Lawmakers eventually adopted a payment program that was designed to get the systems fully funded by 2045. Unfortunately, that plan called for the heaviest contributions to take place now, when state tax collections are dropping due to the recession.
Worse, investment income is dropping as the markets drop. The pension systems have seen the value of their investments tank, just as holders of 401ks have watched their retirement plans evaporate. It means the pension fund debt is even greater than it was only a year ago. That money, too, will have to be made up.
Quinn is expected to call for creation of a separate pension plan in which newly hired employees will be required to participate. Details of the plan aren’t available, but opponents already include the American Federation of State, County and Municipal Employees, which believes a second pension program will be costly and unfair to employees
The Civic Committee of the Commercial Club in Chicago has also said the state should do away with the practice of providing free health care to retirees who leave with 20 or more years of service.
Lack of revenue
Plenty of critics thought that lawmakers were being overly optimistic when they put the current state budget together. At least on paper, revenues have to be adequate to cover expenses, and few people thought that would be the case this year. They are proving to be right.
Illinois has three main sources of tax income – the individual income tax, the corporate income tax and the sales tax. Even in the worst of times, Illinois almost always can expect to collect slightly more income from one year to the next.
But the recession that has gripped the country means taxes the state would normally collect are not there. People lose their jobs, and income taxes suffer. When people fear they will lose their jobs, they put off buying houses, cars and other items, so sales taxes suffer.
As a result, the three tax mainstays of state revenues are expected to drop by $3 billion by next year, an extremely rare event.
What it means is the state does not have enough money to pay its bills, certainly not on a timely basis. Comptroller Dan Hynes has said that by June 30, the end of the current budget year, his office will be sitting on $4.5 billion of bills it cannot pay.
Health care payments
Some of those delayed payments are for health care, including Medicaid. Hynes said $1.95 billion more is needed to keep up with Medicaid payments. The Quinn administration said the amount is over $1 billion.
Putting more money into Medicaid is essential because the federal stimulus package provides additional funding to states that get their payment cycles below 30 days.
But Illinois doesn’t meet that standard, and Hynes said the length of time it takes to pay Medicaid bills is increasing sharply. One reason for that is that delaying payments in one area of the budget frees up money in other areas to pay bills.
That knowledge doesn’t help someone like David Stasiewicz, vice-president of Addus Healthcare. His company employs 5,000 people who provide health care for elderly Illinoisans in their homes.
“It has severely hurt our finances,” he said. “We had to borrow additional money because the state is three months behind on payments. I don’t know if that is going to be possible with our current lenders, given the current economic situation.”
Doug Finke can be reached at (217) 788-1527 firstname.lastname@example.org.