Wednesday, July 15, 2009

Budget deal reached but only builds a bridge

By Bethany Jaeger, with Jamey Dunn and Hilary Russell contributing
The state now has an operating budget in place, although the legislature likely will have to address a remaining $4 billion to $5 billion deficit later this year or early next year. Gov. Pat Quinn enacted the 12-month spending plan soon after it won approval by the General Assembly Wednesday night.

Numerous legislators described the package as less than ideal, the least bad option or a bridge to buy time until lawmakers agree on alternative revenue sources and long-term reforms. Instead of generating new revenue through a state income tax, the spending plan relies on various forms of borrowing and debt instruments.

Several lawmakers echoed the sentiments of House Majority Leader Barbara Flynn Currie: “We have run out of options,” just as state workers and agencies have “run out of time.”

The governor signed the spending portion of the bill (Senate Bill 1216) late Wednesday night, which will allow the comptroller’s office to issue hard copies of paychecks to 5,000 to 6,000 state employees Thursday, said Carol Knowles, spokeswoman for the comptroller.

Human service agencies are in a less certain position. While community-based providers received some assurance of state support, the governor will have wide discretion when deciding how to divvy out limited remaining funds and where to further reduce spending.

The budget deal primarily relies on borrowing to pay public employee pensions, borrowing from state agencies and essentially borrowing from Medicaid providers that don’t receive federal stimulus funds because the payment cycle is likely to lengthen.

Sen. Donne Trotter, a Chicago Democrat and budget negotiator for his caucus, said, “It’s not the best deal, but it will keep us going until we can really sit down and get a grasp on how we’re going to change doing business here in the state of Illinois.”

Even Rep. Bill Black, a Danville Republican, who berated the recent budget-making process as primarily behind closed doors and inadequate for essential state services, ended up voting for the bill that he disliked. “Because there is no alternative,” he said afterward.

Spending = SB 1216
Grant-funded services will receive an average of 86 percent of the funding level originally sought by the governor, while much of state government operations will receive about the same level as last fiscal year.

The Illinois Department of Transportation will get some extra money to hire engineers who will handle the increased workload generated by the federal stimulus package and state’s $31 billion capital construction program recently enacted.

Cost-cutting measures (included in the BIMP) = SB 1912
There will be significant cuts, but the legislature left it up to the governor to decide when and where. Quinn also will have authority to take “administrative charge backs,” which basically are loans from state agencies that the state has to repay.

Members of the executive branch and of the General Assembly will have to take 12 unpaid days off, which amounts to about 4.5 percent of legislators’ annual salaries and stipends, according to Rep. Frank Mautino, assistant majority leader from Spring Valley. The governor also said he hopes to negotiate furlough days with unionized employees to avert the need for layoffs as large as 2,600 workers.

The governor now has authority to ask agencies to reserve a percentage of their funding in an attempt to save an additional $1.1 billion (on top of the $1 billion he’s already supposed to cut). He would have a rare range of flexibility in deciding how to cut that $1.1 billion.

“There is a check on it, but it’s a much greater latitude than anyone’s ever had, the first year of [former Gov. Rod] Blagojevich included,” Mautino said. If Quinn if were to lower a service provider’s payment rate or raise co-payment amounts for people enrolled in state-sponsored programs, then he would have to go first get approval from the legislative panel called the Joint Committee on Administrative Rules.

The governor won’t need that committee’s approval to tell state agencies to reserve a percentage of their funds to, say, hold the line on travel costs. To close a prison or other state facility, he would still have to go through a public review process of another legislative panel, the Commission on Government Forecasting and Accountability.

Elementary and secondary schools will receive about $161 more in general state aid per student than they received last year, but that’s less than the governor originally planned. Mautino said the hope among some lawmakers is that he’ll put more of his discretionary spending money into grants for early childhood education and other education-related programs.

Borrowing = SB 1292
One of the main revenue sources that prevented the need for deeper cuts is a short-term borrowing scheme that increased to about $3.5 billion. Of that, $2.2 billion will go to community-based human services. The governor will have wide discretion in spending the remaining $1.2 billion.

Rep. Patricia Bellock, a Hinsdale Republican, said such groups as substance abuse providers fear that their funding will remain cut because their services are not matched by federal Medicaid reimbursements. Currie said during floor debate that the governor would have discretion to shift money to those services.

The borrowing scheme received mixed reactions. “This is one of the only cards we have left on the table,” said Rep. Kevin McCarthy, an Orland Park Democrat.

“We are not acting prudently,” said Rep. Jack Franks, a Marengo Democrat. “This will not balance the budget. Let’s not kid ourselves. This is only smoke and mirrors.”

Rep. Dave Winters, a Shirland Republican, added that borrowing this year would automatically create a budget hole next year because it’s a one-time revenue source that will have to be repaid by about $750 million a year. Sen. Bill Brady, a Republican from Bloomington, said that the budget sets the state up to fall off of a “financial cliff” next year because it relies on short-term borrowing and stimulus funds that will not be available in the future.

What’s not in the budget?
What the budget deal will not do is address the state’s multibillion-dollar backlog of unpaid bills. In fact, the spending plan might even create longer payment delays for providers that don’t receive extra federal stimulus funds for Medicaid reimbursements.

The state will maintain payment cycles for providers such as hospitals that capture extra federal stimulus funds. That does not include pharmacists or some grant-funded human services, however.

Sen. Jeff Schoenberg, an Evanston Democrat, said the longer-term structural deficit will continue to plague state-funded services. “One thing that we’ll know with absolute certainty is that all of the hospitals, nursing homes and community-based health and human service providers will continue to experience severe cash flow problems,” particularly as the economic downturn makes it harder for them to access lines of credit, said Schoenberg, who said he’s working on two backup proposals if the borrowing schemes don’t pan out as hoped.

What’s next?
The legislature adjourned without a date certain to return, although the annual fall “veto session” is scheduled to start October 14.

When the legislature comes back, it’ll have an opportunity to reassess whether the revenue outlook improved from the economic stimulus and state construction programs. And when crafting next year’s budget, they won’t have to tackle as large of a pension payment ($4 billion topped a ramped-up payment schedule this year).

But Senate President John Cullerton said the state won’t be able to borrow its way through another year and that a tax increase is “inevitable.” “Now you see why we need the tax increase, if for no other reason than to pay [bills] instead of borrowing.”

Chicago Democrat Sen. James Meeks, longtime advocate for an income tax increase similar to House Bill 174 that the Senate approved in May, was absent from the floor during the vote. Meeks has campaigned for the income tax increase because he said it would provide property tax relief and create more equitable funding for education. Earlier in the day, Meeks said: “You either borrow or you vote for revenue. So since I voted for revenue, I’m not voting for borrowing.”

Budget bills
FYI: These are the five bills the governor signed Wednesday night:
  • SB 1216 = spending bill
  • SB 1292 = bonding bill ($3.5 billion)
  • SB 1912 = budget implementation bill (with cost-cutting measures)
  • SB 1433 = fund sweeps
  • HB 2206 = designates state and federal funds

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