FY 2015 State of Illinois Proposed Budget Analysis

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1 FY 2015 State of Illinois Proposed Budget Analysis For several years, Illinois has been in financial trouble. Long before December 2007, when the latest national recession began and after economists declared its end in 2009, Illinois struggled to meet unfunded pension requirements, manage Medicaid payments, paid bills late, ran deficits and borrowed money to balance the budget. For the past five years, Illinois has taken major steps to address its chronic financial problems. Overall spending has been cut by $5.7 billion and the state has not borrowed money to pay bills since Fiscal Year 2011 (FY11). Net governmental agency appropriations declined by an estimated $992 million or 4.1% between FY10 and FY14. Since FY12, agency spending has been limited, so several have surpluses. 1 Major and comprehensive pension reform legislation, passed last December, is expected to reduce pension contributions by a total of $5 billion from FY16 through FY19. This legislation is being challenged in court, so if found constitutional, the unfunded liability and contributions won t be impacted until FY16. 2 In previous years, deficits in the General Funds were managed by delaying payments and transfers to vendors, social service agencies, local governments and other State funds. This has been managed differently and the backlog of bills has been reduced from $8.9 billion at the end of FY12 to the estimated $5.4 billion by the end of FY14. According to Governor Quinn, the state is closer to a timely 30-day bill cycle. In addition to making cuts and borrowing money, the state received federal stimulus money and implemented a temporary individual and corporate income tax increased that took effect in January There is no more stimulus money and the individual and corporate income taxes are scheduled to begin phasing out in January Despite praise for making progress, especially for pension reform, from the three credit agencies (Moody s Investor Service, Fitch Ratings and Standard & Poor s), Illinois has the worst credit rating in the country. 3 In recent years, the State s finances were stabilized but its fiscal condition remains weak and tenuous. 1 The Institute for Illinois Fiscal Sustainability of the Civic Federation. (March 3, 2014). STATE OF ILLINOIS FY2015 BUDGET ROADMAP: State of Illinois Budget Overview, Projections and Recommendations for the Governor and the Illinois General Assembly. Retrieved March 30, 2014 from 2 Ibid, p. 5 3 Ibid, p Illinois African American Coalition for Prevention

2 According to an issue brief released by the Center for Tax and Budget Accountability, How Does Illinois Spending on Public Services Compare to Other States? Recent projections show that the state of Illinois will run a deficit ranging from $7.59 to $7.96 billion in Fiscal Year (FY) This is, however, nothing new. According to the Comptroller s Office, the state has run a deficit in its General Fund every year since at least FY1991. This creates genuine cause for concern, since over $9 out of every $10 spent through the General Fund goes to four core service areas: education (35 percent), healthcare (29 percent), human services (20 percent), and public safety (6 percent). 4 On March 26, Governor Quinn proposed the FY15 budget, his five-year blueprint to secure Illinois financial future. In his budget address, he reflected on the accomplishments of the past five years to set the foundation for his goals for the next five years. According to the budget proposal, fiscal year 2015 expenditures will be $65.9 billion. General Funds (General Revenue Fund, Common School Fund, Education Assistance Fund and General Revenue- Common School Special Account Fund) are proposed to be $36.8 billion. $17.6 billion would be appropriated for Education. Health Care represents $19.7 billion and Government Services would cost $14.6 billion. Required pension contributions total $6.2 billion. 5 FY 2015 Proposed Expenditures Economic Development Public Safety Environment & Culture Government Services Health Care Human Services Education 4 Center for Tax and Budget Accountability Issue Brief. (January 23, 2014) How Does Illinois Spending on Public Services Compare to Other States? Retrieved on April 2, 2014 from 5 Chicago Tonight WTTW. Analysis of Governor Quinn Budget Address (March 26, 2014) Retrieved on March 27, 2014 from 2 Illinois African American Coalition for Prevention

3 The revenue projections for the budget proposal are $64.7 billion with General Funds revenue an estimated $38.6 billion. Major sources of revenue include income and sales taxes 44.6% of all funds revenues and 76.5% of the General Funds revenues. These projections are based on Governor Quinn s proposal to make the income and corporate tax a permanent one. This tax accounts for 31.9% of all projected revenue generated as the basis for the Governor s proposed budget. Without this revenue, extreme spending cuts would have to be made. Cuts that would disproportionately impact the areas of human services because other state commitments are legally and contract bound. By law, the Governor has to present a budget based on the projected revenues the state will receive if the temporary tax increase sunsets as scheduled in January of next year. This budget responds to the estimated 8.7% decline or $1.7 billion loss for FY The projected drop for FY 2016 would be $4.4 billion. In this alternative (not recommended) budget, the Department of Human Services allocation would be cut $899 million and the State Board of Education would lose $924 million. Each year the Governor s Office of Management and Budget (GOMB) issues a three year General Funds budget projection which includes all updated data for current and prior fiscal years. The projection for FY15 to FY17 is based on the assumptions that the income tax sunseting and costs will increase so that the State can continue to provide quality services. Considering these factors, GOMB s projection shows an operating deficit of $4.5 billion in FY17 and a backlog of unpaid bills of $16.2 billion at the end of that same fiscal year. 6 Quinn Five Year Blueprint Highlights Governor Quinn s plan 7 was based on these guiding principles (1) tax relief for Illinois families, families, (2) stable and predictable state finances, (3) reduction of the bill backlog, (4) fiscal discipline and (5) avoidance of draconian cuts to schools and critical services while expanding educational opportunities. Broad goals for the budget include (1) an increase in education spending representing what the Governors called the biggest educational investment in state history, that includes a $6 billion classroom investment over the next five years, (2) workforce training incentives for job creation and workforce development, (3) programs that reduce incarceration numbers and decrease recidivism, (4) improved behavioral health and disabilities programs for quality care and long term savings, (5) a bipartisan work group to use the experience of Illinois Jobs Now to create a new capital plan, (6) protection of state funding to local governments and (7) more fiscal reforms including spending caps 6 The Institute for Illinois Fiscal Sustainability of the Civic Federation. (March 3, 2014). STATE OF ILLINOIS FY2015 BUDGET ROADMAP: State of Illinois Budget Overview, Projections and Recommendations for the Governor and the Illinois General Assembly. p 12. Retrieved March 30, 2014 from 7 Copies of Governor Quinn s Budget address are available at: Copies of the full budget are available at: 3 Illinois African American Coalition for Prevention

4 and the creation of a rainy day fund. One of the specific fiscal management goals articulated in the speech is the goal of paying down bills to $2.2 billion within 5 years and working toward a less than 30 day payment cycle, a private sector standard. Specific expenditures highlighted in the Governor s Five Year Blueprint include: $500 in property tax refunds to every homeowner in Illinois guaranteed annually Doubling the Earned Income Tax Create for working families within five years $100 million to the Birth to Five Initiative (the total investment for the five year period would be $1.5 billion) $50 million increase for MAP scholarships for students in need A major focus of Governor Quinn s speech was investment in pre-school to 20 (P- 20) education. In addition to the items listed above related to Birth to Five and MAP scholarships, he also pledged to increase investment in community colleges and universities and increase access to higher education through dual enrollment and early college programs. His proposed educational investment for the Illinois State Board of Education (ISBE) includes an increase of $291 million in FY 15, with additional increases over the following four years. This is well below what ISBE proposed, but in an April 1 message from State Superintendent A. Koch, it moves funding for schools in a positive direction, allowing districts to begin making up some of the ground lost through the past five years of significant reductions to the state s contribution to the K-12 education budget. 8 For many years Illinois has been among the states spending the least amount of money on education. From , Illinois was ranked 49 th in the nation for per capita state government expenditures for all education. 9 Select Department Appropriations Request Highlights The Department of Human Services (DHS) appropriations request is $3.681 billion, a $508 million increase from FY14 estimated expenditures. The Department of Human Services budget for FY15 calls for: Continued rebalancing of the long term care system for individuals with developmental disabilities; Transition of DHS clients into care coordination; Continuation of Addiction Treatment Services to approximately 70,000 clients; $ 700,000 for DHS DASA Detoxification Services Outreach; 8 Illinois State Board of Education Weekly Message (April 1, 2014) Retrieved April 2, 2014 from 9 National Education Association. (2013) Rankings & Estimates: Rankings of the States 2012 and Estimates of School Statistics Retrieved April 1, 2014 from 4 Illinois African American Coalition for Prevention

5 $2.8 million support the transition of an additional 100 individuals with developmental disabilities from out of state-operated centers to community-based settings; Income assistance that maintains TANF and other income assistance caseloads; Funding for child care to ensure an average of 163,600 children per month get quality child care; Reduction of parent co-pays for child care; Increase for Teen Reach program that works with youth to develop life skills, expanding services to an additional 16,000; Maintenance for Emergency and Transitional Housing, Homeless Prevention and Homeless Youth Services funding at FY 14 levels; Early Intervention (EI) is proposed to receive an $8 million increase; and Increase in funds for Home Services Program The Illinois Department of Public Health (IDPH) requested a $603.8 million appropriation, an 8.2% increase from FY14 estimated expenditures - $135.7 of this amount would come from the General Revenue Fund. If the General Revenue Fund is cut, local health department core funding will be cut and staff will be cut. Client services in HIV/AIDS Drugs Assistance Program (ADAP) and Illinois Breast and Cervical Cancer Program (IBCCP) would be reduced. Other key programs such as the following will also be cut: Vaccines School Health Centers Poison Control Perinatal services The Department of Aging (IDoA) proposes a portion of the General Revenue Fund that totals approximately $1.17 billion, and represents an increase of 13.5% from the FY14 budget. Increases include: $68.9 million to transfer 20,000 Medicaid CCP clients to Capitated Coordinated Care; $32.5 million for IDoA to move eligible persons out of nursing homes; $24.4 million to maintain community care services and case management; and $3.8 million for increase Adult Protective Services abuse investigations 5 Illinois African American Coalition for Prevention

Can Illinois Afford to Allow Current Tax Rates to Expire?

Can Illinois Afford to Allow Current Tax Rates to Expire? January 30, 2014 David Lloyd Senior Policy Analyst, Fiscal Policy Center Voices for Illinois Children www.voices4kids.org dlloyd@voices4kids.org