House passes "mini" capital plan for roads and bridges

By Jamey Dunn

The House approved more than $1 billion in capital construction spending, the bulk of which would be spent by the Illinois Department of Transportation on “shovel ready” projects.

House Bill 3794 calls for $1.1 billion in construction spending, $1 billion of which would go to road and bridge projects included in IDOT’s 5-year plan. The bill does not list the projects because they would be determined by IDOT, but sponsor Rep. Luis Arroyo said that the department plans to prioritize projects that are ready to go during the summer construction season. The remaining $100 million would go to local street repair projects. The money for construction would come from funding sources approved as part of the 1999 Illinois First capital program. Borrowing for the plan has been paid off, but the increased fees and taxes remain. “Some of that debt has been retired. It’s been paid off, and the revenue stream that was used to support it is now available,” said House Speaker Michael Madigan.

The plan passed with bipartisan support. House Minority Leader Jim Durkin said that after the particularly harsh winter, the state’s roads need work. “Illinois roads were clobbered.” He said that while Republicans opposed other construction projects passed in the House yesterday, this pared-down plan is “responsible” because the spending will be decided by IDOT instead of legislators. “It’s a smaller bill, but this is going to get us through the end of the year.”

But some lawmakers questioned spending money that could otherwise go into the general revenue fund on a rushed capital bill that does not include anything other than road and bridge projects. “I think this is the wrong time to do this, and I think this is the wrong approach,” said Northbrook Democrat Rep. Elaine Nekritz. and Proponents argued that this plan can be accomplished now to get people to work in the coming months, and the issue of a larger capital plan could be revisited later. “Bottom line, this is going to put people to work. Those people will pay taxes, and some of those taxes will come to the state of Illinois,” said Madigan.

Quinn: There is no money for pay raises

By Jamey Dunn

Gov. Pat Quinn said today that Illinois does not have the money to give public workers raises under the contract their union is currently negotiating with the state.

 “We’ve already told the union in the negotiations that there’s no money for raises,” Quinn said. He said he supports a House resolution that would urge lawmakers not to approve money for raises in the fiscal year 2013 budget. “It’s just common sense. The piggy bank is not there to be giving out raises. We have many bills to pay. We have this pension challenge, and so the notion that we would be giving out raises is not in the cards. And so it’s better for everybody, the executive branch and the legislative branch, to let the government employee union know what the facts are.”

 “HJR 45 unnecessarily limits the rights of workers and undermines the state employee collective bargaining process that has worked without disruption in Illinois for 40 years,” Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees Council 31, said in a written statement. “This resolution and continued false statements by the governor and his administration wrongly blame hard-working public servants for the state’s budget problems. Men and women who care for veterans and the disabled, protect children from abuse and keep our communities safe have earned middle-class wages, and Pat Quinn’s actions to terminate their union contract while trying to drive down their standard of living is an attack on the middle class.”

 Lindall said the union has offered in negotiations with Quinn to forgo raises next year as part of a “comprehensive settlement.”

 “We’re negotiating now,”  Quinn said of the new contract. “I really hope we can come to a fair deal for everybody,”  Quinn opted last week not to extend the union’s previous contract, which expired in June. However, workers are staying on the job without a contract, and the terms of the expired contract remain in place under state law.

Quinn also defended Squeezy the Pension Python, a character in an online video produced by the governor’s office to inform the public on growing pension costs. The cartoon snake has been mocked by some political commentators. Quinn said the character is a “creative” way to explain the issue to the average Facebook or Twitter user. “In the world of social media, you’re trying to connect to folks who maybe aren’t all that political. That’s maybe 98 percent of the people. They don’t live and breathe politics every day, and we’ve got to get beyond the sphere of just people on the inside. The issue of the pension reform really affects everybody, the amount of money we spend on our schools and our public safety and helping veterans, all of that is getting squeezed by this pension challenge.”

Lindall said that video inaccurately characterizes the issue. “The governor’s pension website is misleading to the public. Rather than pretending that the pension debt is the cause, when in fact, it’s a symptom of the state’s unfair tax structure — and instead of comparing retirees to snakes — a worthwhile education effort would explain what’s truly needed: a guarantee that politicians won’t skip pension payments going forward; and adequate revenue to maintain vital services while the state pays the pension debt.”

Quinn today declined to comment on a plan under consideration in the House to borrow $4 billion. The measure, House Bill 6240, is sponsored by Chicago Democratic Rep. Esther Golar. “I haven’t seen that bill. I have to look at it,” Quinn said. In the past, he has pushed the idea of borrowing billions to pay off some of the state's overdue bills.

New study drills down on state budget problems

By Jamey Dunn

A study released today takes a comprehensive look at Illinois’ fiscal situation and the events that led to the state’s current budget mess.

The study, which comes from the State Budget Crisis Task Force, is a follow-up to a report put out by the task force in July. The summer report focused on the budgets of California, Illinois, New Jersey, New York, Texas and Virginia. Richard Ravitch, the former lieutenant governor of New York, and Paul Volcker, the former chairman of the Federal Reserve, co-chair the task force, which seeks to parse state’s budget concerns in the wake of the national recession.

The report points to the usual suspects as cost drivers for the Illinois budget: growing pension and Medicaid costs. It also cites stagnant revenues, borrowing and shoddy accounting tactics as culprits in the state’s recent budget crisis. The report says that that tactic of selling bonds to cover pension costs — 2003, 2010 and 2011 — has been the primary contributor to Illinois having one of the highest debt rates per capita of any state.

The study says that the 2008 economic collapse was part of a perfect storm that sunk the state budget. Revenues tanked as demand for services spiked. “But unlike other states, Illinois was effectively insolvent. Illinois had no reserves and had used fiscal gimmicks and borrowing to balance the budget for the previous six or seven years.”

The authors attribute the problems leading up to 2008 to expansions of state programs and services without corresponding revenue increases under former Gov. Rod Blagojevich. The study said that the governor’s refusal to increase the state income tax and House Speaker Michael Madigan’s unwillingness to work with Blagojevich on alternative revenue sources left the state spending more than it could afford. “During Blagojevich’s two terms as governor, new programs were created and expanded, including health insurance coverage and preschool for Illinois children and free public transportation and prescription drugs for Illinois seniors. But with an existing structural deficit, and without new sources of revenue, the state did not have sufficient resources to meet all of its obligations,” the report said. “And while the recession took a toll on the state’s resources, Illinois’ government became essentially dysfunctional with the federal investigation of Governor Blagojevich and his removal from office.” The authors described the state’s budgeting tactics leading into the recession as such: “Illinois did all this without any sort of long-term financial plan to restore balance and without reserves. Illinois has been doing back flips on a high wire, without a net.”

Illinois economic growth has also stalled when compared with the rest of the country. “By FY 2010, Illinois’ total personal income fell 2 percent more and employment fell 1 percent more than in the U.S. as a whole. The impact of the recession on Illinois’ tax collections was much, much larger. In FY 2010, total state taxes in the U.S. were 93 percent of the amount in FY 2007, but Illinois’ tax revenues had fallen to 85 percent of the FY 2007 amount,” said the study. Illinois is recovering from the recession, but it is doing it more slowly than it recovered from the last three recessions.

The report notes that progress has been made to get the state back on secure footing. An income tax increase brought in new revenues, and lawmakers agreed on spending caps, cuts and sweeping Medicaid reforms. The authors note that such cuts are not painless and could have long-term effects on the state’s priorities, such as education and infrastructure. “There is, of course, nothing ‘encouraging’ about cuts in education, medical care and human services from the point of view of recipients or advocates. One of the most controversial budget appropriations was $6.5 billion for K-12 education, which was a cut of 3 percent from FY 2012,” said the study. Despite cuts and new revenues, the authors say the state cannot continue on its current budget trajectory. “Illinois’ budget is not fiscally sustainable. Despite recent progress and difficult choices, it is still in a deep hole. It cannot simultaneously continue current services, keep taxes at current levels, provide all promised [public employee] benefits, and make needed investments in education and infrastructure.”

Gov. Pat Quinn’s new budget spokesperson, Abdon Pallasch, echoed the idea that the current budget is unsustainable when he spoke to the Daily Herald’s editorial board yesterday. Quinn is pushing for concessions from the state’s largest public employee union and pension reform as at least a partial solution. “The alternative is we, you know, close a few prisons or universities, I guess,” Pallasch told the Daily Herald. “I’m not threatening to close prisons or universities,” he said. “I’m just saying, let your imagination run wild with what we’d have to do.” Officials with the American Federation for State County and Municipal Employees say Quinn and lawmakers should repeal tax breaks given to corporate interests, such as a recent tax deal given the Sears and the CME group, which owns the Chicago Mercantile Exchange and the Chicago Board of Trade.

The study also looked to potential future concerns for Illinois, including cuts to federal funding as deficit reduction efforts continue, the need to invest in infrastructure upgrades and the state’s aging residents. “Illinois’ demographics show an aging population with a trend toward fewer workers and more retirees, which will pose daunting fiscal challenges in the years ahead.”

Quinn: Credit downgrade bolsters calls for pension reform

By Jamey Dunn

The rating agency Standard & Poor’s reduced Illinois’ credit rating today, citing the state’s underfunded pension systems and continued budget worries.

The agency moved Illinois from an “A+” to an “A” rating. The rating agency also gave the state a “negative” outlook for the future. “The downgrade reflects the state's weak pension funding levels and lack of action on reform measures intended to improve funding levels and diminish cost pressures associated with annual contributions,” Standard & Poor's credit analyst Robin Prunty said in a prepared statement. “The downgrade also reflects continued financial weakness despite significant measures in the past two years to improve structural budget performance.”

S&P said that the negative outlook was based upon the potential for growth in the state’s unfunded pension liability, which stands at $83 billion. The agency also noted that the 2015 phaseout of the recent income tax increase could weaken the state's fiscal standing. Illinois now has the second lowest bond rating from S&P in the country. The state with the lowest, California, received a “positive” outlook from the agency.

A lower bond rating can lead to a higher interest rate for Illinois when it looks to borrow, something it does regularly to fund capital projects. Higher rates means borrowing will cost more.

However, Moody’s rating agency in January gave Illinois its lowest credit rating of any state, and on a bond sale later that same month, the state got the best interest rates it had seen since the 1970s. Quinn brushed off the downgrade when questioned by reporters at the time, pointing to steady ratings from S&P and Fitch Ratings. “Positive feedback like we have seen today from investors demonstrates the strong confidence investors have in Illinois,” David Vaught, then-director of the Governor’s Office of Management and Budget, said in a written statement released by Quinn's budget office to tout the January bond sale. “These bond bids make clear that investors know we are taking steps to correct the decades of fiscal mismanagement in our state, and they understand we continue to take major steps to reform pensions and control skyrocketing Medicaid costs in an effort to return Illinois to sound financial footing.”

In recent months, Quinn has used the possibility of further downgrades as a call to action for lawmakers who have yet to produce a pension overhaul that has the needed backing to pass in both chambers. “Today’s action is no surprise. Over and over again this summer, I made clear that if we do not act on pension reform, the state of Illinois would suffer the consequences. Now it has. Eliminating our $83 billion unfunded pension liability is vital to getting our financial house in order. Today’s action by Standard & Poor’s is more evidence that we must act,” the governor said in a prepared statement.

After a recent special legislative session that Quinn called to address pension reform produced nothing of substance, negotiations appeared to be at a standstill. Quinn said today that he plans to invite the four legislative leaders to a meeting to discuss pensions in September.

Rating agency says Illinois has more budget work to do

By Jamey Dunn

 One bond rating agency says that if Illinois does not do more to balance its budget before the recent tax increase begins to phase out, the state could face another hit to its credit score.

Fitch Ratings held Illinois’ rating steady at “A” with a stable outlook. (You must log in to see the report.) However, the rating means Illinois continues to be the second lowest rated state in the nation, behind California. The rating came as Illinois looks to sell bonds for capital construction projects. The state’s bond rating are used to determine the interest rates it must pay on debt.

An analysis from Fitch says Illinois has taken some steps in the right direction to close the budget gap, such as the recent income tax increase. However, the analysis notes that the state will still end the current budget year with a deficit of more than $500 million. The rating agency says that Illinois has more work to do to address long-term problems. “While the actions taken were positive, significant challenges remain. The tax increases are temporary and will begin to phase out in 2015. Even if the state has achieved budget balance by that point, it will once again be faced with a significant budget balancing decision to make severe expense reductions that it has been unwilling to make up to this point, identify new revenues or make permanent the tax increases. In addition, there is limited ability within the existing budgetary framework to reduce the accounts payable backlog in a meaningful way without reliance on debt issuance, which has yet to be authorized,” the report said.

Fitch analysts agree with Quinn that the projected pension payment of $5.2 billion, which is a 27 percent increase over the FY 2012 payment, and increased Medicaid costs, including bills that were pushed to next fiscal year, will put pressure on the FY 2013 budget. Quinn wants to keep education and health care spending flat next fiscal year, which his budget office says will require an approximate 9 percent cut to all other areas of state government.

Even with cuts next fiscal year and generally flat spending levels in the next two fiscal years, Quinn’s budget office projects a more than $800 million deficit in FY2015, which is when the recent income tax increase begins to phase out. Fitch’s report says that if Quinn and lawmakers wait too long to address the issue of the tax increase phase out, the state’s credit rating could be downgraded. “Deterioration in the state's financial position, as evidenced by excessive use of non-recurring revenues or additional payment deferrals in the budget, could lead to negative rating action. Also, pushing up against the expiration of temporary tax increases in fiscal 2015 without a solution in place would put extreme pressure on the budget and likely lead to a [negative] rating action,” the report said.

“We hear and acknowledge from rating agencies and investors that additional bipartisan action to implement further cost reductions and reforms is needed in this upcoming legislative session to achieve fiscal stability in our state,” said Kelly Kraft, Quinn’s budget spokesperson. Kraft said that Quinn is considering potential Medicaid and pension changes that would create savings and also hoping for increased revenues from economic growth to help stabilize the budget before FY 2015.

Karen Krop, the primary analyst on Fitch’s report, said that Illinois must take steps to address the issue by the FY 2014 budget year at the latest. “When you get into 2014 budget, one would hope that they would be talking about how they are going to deal with that in the coming year.” But Krop noted that Illinois officials have a history of “waiting until the last minute” to address difficult situations. “If the income tax had been raised sooner, we wouldn’t have this accounts payable problem,” she said.

The rating agency has yet to embrace Quinn’s plan to borrow money to pay off the backlog of unpaid bills. According to Fitch’s report, the state was able to pay off $1 billion in late bills with revenues from the tax increase, which brought the total down to $5.2 billion. But the report says the state expects an increase the amount of unpaid bills in the remaining months of the current fiscal year.

Krop said that Illinois is unlikely to see its bond rating improve until it addressed the backlog. The report calls for “a comprehensive approach to reducing the accounts payable backlog that does not significantly exacerbate the state's already high debt position.” Krop said that doesn’t rule out borrowing, but that Illinois should make cuts and other budgeting efforts and borrow as little as it can to make up the difference. She noted that paying off the bills would create an economic boost for Illinois. At 6.2 percent of 2010 personal income, Fitch classifies the state’s debt level as “moderate but above average.” Krop said Quinn’s previous proposal to borrow $8 billion, to pay late bills and other costs, would have pushed that level into the “high” range. “It’s clearly a problem that needs to be solved. There’s been this overhang accumulating for a few years,” she said. “The question of how to resolve it is kind of up to the state.”

Quinn and Rutherford spar over borrowing

By Jamey Dunn

State Treasurer Dan Rutherford said today he will not keep quiet about his thoughts on state borrowing or Illinois’ dire financial situation.

Last week, Gov. Pat Quinn voiced frustration over Rutherford’s recent comments on the state’s debt and financial standing. Rutherford called Illinois the “most bankrupt state in the nation” and has publicly warned Wall Street investors not to buy more of the state's debt.

Quinn told reporters in Chicago that he is “disappointed” in Rutherford for not being more cooperative on billions in borrowing that Quinn has proposed to pay off some of the state’s backlog of overdue bills. “I used to be state treasurer, and I know you can work with a governor,” Quinn said. “I’m a little disappointed in Treasurer Rutherford.”

Quinn has argued that the interest costs on loans would be cheaper than the interest the state is required by law to pay vendors on late bills. “I think if we do it in a good public finance way, we can save the taxpayers millions of dollars and help our business get paid the vouchers and invoices that they have quicker.” The plan has failed to gain traction in the legislature.

When asked if Rutherford’s public negative comments created fears that could lead to a credit rating downgrade for the state, Quinn recalled an old security slogan. “My father was in the United States Navy. Loose lips sink ships, and I think maybe Treasurer Rutherford should commit that to memory.”

“The governor has got to understand that this is not a secret." Rutherford said today that Quinn and others cannot hide from the reality of the budget — especially new information from Moody’s Investor Services that the state’s required pension payment next fiscal year, estimated to be about $5.3 billion, will be more than $1 billion higher than the payment for the current fiscal year. Moody’s estimates that the payment will account for about 14 percent of general revenue fund spending for Fiscal Year 2013. The bond credit rating agency described the state’s pension obligation as a “credit negative.”

“When Moody’s just came out within the last week talking about this new revelation about the greater payments that are going to be necessary in our pension funds, that’s no secret, governor. Everybody knows it. We’ve got to address it.” He said that when lawmakers passed a tax increase in January, they should have leveraged the prospect of new revenue to force cuts and pensions reform as part of an overall plan. “They didn’t put together the rest of the deal. … They blew it here in Springfield.”

Rutherford said he is willing to work with Quinn on short term borrowing — to be repaid within a year — to address cash-flow issues. But he said he would continue to be a vocal opponent of any other new borrowing. “Don’t loan my state any more money, they are addicted to debt.”

Rutherford clarified his statement about the state being bankrupt, noting that Congress has not voted to allow states to default. However, Rutherford said if the state were a private entity, it would be facing bankruptcy. He said he does not support proposals to allow states to default because vendors who have done business with the state would potentially get short changed. “If someone sold bread to the Pontiac penitentiary, that vendor should get the dollar for dollar, rather than [price] negotiated by a federal bankruptcy judge and get 80 cents on the dollar.”

Rutherford made his comments today at a news event announcing the start of an online auction to sell unclaimed property. After unclaimed property left in safety deposit boxes is held by banks for five years, it is passed on to the treasurer’s office, which then tries to locate the rightful owners. If the owners cannot be found, the state auctions off the property. Rutherford said the state has been searching for the owners of everything in the current auction for at least five years.

If owners come forward after an item has been sold, they are still entitled to the cash amount that the item was appraised for. Rutherford said of unclaimed property, much of which is kept in a vault under the state Capitol building, “it never becomes the property of the state. As the treasurer, I’m only the caretaker.” The online auction started today and will close  December 11. Rutherford said holding the auction online will bring the cost to the state down from about $29,000 to about $2,000.

Republicans say their time is coming in Illinois

State Treasurer Dan Rutherford takes the podium at the fair.

By Jamey Dunn

Illinois Republicans are optimistic about their party’s chances in the 2012 elections, if they can get their message across to voters.

“I think that America’s going to be looking at who is going to help lead us during an economically stressful time. Who’s going to help us with regards to jobs?” state Treasurer Dan Rutherford said at today’s Republican Day at the Illinois State Fair. He said Illinois Republicans need to reach outside of their traditional voting base and cannot count solely on the wave of popularity the Tea Party has found in other parts of the country. “The Tea Party brings a portion of the electorate, and more power to them in doing that. I just say that there is much more to wining a race in Illinois than just one specific segment. The traditional base of hard-core Republicans is not as large as the traditional base of hard-core Democrats. And for that reason, a candidate like me, who wins statewide races, has to understand that you need to reach into the independents and, to be very blunt with you, into the Democrats.”

Rutherford would not say if he plans to run for governor in the future. “I’m going to be a good state treasurer for the next few years, and we’ll make a decision later.”

Republicans believe their message of reduced spending and smaller government resonates in the down economy. “Incrementally, we continue to be the voice of reason,” said Sen. Bill Brady, a Bloomington Republican. Brady said Illinois voters need to get to know some Republican candidates better. “I think the people of Illinois are on a learning curve.” He says that “learning curve” is what made the difference in his failed run for governor last year. “At the end of the day, the undecideds didn’t get to know me as well as they felt they knew Gov. [Pat] Quinn, a career politician,” he said. Brady, who has served in the General Assembly for more than for 15 years, would not say whether he plans a third shot at the governor’s office.

The message Republicans were pushing today was opposition to borrowing. Quinn has renewed his call for the state to borrow to pay some or all of the estimated $4 billion backlog of overdue bills that Illinois owes to schools, social services providers, local governments and others. State Comptroller Judy Baar Topinka said the state has a stack of more than 190,000 bills, the oldest of which dates April 19, 2011.

“I’m just thrilled to death that we’re paying bills from 2011. We finally got out of 2010. We don’t have the money to pay it. It’s just that simple,” she said. Topinka joined Rutherford and the Republican legislative leaders to oppose borrowing to pay late bills, which they say will only dig the state into a deeper hole. Republicans also warn that with the recent Standard & Poor’s downgrade of the country’s credit rating and a specific warning to Illinois from the bond rating agency Moody’s, the cost of borrowing for the state may soon increase. “We actually do have a plan. … It’s not rocket science,” said Senate Minority Leader Christine Radogno. “It simply says you spend less money than you have coming in, and you start paying more bills down.” The Senate Republicans' plan called for $5 billion to $6 billion in budget cuts. Radogno said the plan would result in a budget surplus in five years.

Democrats criticized Republicans for not drafting their plan into legislation, saying such massive cuts to the state’s major spending areas of education, health care and human services are not so simple. They say some of the Republican plan would violate court orders and cause the state to miss out on substantial amounts of federal funding. “If there was an easy way out of this, we’d have figured it out a long time ago,” said Sen. John Sullivan, a Rushville Democrat. Sullivan sponsored several proposals to borrow to pay down the state’s backlog. He only called one of the bills, a proposal to borrow about $6.2 billion, for a vote, and it received a meager 19 “yes” votes. Sullivan said he is trying to sell lawmakers as well as voters on the idea, and he plans to push some version of the plan again. “I’m just trying to build a case,” he said.

Party chair Pat Brady address the crowd.

Both Sullivan and Quinn said the borrowing would actually be a restructuring of a debt the state already owes to those it has not paid for their services. Sullivan said he worries that businesses that work with the state may go under while Illinois fails to act quickly on the backlog. “I don’t even know how they're keeping the doors open in some instances.” He argues that the plan could help the state’s recovery. “Just imagine what putting $5 billion into the Illinois economy is going to do.”

In this year before the presidency and every seat in the General Assembly comes up for grabs, Illinois Republicans are working to raise the profile of their party and their message of fiscal responsibility. Republican Party Chair Pat Brady announced an Illinois straw poll — similar to the famous Iowa straw poll conducted last weekend — on Republican presidential candidates on November 5, one year before the election. Brady said the party plans to have polling locations in every county in the state. Brady put a positive spin on the spotty attendance at the Republican rally at the fair today, while noting that Democratic Party Chair and House Speaker Michael Madigan did not attend yesterday’s Democratic events. “This is a substantially better crowd than we had in the last off-]election] year, and we don’t bus people in because we gave them jobs. These are all people who came because they want to support the party.”

Some budget issues up in the air as session ends

By Jamey Dunn

As the regular legislative session ended, lawmakers sent the House’s budget, which was based on a much lower revenue estimate than both the Senate’s plan and Gov. Pat Quinn’s proposal, to Quinn for approval. However, legislators from both chambers are open to making budget tweaks down the road, including increasing spending.

The Senate tried to push about $430 million in additional spending by linking it to the spending for the capital construction bill, but the House rejected the change.

“I think anybody would love to be able to say, ‘Hey we found a money tree and let’s go pick $400 million off of it,” said Rep. Roger Eddy, a Hutsonville Republican.

The largest portion of the Senate spending, about $151 million, would have replaced the House’s 4 percent cut to general state aid to schools. Because the Senate proposal, House Bill 2189 (Senate amendment 1) did not pass, the cut is in the final budget. By contrast, Gov. Pat Quinn had called for an increase of about $260 million to general state aid for schools

“Where’s the money coming from? It’s not within the [spending] caps we established. It’s not the conservative estimate. And we still haven’t done anything to pay the schools for the money we owe them for fiscal year 2011. [The payments] are going to be several months late. I understand why they took the action, but it doesn’t do anything to solve our problem,” said Eddy, the minority spokesperson on the House's K-12 budget committee.

On Monday, Sen. Dan Kotowski, a Park Ridge Democrat, said that if the House did not approve the additional expenditure, the spending for the capital construction programs would also go down.

Rep. Frank Mautino, a budget point man for House Democrats, disagreed: “We’ve sold bonds and the money is there, though it may be tied up in court. The bond proceeds are there. The projects will continue.”

He said that because lawmakers also voted to extend the period in which they can pay off bills for the current fiscal year through January 1, contractors working on construction projects would be able to submit bills to the state through the rest of the year. The so-called lapse period that the state uses to catch up on bills from the previous fiscal year normally lasts through August. “So now, all those projects that are ongoing can just continue without a re-appropriation. … So we don’t need to do that bill,”said Mautino, a Spring Valley Democrat.

Gov. Pat Quinn still has to sign off on the extension, which lawmakers on both sides of the aisle supported while acknowledging that paying off the state’s overdue bills without borrowing will take longer. “I think this chamber made a wise decision in not engaging in borrowing,” said Sen. Pamela Althoff. She added that legislators need “the tools” to make sure that the vendors, social service providers, schools and local government that are waiting for state payments eventually get their money. As of now, lawmakers plan to pay off that roughly $6 billion in bills with any money that might come in that exceeds the “conservative” revenue estimate the budget is based on.

The Senate’s request for additional spending may be revisited later in the year because House Speaker Michael Madigan announced the appointment of a conference committee comprising members of both chambers to take up the bill. “[Our budget] is not complete because the other part of our budget is our capital budget that has not yet passed,” Cullerton said. “We’ll just have to come back and pass that later.”

When asked whether more spending could be in the future of the budget, Mautino, a member of the conference committee, said that if more revenues come in, it is a possibility. “At any time. We can always adjust. All the budget is is the authority to spend money. It’s just a plan. And our plan is designed to what we can reasonably expect to come in.” Mautino said that some of the spending the Senate wanted to tack on “might be agreeable” but added that the unpaid bills should be the top priority.

When the Senate adjourned its regular session just before midnight, Cullerton said that he was not sure when members would return. He noted that a calendar for veto session has been released, and it calls for the General Assembly to return to the Statehouse on October 25.

However, he warned the members of his chamber: “It may be before that.”

Workers' comp reform fails in the House

By Jamey Dunn

As lawmakers forge into the last few days of their spring session, they may soon be voting on dismantling the state’s workers’ compensation system, as well as putting off paying overdue bills even longer.

The Illinois House today shot down House Bill 1698, a workers’ compensation reform package that supporters said would have saved businesses $500 million to $700 million.

Republicans were critical that most of the savings would come from a 30 percent reduction to the rates that doctors are paid for treating injured employees. Members of the health care community have asked lawmakers to change the reduction to 20 percent.  But House sponsor John Bradley, a Marion Republican, said business groups would have pulled support from a plan that reduced fees any less.

Rep. Dan Brady, a Bloomington Republican,  faulted Bradley for not budging on the 10 percentage point difference to gain the medical community’s support. “I heard that the medical community, and I heard that the hospitals say … they would agree to a 20 percent reduction in fees. If that were the case, [would] we have then an agreed bill between business labor, the medical community hospitals and any other stakeholders?”

Republicans who cast “no” votes in both legislative chambers also said the plan did not do enough to reform the system. Senate Republicans who voted in favor of the bill Saturday warned that more work would be needed.

“[Opponents say] we’ve never gone far enough, but we’ve never gone anywhere,” said David Vite, president and chief operating officer of the Illinois Retail Merchants Association. “Every election, candidates from both parties talk about the jobs climate, talk about helping Illinois business, and when it comes right down to it, they didn’t step up to the plate today.”

Both Bradley and Senate sponsor Sen. Kwame Raoul, a Chicago Democrat, expressed frustration that months of negotiations with the powerful groups involved in the system — businesses, doctors, organized labor and trial lawyers — did not produce a bill that made it to Gov. Pat Quinn’s desk. Quinn has publicly supported HB 1698.

“This is a compilation of months of work with many different parties and many different stakeholders in the workers’ compensation process,” Bradley said. Raoul accused House Republicans of casting their votes to protect campaign contributors in the medical community. No House Republicans voted to support the measure.

Now, passage of a bill to dismantle the workers' compensation system that was written off by many as a negotiation strategy is starting to look like a real possibility. Bradley says he does not plan to call the reform bill for another vote in the House, and Raoul said he plans to call Senate Bill 1933, the so-called nuclear option, for a vote in the Senate as early as tomorrow. He said his intention would be to dismantle the system and eventually replace it with a reworked version. In the meantime, workers' compensation cases would go into the courts. “It is a manifestation of the frustration with the inability to change the system,” Vite said. “The consequences of that and the ramifications, I don’t know that anybody understands at this point.”

Lawmakers also shot down one piece of a proposal today to borrow about $6.2 billion to pay off the state’s backlog of overdue bills. Only 19 senators voted in favor of the bill, one of four measures that make up the borrowing plan. Republicans objected to more borrowing on top of the billions in loans the state has taken out to make the required employee pension payment for the last two fiscal years. Sen. John Sullivan, a Democrat from Rushville, said legislators on both sides of the aisle were reluctant to support a large borrowing package before passing a budget plan. He said he plans to push the issue again when budget legislation starts to gel in the coming days.

Meanwhile, a Senate committee approved HB 3188, which would give the state until December to pay off bills from the current fiscal year. The so-called lapse period normally ends in August. However, the General Assembly voted to extend it for last fiscal year and did manage to meet the later deadline, due largely in part to a one-time cash infusion from borrowing against a settlement Illinois received from tobacco companies.

Legislators start final push on big issues

By Jamey Dunn and Lauren N. Johnson

With less than a week before their adjournment deadline, Illinois lawmakers are making final attempts to get several large proposals passed in the last days of regular session.

Pension benefits
House Minority Tom Cross submitted his proposal today to reduce future retirement benefits for current state employees. According to Cross' spokesperson, Sara Wojcicki, he plans to present his amendment to Senate Bill 512 in a House committee tomorrow morning. Under the proposal, current employees would be able to keep the benefits they have already earned. But starting July 1, 2012, they would have to pick one of three plans that call for larger contributions or reduced benefits. Employees could stay in their current defined benefits plan, but their contributions would increase:

• State Employees’ Retirement System (SERS) State employees who will also receive Social Security benefits currently contribute 4 percent of their salaries. Under the proposal, they would have to pay 9.29 percent. Members of SERS who do pay into Social Security now contribute 12.5 percent of their pay. They would have to kick in 18.91 percent under the proposal.State Employees’ Retirement System Alternative Plan Members of the alternative SERS system, which includes workers with potentially dangerous jobs, such as prison guards, and who also have an earlier retirement age, contribute 8.5 percent of their salaries now, if they also pay into the Social Security system. Under Cross’ plan, they would have to chip in 16.65 percent of their pay. Those who will not get Social Security pay 12.5 percent of their salary now and would have to pay 18.91 percent.
• Teachers’ Retirement System (TRS) Illinois teachers, except Chicago teachers, currently pay 9.4 percent of their salary and will not receive Social Security benefits. Under the bill, they would have to contribute 13.77 percent. Chicago teachers would see their contributions increase from 9 percent of their pay to 12.75 percent.
• State University Retirement System (SURS) University employees currently contribute 8 percent of their pay. Under the proposed change, they would pay to 15.31 percent.
• General Assembly Retirement System (GARS) Legislators currently contribute 11.5 percent of their income to retirement benefits. They would pay 24.89 percent under the proposed legislation.
• Judges Retirement System (JRS) Judges kick 11 percent of their pay into their retirement. Under Cross’ plan, they would pay 34.04 percent. Lawmakers reportedly considered leaving judges out of the plan, but according to Wojcicki , they will be included in Cross’ proposal.

The amount that employees would have to pay to stay in their current benefit plans would be recalculated every three years.

Under Cross' amendment, employees could also opt to move down to “tier two” of the system — which was passed by legislators in one day during last year’s legislative session — and applies to all employees hired after January 1 of this year. Or they could choose to participate in a self-managed plan, similar to a 401K. Under the self-managed plan, employees who would collect Social Security would contribute 6 percent of their salary, and those who would not would contribute about 4 percent. The state would match those contributions

Employees who chose the old benefits could opt to switch when the rates they must pay are refigured every three years. If they left the so-called tier one plan, they could not return to it but would keep all the benefits they earned under it.

Senate President John Cullerton has said he believes changes to current employee benefits would be unconstitutional. However, he has vowed to call the bill for a floor vote in the Senate if it passes in the House.

Borrowing
A Senate committee today approved a plan to borrow about $6 billion spread out through four proposals to pay down the state’s unpaid bills to vendors, schools, hospitals and local municipalities.  “In some instances, those bills are months and months old; in some cases they are over a year old. So, a tremendous backlog of unpaid bills,” said Sen. John Sullivan, a Rushville Democrat who is backing the legislative package.

Sullivan sponsored four Senate bills that make up the plan and total $6.17 billion:

• SB 342 would pay $1.5 billion owed to state vendors, non-governmental entities and private businesses. Sullivan said vendors have had to take out lines of credit, cut jobs and reduce their services as result of late payments or nonpayment.
• SB 343 would address payments owed amounting in $1.1 billion for health care providers whom the state contracts with for its group health insurance programs.
• SB 344 would restructure debt for private businesses waiting to be paid their corporate tax refunds by paying $800 million to the sector.
• SB 345 would provide the largest amount of money from the state to school districts, universities, community colleges and local units of government, amounting in $2.7 billion. Schools say that have had to make layoffs and cut programs as result of unpaid bills from the state.

Sullivan said his plan would pay off the bonds over the next seven years using money from the recent income tax increase. It would cost the state about $804 million in interest. “Even though it’s slightly different from the variation that we proposed three weeks ago, we think it makes a lot of fiscal sense and economic sense,” said Gary Plummer, president of the Springfield Chamber of Commerce, a group that suggested a similar plan almost a month ago. “It will allow the state to make good on past due bills owed for goods and services provided by agencies and vendors in good faith throughout the state.”

Although, the plan differs from an earlier borrowing proposal by Gov. Pat Quinn that called for borrowing $8.7 billion to be repaid over 14 years, Kelly Kraft, spokeswoman for the governor’s office, said Quinn has remained flexible with his proposal and supports Sullivan’s plan. “Overall, when you’re dealing the budget, it’s a negotiation process, so there’s give and take throughout. So this is something that we do talk about with legislators, as well as the budget,”  Kraft said. “We just want to come up with the best plan for everyone.”

However, the plan will need Republican support in each chamber to get the required super majority needed for the state to borrow. Senate Republicans, who have opposed additional borrowing, agree that individuals and businesses owed by the state should be paid in a timely matter but suggest that there are other ways to address the backlog. Sen. David Luechtefeld, an Okawville Republican, remarked: “Yes, you want your money, but it’s not going to be too long before those bills are going to go right back up because there’s no way to pay them anymore. We’ve borrowed too much.” Cullerton said Senate Democrats are looking for the Republican backing needed to pass the borrowing plan. “That will take some time,” he said.

Energy
House members are supporting a new version of a controversial proposal that would allow utility companies to raise rates while also requiring them to invest in infrastructure, as well as a proposal to build a coal plant that would utilize carbon emission reducing technology.

SB1652 would allow Commonwealth Edison and Ameren, the state's largest electric utilities, to increase customers’ rates by up to 2.5 percent annually and would require both companies to invest a combined $3.2 billion  in infrastructure to upgrade the existing electric gird and add so-called smart grid technology. Unlike in previous incarnations of the plan contained in House Bill 14, the Illinois Commerce Commission, which currently has to sign off on rate hikes, would decide on the increases.

The measure would also require utilities to meet benchmarks for customer service and reliability. The ICC would monitor the progress, and the utilities would face fines if they failed to meet the goals. The ICC would also review rates in 2014, and the entire bill would sunset in 2017, meaning lawmakers would have to approve it again.

David Kolota, executive director of the Citizens Utility Board, said the changes to the proposal are encouraging, but he said the customer-service benchmarks may be set too low.

On the policy front, on smart grid policy, it’s definitely a significant step forward,” said Kolota, whose consumer advocacy group opposed the original plan. “All [the previous plan] said was, ‘We’re going to do smart grid.’ It was like one sentence.” He said he is concerned that the rate cap is only in place until 2014. “We certainly wouldn’t want to see a situation where consumers are soaked and suddenly get hit with a significant rate increase.”

Orland Park Democratic Rep. Kevin McCarthy, a sponsor of the bill, acknowledged that the changes will not be enough to please all stakeholders. “I don’t pretend that these changes are everything some of our colleagues wanted.”

Sen. Mike Jacobs, an East Moline Democrat who sponsors the bill in his chamber, said the benefits that customers will see in future savings, as well as in more reliable power, are worth the up-front investment of higher rates,which sponsors estimate will average about $3 per household each month. “You can’t base this off price. That’s kind of silly. We’re dealing with hundred-year-old technology, and if consumers want something to work, they’ve go to pay for it. And the fact is, it costs money, and you know there’s nothing for free. My cable bill went up $10 a month last month nobody even asked me if they could raise it,” Jacobs said.

The changes were not enough to win the support of one vocal opponent, Attorney General Lisa Madigan. “A day after winning a $156 million rate increase, ComEd just can’t help itself. Today, their legion of lobbyists continue to push legislation that will require consumers to fund billions more in guaranteed profits. This new proposal is just more of the same — a plan that hits consumers where it hurts the most — their wallets,” Madigan said in a written statement. The ICC approved a ComEd Rate increase yesterday. Gov. Pat Quinn, who vowed to veto the earlier version of the plan, declined to weigh in on today’s proposal.

“If you want to vote in this General Assembly, run for the office,” Jacobs said in response the Madigan’s opposition.

Meanwhile, the attorney general did throw her support behind an attempt to resurrect a plan to help Tenaska Energy build a “clean-coal” plant near Taylorville. Paul Gaynor, chief of the Public Interest Division of the attorney general’s office, said that the Tenaska plant is a better investment for Illinois utility customers, calling the plan rate neutral. Energy generated by the plant would initially come at a greater cost, but supporters say that a provision giving the Illinois Power Authority more flexibility in purchasing power would result in savings that could negate any substantial rate increase.

Northbrook Democratic Rep. Elaine Nekritz, one of the House sponsors of SB 1653, said she hopes to get the plan through both chambers before the end of the regular session on Thursday.

Budget
Senate President John Cullerton said that the House and Senate are working to bring their proposed budget numbers in line and that a vote could come over the weekend. He said the Senate will likely come down to the House’s revenue estimate, which is $1 billion less than the estimate contained in the budget proposal passed by the Senate. Echoing House Speaker Michael Madigan, Cullerton said revenue that comes in beyond the estimate could be used to pay off overdue bills.

Workers' compensation
A House committee approved SB1933, which would repeal the current worker’s compensation system. House Democrats, including Speaker Madigan, have threatened to destroy the current system if stakeholders cannot agree on a reform package. The legislation would force any worker's compensation claims into the courts. The bill is sponsored by Marion Democratic John Bradley, who has been working on negotiations. Bradley said that the passage of the bill was not a indication that talks had fallen apart, but said he wanted to keep all options open. Cullerton said, “I think we’re really close to an agreement on workers’ comp — an agreement on workers’ comp among a number of the stakeholders.”

Redistricting
Cullerton also said he expects some changes to the Senate Democrats’ proposed legislative map to surface tomorrow and that the proposed map of congressional districts would come sometime after that.

Tomorrow is expected to be a busy day for the legislature. Check back for updates.

State finances still not on solid ground

By Jamey Dunn

Despite the passage of an income tax increase, Illinois lawmakers still have work to do to steer the state to stable financial footing.

The backlog of unpaid bills has remained “near or above record highs,” according to Comptroller Judy Baar Topinka’s report for the third quarter of the fiscal year—the first quarterly report she has issued since taking office. In fact, at $4.515 billion, the backlog is greater than it was at this time last year when the total of unpaid bills was $4.496 billion.

Topinka said if the trend continues, the state might not be able to pay off its late bills for this fiscal year before the August deadline. Legislators extended the deadline to pay off last year’s bills to last December, and Topinka predicts that such a move could happen again. “If the backlog of general funds bills at the end of the fiscal year is indeed similar to last year, the state will be unable to close the fiscal year 2011 lapse period by the traditional August end. In fact, Illinois was unable to pay off all of fiscal year 2010’s liabilities until December 31st last year, and could face similar challenges this year,” the report said.

Topinka said the ongoing backlog has caused her office to prioritize “critical payments,” such as general state aid to school districts and payments on the state’s borrowing. Illinois is also keeping up a 30-day payment cycle on certain Medicaid bills to capture temporarily elevated federal matching funds for the program. As long as the state pays providers within a month, the federal government will give Illinois 57 cents on the dollar instead of the standard 50-cent match. The higher reimbursement rates expires at the end of June. Although paying those bills brings in more federal money, Topinka said it also ties up cash flow.

On the revenue side, Topinka said money from the income tax increase is just starting to come into the state’s coffers. The state saw a revenue increase of 7 percent over the last quarter. Some of the money came from one-time sources, such as the tax amnesty program and the selling of bonds against money the state was awarded in a national settlement with tobacco companies. Sales tax revenues increased 8 percent, but $164 million out of the $414 million in sales tax revenues were brought in through the tax amnesty program. As stimulus funds dried up, federal revenues dropped $745 million, or 15 percent, over the third quarter. “While the state took action to increase its immediate cash flow, its fiscal standing remains precarious,” Topinka said.

Illinois has to pay off $1.3 in short-term borrowing over the next three months and faces a larger monthly debt service payments than it did this time last year. Topinka also notes that the state shifted $2 billion in Medicaid payments over to funds outside of the General Revenue Fund in the fourth quarter of Fiscal Year 2010, a move the comptroller said the state couldn’t repeat this year.

Sen. John Sullivan, a Rushville Democrat, has been calling on Topinka to release a current total for the backlog of overdue bills. He said now that the number is out, the state needs to delve deeper into who is owed and how long they have been waiting for their payments. “The next step is to say…how much of that is 60 days past due, how much is 90 days, how much is 120 days, and so on and so forth,” Sullivan said

Sullivan said borrowing the amount the state would need to trim the late payments down to a 30- or 60-day cycle could be an alternative to Gov. Pat Quinn’s proposed $8.75 billion in borrowing to pay off all the state’s overdue obligations at once.

“Every bill does need to be paid,” Sullivan said. “But maybe we need to operate under a 30-to-60-day backlog. That’s certainly better than were we are now. It’s an improvement.” He added that the proposal would only be a temporary solution ,and the state should continue paying Medicaid bills in 30 days to bring in more federal money.

Sullivan said he hopes to help craft a compromise borrowing bill pay off some of the state’s overdue debts. Minority Leader Christine Radogno has said she supports “responsible” borrowing that is part of an overall plan to balance the budget. However, she has said there need to be more cuts to the budget for her to consider borrowing. She has also said that Quinn wants to borrow more than Republicans can support. Senate Republicans proposed about $5 billion in cuts from Quinn’s budget plan for next fiscal year. They say their plan would balance the budget and pay down the backlog without borrowing, although paying off the bills would happen over time. House Speaker Michael Madigan has said there is little support for Quinn’s plan in his chamber.

Quinn fires back on budget

By Jamey Dunn

Gov. Pat Quinn said today that he supports a budgeting process driven by legislators; however, he said he would not sign off on big cuts to some of the largest areas of state spending.

After his budget proposal took a beating from lawmakers in Springfield this week, Quinn shared some of his opinions with reporters in Chicago today.

He responded to House Speaker Michael Madigan’s statement earlier this week that the governor had asked for the legislature to send him a lump sum budget, as they have the last two years, and allow him to make the tough choices. Madigan said he told Quinn that he didn’t think lawmakers would go for that plan again this year.

“I really didn’t ask for it,” Quinn said.

He said he asked Democratic legislative leaders if it was their “intention” to conduct the budgeting process that way again this year.

“I said, 'if you guys want to do that, that’s the will of the legislature — the members— then we’ll take it on and do it in the third year, the way we have in the first two.'  But I didn’t say they should do that. I actually like the fact that the legislators are line-item by line-item going through the budget. My first two years, I was told they didn’t want to do that. They didn’t want to make cuts,” he said.

Quinn said if lawmakers have budget proposals this year he would be “happy to look at those.” However, he seems to be a long way from getting on board with the House’s lean budget proposal , which calls for cuts to education and human services. “Severe radical cuts in education and in decent health care and in human services and public safety, I’m not going along with that. I think it’s very important that we maintain the core priorities of Illinois. And we’re not losing a generation of children and their education, and we’re not going to take away health care from people who have nothing at all. We have to make sure we have a decent society.”

Madigan shot down Quinn’s proposal to borrow $8.75 billion dollars to quickly pay off the state’s backlog of bills. The borrowing would be repaid over 14 years. The speaker said that lawmakers have little interest in passing the bill. Instead, the House plan currently calls for paying off overdue bills with any money that might come in that exceeds the chambers “conservative” revenue projection for fiscal year 2012.

Quinn did not waver from his plan. “The money is already owed. We already owe the money. It’s not like we’re borrowing new money," he said. "I haven’t given up on that. Ultimately, it’s got to happen. We cannot tolerate a situation where good businesses in Illinois are having to wait half a year, six months, to get paid on bills that they have provided services for. …We can’t just keep pushing forward $8 billion worth of debt.” Quinn’s estimate of the state’s unpaid bills also includes costs besides those owed to schools, socials service providers and vendors, such as late income tax refunds for corporations and money owed to the state’s employee health care system.

He called on lawmakers to quickly approve a smaller borrowing plan of about $2 billion, which he says would allow the state to capture about $200 million in federal funds under an elevated Medicaid matching rate that expires in June. Some of the money would also go to the employee health care system, which was under funded for the current fiscal year. “Everyone in Springfield, Democrats and Republicans, they can beat their breasts all they want about restructuring debt. The bottom line is: if we’re going to sacrifice and give up almost a quarter billion dollars, that’s foolhardy; that’s not the way to go. … At least [on] the [Medicaid], let’s get going and get the job done.”

Quinn said he plans to roll out a workers’ compensation reform package next week. He said he has been talking to legislative leaders and is trying to work out a proposal that would have bipartisan support in both chambers.http://illinoisissuesblog.blogspot.com/2011/03/legislators-balk-at-quinns-education.html
He said, "We're going to past this, this year."

Quinn signs temporary unemployment fix

By Jamey Dunn

Gov. Pat Quinn signed into law today a measure that will ensure unemployment benefits continue to flow to thousands of Illinois residents.

The measure will continue the state’s extended benefits program that allow those facing long-term unemployment to collect checks after they have exhausted the standard unemployment benefits. Because of the state’s slowly but steadily improving unemployment rate, Illinois was in danger of falling outside of the statutory requirements for federal support of the program. The new law allows the state to change the way it calculates who is eligible for the program. The bill passed in the Senate Wednesday and the House today.

The legislation also addresses interest that Illinois must pay on a $2.9 billion federal loan it took out to fund unemployment benefits by allowing the Illinois Department of Unemployment Insurance to temporarily divert some of the unemployment tax employers pay into a special fund dedicated for the payment. The state has to pay up on $83 million in interest by September, or risk losing out on $1 billion in federal tax credits for employers and $100 million in federal funds for the Illinois Department of Employment Security.

Timothy Drea, secretary treasurer of the Illinois AFL-CIO, told a Senate committee this week that the change to the law will allow 41,000 unemployed workers to continue to collect benefits.

“This is a temporary solution to the major problems within the unemployment insurance trust fund,” David Vite, president of the Illinois Retail Merchants Association. “It’s a temporary solution because there were a few things that needed to be done immediately.”

Vite said the law had to be changed to allow unemployed workers to continue to receive federal benefits as well as to ensure that the state can make its interest payment. “If the $90 million interest penalty that the state of Illinois…[owes] is going to be paid, changes had to be made to the unemployment insurance act right now so those revenues from the first quarter payments would be available September 30.”

He added, “Those things had to be done in the next week or so.”

Vite and Drea said that labor and businesses groups plan to come back to the table to sort out a long-term solution that they say would be considered by lawmakers during the fall veto legislative session.

For and in-depth look at the state’s troubled unemployment insurance fund, see Illinois Issues November 2010 page 24.

Quinn floats new borrowing

By Jamey Dunn

Gov. Pat Quinn has pitched more short-term borrowing to help Illinois bring in federal dollars, but the plan is still being formed.

Quinn told reporters in Chicago yesterday that he wants to borrow about $2 billion to capture a temporarily higher rate of federal matching dollars for the Medicaid program. The state must reimburse certain Medicaid providers on a set schedule, so Quinn wants to borrow, in part to help the state keep up with its Medicaid bills.

According to Kelly Kraft, spokeswoman for Quinn’s budget office, the governor actually wants to borrow $1.75 billion. The larger portion of the money, $1 billion, would go to the state’s employee health insurance. According to Quinn’s budgeteers, the state only made about half of the needed payment for employee health care this fiscal year. The rest of the money, $750 million, would be used to pay Medicaid providers in a more timely fashion. Kraft said some federal reimbursement would also be available for money spent on employee health insurance. Quinn said without this plan, the state could potentially lose out on $175 million in federal matching funds. Kraft said revenues from the recent income tax increase would be used to pay off the borrowing. As for when the money would need to be repaid, Kraft said in a written statement that the budget office is still “working on details for that.”

According to Kraft, the borrowing will require legislative approval. Quinn, state Treasurer Dan Rutherford and Comptroller Judy Baar Topinka can approve short-term borrowing if the state fails to capture expected revenues or needs to borrow to supplement cash flow. However, Quinn’s budget office says this borrowing doesn’t fit either of those scenarios, and Kraft said the legislature would need to change the rules for this type of short-term borrowing. Yesterday, Quinn goaded legislators to act quickly. “I think the people of Illinois would be sorely disappointed in a bunch of politicians in Springfield playing political games instead of getting maximum federal money from Washington. We pay a lot of taxes from our state to the federal government. We’re entitled to money back. And if we don’t meet the deadline, we won’t get it,” he said at a Chicago news conference.

Legislative leaders are reviewing the plan. “We will take a look at the governor’s recent proposal — and take it to our caucus. In the short term, it is our understanding that the governor is working with the comptroller and treasurer to pay down $600 million in Medicaid bills through March to capture some of those federal funds. … We remain committed to paying the bills that we owe, as well as remaining committed to making cuts, efficiencies and structural reforms to stabilize our state budget,” Sarah Wojcicki, spokesperson for House Minority Leader Tom Cross, said in a written statement.

Quinn emphasized that he continues to support a proposal to pay down the state’s backlog of bills, which his budget office tallies at more than $8.75 billion — including the insurance payment, overdue corporate tax refunds and other costs. That borrowing would be paid back over 14 years and would also be funded by the recent income tax increase. “It’s not like we’re borrowing new money. Our state owes money already to many small businesses — to Metra that runs the trains [in the Chicago area,] to universities like the University of Illinois. We already owe the money. … We think it’s better that the state of Illinois bear that burden rather than have all these small business that employ people have to wait six [to] eight months to have their bills paid,” Quinn said.

Senate Republicans say, however, that the state can pay down its bills without borrowing if lawmakers would cut about $5 billion from Quinn’s budget proposal for the next fiscal year.

Quinn's budget plan relies on borrowing

By Jamey Dunn with Lauren N. Johnson contributing

Gov. Pat Quinn’s budget does not include a plan to pay down the state’s backlog of unpaid bills outside of a borrowing proposal Republicans shot down earlier today.

Near the end of the previous legislative session, Democrats proposed $8.75 billion in borrowing to pay down the state’s growing stack of unpaid bills to vendors, social service providers and schools. Revenues from the recent income tax increase were earmarked to repay the borrowed funds over the next 14 years, but the plan did not receive the needed support. At the time, some Republicans said they were willing to work out a compromise version of the bill in the new legislative session.

The same plan was introduced this session as Senate Bill 3, and Senate Republicans voiced their opposition today. Senate Minority Leader Christine Radogno said Senate Republicans made their opposition to the proposed $8.75 billion borrowing plan—referred to by Quinn as a “debt restructuring” plan—clear to the governor. She said if, in fact, Quinn forms his budget address around the plan, it would show the Republican caucus his resistance “to work together and come up with a plan.”

However, members of Quinn’s staff say that the plan is necessary to build a responsible budget for the next fiscal year. “We spent the first half of this year paying [fiscal year 2010] bills. If we don’t do debt restructuring, we’ll be doing the same thing next year,” said Jack Lavin, Quinn’s chief of staff.

Lavin said the backlog of unpaid bills to vendors has narrowed the pool of contractors that the state can choose from because some businesses cannot afford to wait for the late payments. He said the result has been a 6 to 10 percent increase in procurement costs, which he estimated at $700 million. “[Republicans] are saying we can’t afford to pay the interest [on the borrowing plan]. We can’t afford not to. … We can’t afford to have these procurement costs go up. We can’t afford to continue to have these big deficits — have vendors who can’t pay their employees stop serving the state, so we have less vendors to choose from, [so] procurement continues to go up.”

He said some Republicans are “out playing politics and using rhetoric, but we need to sit down and look at the numbers and look at what fiscal stability means.”

Lavin added: “It’s a prerequisite. We have to have a debt restructuring in order to have fiscal stability and to keep our economy moving forward.”

He said Quinn still plans to work with Republicans to figure out a way to pay off the backlog. “We’re waiting for Republicans to give us a counter offer. … They have not done that. They simply say no. We’ve asked them to stop playing rope-a-dope and give us a counter proposal.”

Lavin said he thinks the Republicans are working on their own proposal, but he said they likely want to hear Quinn’s budget address before they present it. He said Republicans could identify more cuts to free up funds for paying off old bills.

“We are fundamentally changing the way we spend taxpayer dollars by mandating that decisions be based on performance and impact rather than politics or habit. … It’s a lean budget that focuses the burden across all areas of state budget,” Quinn spokesperson Mica Matsoff said of the governor’s budget proposal, which he will present to the General Assembly at noon tomorrow.

Human services bracing for cuts

By Jamey Dunn and Lauren N. Johnson

Human service providers fear that they will be targeted for deep cuts when Gov. Pat Quinn presents his budget tomorrow.

Quinn has warned that despite the recent income tax increase, it will be a “lean year” for state government. Since the governor ran in the general election on a proposed income tax increase for education, those working in human services say they will likely bear the brunt of cuts aimed at closing the state’s gaping budget hole.

“There’s probably no doubt of that because there is no other large post of money other than education to tap into to deal with the crisis,” said Don Moss, coordinator for the Illinois Human Services Coalition.

Social service providers testified on the impact of substantial cuts during this fiscal year and potential cuts during the next before a Senate committee today. No similar hearings were held today focusing on any area of government that represents a large amount of spending, such as education or health care.

“It’s seems like whenever there is a budget shortfall, the first place they look [to cut] is in the human services budget,” said Chicago Democratic Sen. Mattie Hunter. “I think that the message that’s being thrown out there is that you’re nobody. That you’re providing a nobody service … or that you’re just a waste of time.”

Hunter said drastic cuts to human services would likely push costs to other areas, such as corrections, as crime rates and other problems increase because of an eroding social safety net. Providers agreed and added that potential for cuts are limited by law and their contracts with the state.

“Our missions urge us to create better lives for those who need and depend on our support, while our businesses are being crushed under the weight of pressures that currently exist. We cannot raise prices like other business because our rates are set in contract or statute. We cannot lay off staff like other industries because our staffing powers are set in rules. And we cannot discharge individuals because it is prohibited in our contracts,” said Janet Stover, executive director of the Illinois Association of Rehabilitation Facilities. “If the community support network is not preserved … we will have to revert back to dependence on institutions, on prisons, on other costly settings that don’t serve people well, and they don’t serve the state well.”

Moss said services for people with developmental disabilities could be relatively safe from budget slashing. “It was confirmed to me today that they will be the last to be cut.” However, he says funding for programs for the mentally ill and addiction treatment will probably be hit hard because spending on many of those programs is not matched by federal Medicaid dollars.

Meanwhile, Senate Republicans say they can only back a budget proposal that includes cuts and roundly rejected Quinn’s plan to borrow $8.75 billion to pay down the state’s mounting pile of overdue bills to social service providers, vendors and schools.

“We have new revenue coming in based on the income tax increase,” said Senate Minority Leader Christine Radogno. “If we reduce the spending, we can use that additional revenue to begin to pay those bills off.”

She added,” We don’t have to pay it off 100 percent in one day. Even bringing people current to say within 90 days, which would be a huge improvement, is less of a hill to climb.”

Radogno said to address the backlog, legislators will have to make difficult choices, including cuts. Republicans compared recent budgets to shell games, saying that Quinn made shifts in the current budget but did not follow through on the cuts that he promised. “We are repeating the pattern of spending, borrowing, having a crisis, needing to raise taxes. We’ve got to stop that,” Radogno said.

Moss said the Republican rejection of the borrowing plan is an added blow to human services because many providers are waiting for payments from the state. “What happened today was shutting off the only possibly safety net that [social service providers] had. … The delayed payments are almost as bad as the cuts in recent years. … The payrolls can’t be met. We’re losing good staff.”

Moss acknowledged that there is still time to work out a compromised borrowing plan in the coming months of budget negotiations and said providers will continue to heavily lobby the governor. But he said, as of now, negotiations seem to have shut down. “Suddenly the door slammed shut.”

During the last legislative session, Senate Democrats could pass a borrowing plan, which requires a three-fifths majority, without Republican support, but now they lack the numbers. So the proposal has become a potential bargaining chip for other reforms, such as changes to the state’s workers’ compensation system. “This is the only way they can flex their muscles, when the three-fifths vote is needed,” Moss said. “They’re pushing the only way they can.”

He added: “We’re going to keep trying. We’ve seen over the years many things go down in flames and then somehow rise out of the ashes again.”

Ruling could mean bumpy road for construction plans

By Jamey Dunn

An appellate court ruling that found the legislation that creates the state’s capital construction plan unconstitutional could send lawmakers scrambling to approve a new capital plan and bring future state borrowing under added scrutiny.

The Illinois Supreme Court granted the state's request that the effects of the lower courts ruling be put on hold until the higher court makes a decision. So, for now, all the projects and increased taxes and licensing fees used to pay for the borrowing are on hold.

If the Supreme Court agrees with the appellate ruling that the bill violated the Illinois Constitution's “single subject” rule, which requires that one piece of legislation can cover only one topic, lawmakers will have to pass the components of the capital plan in separate bills.

While some legislators have said the solution will be as easy as breaking up the components into separate bills and passing them, experts agree that finding the needed support could be challenging in a new legislature with a new political climate. “You can’t go back and recreate the moment,” said Kent Redfield an emeritus professor at the University of Illinois Springfield. “I don’t think it’s a done deal.”

David Yepsen, director of the Paul Simon Public Policy Institute, said new Republican lawmakers in both chambers could present a problem to those who want to see a similar plan passed again. “Even though this is a capital bill … you still are going to ask people to vote on video poker, which is controversial, [and] to raise liquor taxes. Any kind of revenue thing is more difficult in the environment.”

He added that the recent income tax increase could be a factor because it has focused public attention — and frustration — on taxes.

“Some of those Republicans [who supported the bill when it passed] are no longer in the legislature. … We’ve had a 2010 election in which the Tea Party movement has dominated the Republican Party. The Republican Party is solidly anti-tax. I don’t think any Republican … in the legislature would find it very easy to vote for any tax increase right now.”

Redfield said Republicans considering the primary elections they face next year — when they could be running from different legislative districts after the state finishes redistricting, with new challengers from their own party — might be hesitant to vote for higher taxes or the controversial video poker expansion.

He added that because video poker expansion has still not been implemented and many municipalities have opted out of having the machines, some legislators might not be inclined to vote for it this time around. “Video poker kind of got less attractive after it was passed.”

Yepsen predicted that the Supreme Court will reject the appellate court’s opinion, which he said came as a surprise. He said the court's granting the states request for a hold may indicate how the court will rule. “If they were really upset about it, why did they put a hold on it? Why did they grant this stay?”

Yepsen and Redfield both think that legislators would likely have to find some new revenue sources if the plan is tossed out. Redfield said that lawmakers do not have a lot of options, and the final plan would likely be a combination of increased sales taxes, fees and some form of gaming expansion.

Yepsen said no matter how the Supreme Court rules, any Illinois plan that involves borrowing will come under some added scrutiny in the future. “It could cause some heartburn when the state wants to borrow.”

He said borrowers—and their lawyers want a sense of certainty and to be sure that legislation is drafted in a legal way. “These are important things to get right because you are going to go borrow money for this.”

This means the proposed plan to borrow $8.75 billion to pay down the state's backlog of bills, as well as other borrowing proposals, could be the subject of added scrutiny in the coming months of legislative session.

Redfield and Yepsen agreed that the bill did not contain any so-called logrolling — putting one issue in a bill to attract votes for another. But Yepsen said this scenario would probably make legislators more cautious when drafting bills, at least in the near future. “This is likely to give the jitters at least for a few years.”

Two ratings agencies tag Illinois with a 'negative' fiscal outlook

By Jamey Dunn

While one bond-rating agency upgraded Illinois status, two others held steady their ratings of the state’s ability to pay off its debt, reporting “negative” outlooks for the future.

Lenders look at Illinois’ bond ratings when deciding what interest rates to charge the state on its borrowing.

Moody’s Investor’s Services stuck with its A1 rating of Illinois state government. Standard & Poor’s extended its A+ rating and removed the state from a watch list for a potential downgrade, which Illinois had been on since March. However, both groups raised concerns about Illinois’ fiscal future. (Both groups' websites require registration to read the reports.)

Moody’s cited the state’s billions of dollars in overdue bills and the lack of an approved plan to pay them down as a primary reason for its negative outlook. “Legislation authorizing long-term debt to address past-due payments was not enacted at the end of the 96th General Assembly. Illinois' chronic failure to provide for structurally balanced operations over the years, and its reliance on payment deferral to manage operating fund cash, has fueled growth in past-due bills (those outstanding for more than 60 days). This practice has in turn hurt private providers of goods and services, as well as public-sector entities, such as transit agencies, universities and municipalities, that rely on state funding.”

Gov. Pat Quinn released three-year budget projections that include $8.75 billion in borrowing that would be used to pay down the backlog. That borrowing plan failed to pass in the General Assembly earlier this month, but Senate President John Cullerton reintroduced it at the beginning of the new legislative session. Moody’s report characterized the release of multi-year budget projections as a positive change for Illinois.

Both groups agreed that failing to make pension payments or taking on too much debt could cause Illinois’ rating to drop.

According to the Standard & Poor’s report: “The negative outlook reflect[s] our view of ongoing weakness in the state's pension funds and the possibility that the state might issue a significant amount of additional debt as part of its effort to address the large accumulated budget deficit. If the pension funding levels continue to deteriorate and debt levels increase significantly, which would pressure the state's near-term financial performance, we could lower the ratings. If pension funding levels stabilize and revenues meet the state's current projections, thereby stabilizing liquidity, we could revise the outlook to stable.”

Bond rating upgrade may be good for Quinn's budget plans

By Jamey Dunn

In the wake of the state income tax increase, one bond-rating agency has upgraded Illinois’ rating, which indicates the state’s ability to pay back its borrowing.

Fitch Ratings gave Illinois an “A” for $3.7 billion in bonds, which will be used to make the state's pension payment for the current fiscal year and are expected to sell in February. It also upgraded Illinois from a “negative” outlook to a “stable” one on $24.5 billion worth of bonds already issued. The group cited the recent income tax increase and pension reforms as improvements to the state’s fiscal stability.

David Vaught, Quinn’s budget director, predicted in January that rating companies would downgrade the state’s bond rating to “junk” if legislators did not raise the income tax rate. Lawmakers voted later that same day to increase the personal income tax rate from 3 percent to 5 percent and the corporate tax from 4.8 percent to 7 percent for four years.

“Following several years during which the state was unwilling to take action to restructure its budget to achieve balance and increased reliance on borrowing to close budget gaps, the tax increase and enacted spending limits close a significant portion of the structural gap in the state's budget through fiscal 2014,” Fitch’s researchers said in a written report.

A more favorable bond rating means lower interest rates on borrowing, which could be a positive for Gov. Pat Quinn. According to three-year projections released by his budgeting office, Quinn is still counting on the approval of $8.75 billion in loans to pay down the state’s backlog of unpaid bills. Legislators voted down the borrowing twice earlier this month. Sen. President John Cullerton has introduced a new borrowing bill, Senate Bill 3, and Republicans have expressed willingness to support some version of the plan. They say, however, that they want less borrowing and some reforms, such as changes to the state’s worker’s compensation system.

Quinn’s plan also includes a $1-a-pack tax increase on cigarettes, which failed to pass in the closing days of last legislative session, and revenues from the temporarily boosted income tax.

Fitch’s report predicts trouble on the horizon under the plan: “The Governor's projected spending plan, which incorporates the additional tax revenues and spending limits, continues to rely on borrowing for operations in fiscal 2012 to accommodate the loss of federal stimulus funds. Further, the tax increases are temporary and will begin to phase out in 2015. Even if the state has achieved budget balance by that point, it will once again be faced with a significant budget balancing decision to make severe expense reductions that it has been unwilling to make up to this point, identify new revenues, or make permanent the tax increases. In addition, the state's ability to reduce its accounts payable backlog in a meaningful way relies on debt issuance that has yet to be authorized.”

When asked if the governor's office has a backup plan if the legislature does not approve the borrowing or cigarette tax, Kelly Kraft, spokesperson for Quinn's Office of Management and Budget said in a written statement, "These projections, along with continued economic growth, represent the Governor's plan to address the state's fiscal challenges."

The group’s research found that Illinois’s current borrowing debt is 6.3 percent of 2009 personal income, which the authors describe as “moderate but above average.” Under Quinn’s plan, it would be nearly 9 percent of 2009 personal income, which is described as a “high level.” However, the report said, “The ability of the state to bring its payment obligations more current in a timely manner will be limited without the borrowing [in Quinn’s proposal].”

Study: States don't need bankruptcy option

By Jamey Dunn

A new study says doom-and-gloom news stories predicting that states will default on their debts are overblown and draw attention away from the need for long-term reforms.

The report was released today by the Center on Budget and Policy Priorities (CBPP) — a Washington, D.C.-based think tank that studies state and federal fiscal decisions that affect low- and moderate-income families and individuals. It acknowledges that many states and municipalities are struggling to overcome large deficits, partly because of falling revenues caused by the recent recession.

According to the center, states face a total shortfall of $125 billion for fiscal year 2012. The report says state governments are taking steps to address their deficits, such as often-unpopular cuts and tax increases. “While these deficits have caused severe problems, and states and localities are struggling to maintain needed services, this is a cyclical problem that ultimately will ease as the economy recovers.”

Iris Lav, one of the authors of the study, said states should be able to solve their budget problems without resorting to bankruptcy. “They have a lot of internal pressure [to make cost-saving changes]. They have resources, they have taxes, they have the potential for cutting spending if they need to.”

Lav, former deputy director of the CBPP and now a senior adviser to the organization, said the potential for bankruptcy might take pressure off of states to address some unpopular issues “The political process will be more difficult [with default as an option] … and there’s not evidence that it’s necessary.”

The report says lumping pension and borrowing debt into the immediate operating funds shortfall is the wrong approach because states have more time to solve such problems as under-funded pensions. “Unlike the projected operating deficits for fiscal year 2012, which require near-term solutions to meet states’ and localities’ balanced-budget requirements, longer-term issues related to bond indebtedness, pension obligations and retiree health insurance … can be addressed over the next several decades. It is not appropriate to add these longer-term costs to projected operating deficits.”

Lav said some media reports claiming that states have a total of $3 trillion in unfunded pension liabilities are are based on the notion that states will make nearly risk-free pension investments from now on, which she says is not the case. The study estimates the unfunded liability is “a more manageable (although still troubling)” $700 billion.

She added that many states, including Illinois, have taken steps to cut future pension costs, and more will likely follow suit. Lav thinks states will also start cutting some health benefits for employees or requiring them to pay more for their insurance coverage because health care costs are outpacing both the growth of the economy and state revenues.

The report's authors cite Illinois as an outlier state facing more extreme short- and long-term problems. “Illinois also has one of the worst structural deficits in the country,” said Nick Johnson, director of the State and Fiscal Project for the CBPP.

The study describes the pension systems of Illinois, New Jersey, Pennsylvania, Colorado, Kentucky, Kansas and California as “grossly underfunded.” While most states will have to increase average pension spending from 3.8 percent of their operating budgets to about 5 percent, the study says these states will likely have to take more drastic measures.

The study makes several recommendations for states seeking to get their budgets in order:

• Expand the sales tax base to services to capture the economic shift from manufacturing to service industries.
• Create a progressive tax system as opposed to a flat income tax rate.
• Create five-year-plan budgets based on accurate revenue projections, so lawmakers can see the future impact of today’s choices.
• Allow breaks for seniors only on a need basis instead of doling them out to all residents past a certain age.

The study cited Illinois as an “extreme example” of “failure” to address such fiscal and budgeting issues: "Because Illinois is chronically short of the revenues it needs to cover its expenses, it has engaged in a number of poor fiscal practices over the years. It has postponed payments to vendors, failed to make adequate pension contributions or borrowed money to make the contributions, securitized or sold assets, and taken other dubious actions. As a result, it has had a particularly difficult time coping with revenue declines during this recession, with a fiscal year 2012 deficit projected to equal half of its general fund budget, and has developed an large overhang of longer-term debt and unfunded liabilities."

Lav said Illinois lawmakers took a necessary step in passing an income tax increase. She said, however, that Illinois is “essentially paying the penalty for its failure to address its revenue situation over and over again for a number of years.”