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Illinois Issues: Governor's Budget Proposal Looks Past Current Crisis

flickr/ Emilio Kuffer

Gov. Bruce Rauner's plan for next fiscal year seeks to fix the foundation while the house is on fire.

Commentary — Cast votes for tax increases, deep cuts to higher education, changes to the state’s Constitution that would threaten entrenched political power and business-friendly reforms that would cripple the power of unions? Or would you like to take your chances on what’s behind Door No. 2? These are the choices the governor gave to lawmakers for next fiscal year.

Ok. So he didn’t word it like that. But “Let’s Make A Deal” was the theme of the governor’s budget proposal.

What Rauner actually said to the General Assembly was that the current impasse over the budget “leaves us with only two choices: either you give the executive branch the authority to cut spending to live within our revenues. Or, we agree —together — on economic and governmental reforms, to accompany a negotiated balance of spending reductions and revenue, that ensures that Illinois can be both compassionate and competitive. You choose. But please, choose now.” 

Option A for Fiscal Year 2017, which the governor says he would prefer, involves lawmakers approving at least some of his so-called Turnaround Agenda. At this point last year, that agenda had more than 40 points. Since then, the governor has narrowed his wish list — at least for the time being — to employer-friendly changes to the state’s workers’ compensation system, changes to the way the state draws legislative districts, changes to the rules lawsuits operate under, term limits for lawmakers and a freeze on local property taxes. As presented by the governor in the past, many of these proposals contained what Democrats see as poison pill provisions, which would seriously weaken the bargaining power of public unions.

One item on the agenda has already been approved: changes to the state’s unemployment insurance program. This legislation was passed and signed into law with little fanfare and no real gnashing of teeth, in part because organized labor and business groups worked together to produce something both could agree upon.

Credit State of Illinois
Gov. Bruce Rauner (pictured giving his State of the State address last month) said of negotiations to produce a budget for next fiscal year: "This year cannot become a re-run of last year."

The governor says he doesn’t need all the changes he has winnowed down to, but he needs to see “real reforms” for Option A to move forward. If that happens, he says he would be open to an income tax increase, or possibly a mix of tax increases, to fund a $36.3 billion spending plan. By the administration’s own admission, that proposal overshoots estimated revenues for next year by $3.5 billion. If a deal can’t be made to bring in that much, his administration says he would be willing to consider cuts to the plan.

The governor’s proposal would fund General State Aid to K-12 schools at 100 percent of the foundation level of $6,119 per pupil — something that has not happened in recent years. It would also increase early childhood spending by $75 million. The plan would fund Monetary Award Program grants to low-income college students and fund community colleges to the level of FY 2015, but would cut funding for state universities by more than 20 percent. It includes a small pool of money that would be given to universities based on performance measures, such as graduation rates and affordability.

The plan counts on some pension savings, which would be achieved in part by pushing the employer cost of pensions for employee with salaries greater than $180,000 to schools, colleges and universities. The governor’s budget document says the cost shift would apply to about 1,900 employees. The proposal does not count toward FY 2017 the projected $1 billion in savings from a plan Rauner and Senate President John Cullerton support to reduce pension costs. But it does assume about $2 billion in other savings across several areas of state government. 

Jamey Dunn

As part of those savings, the administration believes it can negotiate $565 million off employee health care costs by reducing benefits, which Rauner’s administration describes as “platinum” level. According to the governor’s budget office, Rauner’s preferred budget plan also assumes that state workers will eventually be living under the contract he proposed. The offer includes no cost-of-living raises for four years and instead would give some pay increases based on certain performance markers, such as attendance. Currently, Rauner says contract talks with the American Federation of State County and Municipal Employees Council 31 are at an impasse. The union says that the Rauner administration is making unreasonable demands and has been unwilling to negotiate in good faith.

The budget document includes a nifty table projecting all of these savings out to FY 2020 (page 43) but provides scant details on the nitty-gritty of making these changes happen or the amounts each individual concept would save within their broader topical umbrellas.

If lawmakers don’t go for this $3.5 billion-out-of-whack plan, Rauner has presented them with an Option B: giving him power to make unilateral cuts, including ones that would ignore current state law.

“You’ve given emergency budget authority to governors in the past — other states have too — and no one can dispute that we have an emergency on our hands. It’s not my preferred course of action. It wouldn’t solve our long-term challenges. But it would, at the very least, allow us to stop digging the hole deeper,” Rauner said in his budget address.

It’s true that lawmakers have granted emergency powers to governors in the past but never like this. What Rauner is asking for would not only let him move money around, it would let him do things like cut Medicaid rates or refuse to give local governments their share of state-collected taxes as required by law — both of which were targets in his budget proposal last year. Giving a governor such carte blanche control over issues that usually need legislative sign off would raise some obvious separation-of-powers constitutionality questions. It  would also likely spur a few lawsuits.  

Love or hate the governor’s individual proposals for reshaping the future of the state, he’s right on one thing: Illinois should start taking the long view on budgeting. “We must look beyond annual savings, and focus on changing long-term trajectories. We already know what won’t work,” he said.

Budgeting focused on simply making the current year’s numbers add up has left a trail of tricks to balance the books temporarily, like using one-time revenue for ongoing costs and inflating revenue projections to match desired spending. The short-term thinking of a temporary tax increase, with no real cuts to prepare for its sunset, is much of the reason Illinois is in this mess today. 

The governor’s budget people say he would like to address the current fiscal year and next fiscal year in a single budget, because it would be easier to balance over a longer span of time. That also makes some sense, and it’s an idea that has been advocated by the very social services providers the state has not been paying this fiscal year. 

But the governor only gave the lack of a budget for the current fiscal year a nod in his speech yesterday.  He focused on the future while offering no real proposals for how to end the current impasse that seems on the road to potentially leaving higher education with zero state funding this fiscal year. And don’t forget about those agencies that make up much of the state’s safety net could end up holding the bag for services they have already rendered under contract with the state. 

Procurement reform could have broad support, but it’s not going to help with cash flow to fund MAP grants now. Selling the Thompson Center could bring in some money, but a deal like that takes time. Some of the savings counted up in that table in the budget document may be possible, but the projections acknowledge that most won’t happen quickly. According to the comptroller’s office the state currently has a $7.2 billion backlog of unpaid bills, when you count those still sitting at state agencies, and there’s a little more than $150 million in the state’s checking account, as of Tuesday. There are nearly 48,000 bills in the pile at the comptroller’s office. If the governor is not willing to add to that the stack by signing off on more spending, then something has to give soon to fund what’s not currently being funded.

Prioritizing long-term reforms over the current crisis is like calling for fixing your house’s sinking foundation while the house is on fire. Sure the foundation is crucial, and your home will collapse as it continues its downward trajectory. But also, your damn house is on fire. It doesn’t really matter what shape the foundation is in if the sucker burns to the ground. Unless your plan is to let it burn, fix the foundation and rebuild.

And Rauner is applying this logic selectively. When it comes to the funding system for K-12 education, which is widely decried as broken — it’s fund it now, and we’ll “fix it” later. When it comes to everything else — it’s “fix it” now, and then we’ll talk about funding.

Another broad statement the governor made in his speech that most can agree on was: “This year cannot become a re-run of last year.” Or maybe that needs a little rewording to “should not become a re-run.” At this point, there does seem to be a possibility, however remote, that it could. If the legislature doesn’t go for Option A or Option B, does Rauner have an Option C up his sleeve? According to an administrative official, the answer is no.

But clues to the outcome might lie in another quote from the governor’s speech: “Since last spring, we’ve been bargaining in good faith with all of the public sector unions whose members serve in state government. We are negotiating on behalf of taxpayers who pay their salaries; on behalf of school children, the vulnerable, and the elderly, whose services depend on taxpayer funds. I am negotiating for all of them.”

Compared to some of the things the governor has said about public employee unions in the past, that seems like softened rhetoric. The governor went on to call state employees “terrific people.”  But while the tone has changed, the message remains the same: The interests of public union members are at odds with the interests of literally everyone else in the state.

That’s not to say there isn’t any truth to this argument. When resources are tight, simple math dictates that public employee wages and benefits cost money that could save cuts elsewhere. But as long as the governor insists upon this us versus them mentality — where the “us” is everyone in Illinois who doesn’t work for the state, and the “them” is  unionized public employees and the Democrats (and sometimes Republicans) who support them — there is no obvious end in sight.

If that thinking continues to permeate the ideas the governor puts forward, the choices in the Option A column will be full of anti-labor ideas. That means that even if they contain some good ideas for addressing the state’s stagnant business climate, they will likely never be approved by Democrats in the legislature. And Option B is a nonstarter with the same group.

So it seems, like most budget plans proposed by governors in the past, this one is mainly DOA. But this isn’t most budget years. Real consequences of not having a budget for eight months are starting to kick in and are only going to get worse. So Illinois better hope against hope that somebody blinks, or a viable Option C emerges soon.