A new financial analysis from a Chicago-based business group began setting the stage for Gov. Pat Quinn’s annual budget message scheduled for March 6.
The five-year budget projections from the Civic Federation warned that Illinois is on track to accumulate nearly $22 billion in unpaid bills by fiscal year 2018.
Costly Medicaid Expansion
Despite the budget warnings, the Senate on Feb. 28 sent to the House of Representatives a massive expansion of the state’s Medicaid program that is expected to add at least 350,000 persons to the program. The expansion, which was contained in Senate Bill 26, is expected to add billions to the cost of the program in Illinois. It was approved on purely partisan lines, with no Republicans voting for it and all Democrats voting in favor.
The Medicaid expansion, which affects areas outside of Cook County, comes on the heels of a similar expansion last year in Cook County. The increase in eligibility was approved despite a previously approved bipartisan moratorium on all Medicaid expansions. Through a combination of factors, the total number of new persons likely to be added to the Medicaid system is estimated at about 850,000 once the Cook County numbers are included, along with persons who already qualify, but are unaware of their eligibility.
Despite significant federal dollars available through the Affordable Care Act (Obamacare), Illinois is expected to see nearly $3 billion in additional state costs for Medicaid through 2020. In addition, Republican lawmakers have expressed concerns that the Quinn Administration has been slow to implement savings approved in 2012, which is likely to result in a bigger budget hole going into the next fiscal year.
Surprisingly, in its budget analysis, the Civic Federation endorsed the major expansion of Medicaid, focusing on the short-term benefits of having most costs paid for by the federal government. The Federation glossed over the long-term burden for the state when the federal government inevitably ratchets back its support.
Report Serves as Budget Preview
Like most analysts, the organization identified the state’s crushing pension debt as a major contributor to the state’s financial woes. The study also warned that rising Medicaid costs and the state’s failure to plan for the expiration of much of the 2011 temporary tax hike will also contribute to the anticipated shortfall.
The Civic Federation report served as something of a preview for the Governor’s budget message, in which he will lay out detailed spending recommendations for the fiscal year beginning in July.
Projections already released by the Governor’s budget office and by the Legislature’s own financial forecasting agency, outline a budget that is expected to see major cuts in programs as the state struggles to meet its obligations to pay Medicaid bills, fund the state’s retirement systems and meet the needs of schools.
Expenditures are expected to grow by more than $1.8 billion, while state revenues are expected to rise by only $600 million.
Governor, Union Agree on Contract
Adding a new wrinkle to the already difficult budget numbers was an announcement that the Governor had reached a tentative agreement with the state’s largest employee union, AFSCME, on a new contract. Although details of the agreement were not being released pending approval of the union’s rank-and-file members, any increase in costs will place an additional burden on the state’s strained finances.
New Pension Plan
With pension funding accounting for about $1 billion of the new costs, efforts continue to find a practical – and legal – way to control those costs. The latest idea surfaced Feb. 27, when House Republican Leader Tom Cross (R-Oswego) and State Rep. Elaine Nekritz (D-Northbrook) unveiled a revised reform plan.
Earlier, Cross and Nekritz had combined to offer pension reforms and the latest plan incorporates many of their ideas from that proposal. It would delay and reduce cost-of-living adjustments for current employees, increase the retirement age and require workers to contribute an extra week’s pay to their retirement funds every year, phased in over two years.
New to the proposal is a “hybrid” retirement plan for teachers and others hired after Jan. 1, 2014. Those employees would be offered a retirement plan that combines lower guaranteed payments (defined benefits) with a savings plan partially funded by employers (defined contributions).The proposal would also require local school districts to pay employer contributions for these new employees.
Slight Budget Improvement
Even though the Civic Federation report paints a discouraging picture, it was actually slightly more optimistic than the Federation’s 2012 report, which predicted nearly $35 billion in unpaid bills by fiscal year 2017.
The improved outlook was largely credited to bipartisan Medicaid reforms that were enacted in 2012. However, even with those reforms, the report acknowledged that Illinois’ Medicaid costs remain difficult to control.
Quinn Seeks to Stack SIU Board
Also during the week, the Senate rejected Gov. Quinn’s efforts to stack the Board of Southern Illinois University. Quinn sought to dump three longtime university trustees over a simmering feud between the university president and a former chair of the university board.
As Republican Spokesperson for the Executive Appointments Committee, I spoke against the Governor’s proposed Board replacements because they had not been reviewed and voted on by the Committee, as required.
Although Quinn enjoys casting himself as a reformer who is above politics, the move was reminiscent of a similar political power play last fall when Quinn dumped a member of the Illinois Sports Facilities Authority who had refused to vote for his choice to manage that agency.