Challenges for Gov. Quinn's first budget

By Bethany Jaeger, with Jamey Dunn and Hilary Russell contributing
Gov. Pat Quinn said he’s trying to come up with the “least bad option” to navigate the state into fiscal and economic recovery “because there are no good options.”

When he proposes his first state budget and spending plan before the full General Assembly next Wednesday, he said “it’ll have some castor oil in it, but when you take castor oil, hopefully it’ll get better in the long run.”



That castor oil could come in the form of tax increases, spending cuts, public employee pension reforms and a way to finance a long-term capital plan for road and school construction. None of those is easy to swallow, particularly when his plan is sandwiched between a nationwide economic crisis and an alleged corruption spree that has crippled voter confidence.

Tax increases
One online survey conducted last month by Zogby International indicates that the majority of 644 likely voters rejected two revenue options on the table. Slightly more than a quarter of the respondents said they could support an income tax increase, while about 13 percent said they could support broadening the state sales tax to include services. But more than half, about 55 percent, said that they supported neither and that the state needed another plan.

Slightly more than half also said they would be less likely to vote for a member of the General Assembly who supported a tax increase.

Zogby International conducted the poll on behalf of the Independent Insurance Agents of Illinois and the Illinois Insurance Association. John Zogby spoke to the groups in Springfield Tuesday afternoon and said that when voters do not want tax increases, budget cuts, increased spending or tax cuts as possible solutions to the economic downturn, “they’re not being stupid” and “they’re not being fickle.” He said voters would start to see progress and grow more confident “when the orange cones go up, when the roads are starting to be paved, when the money actually gets in to the communities.”

Zogby said that if the survey would have framed the questions as either-or situations such as increasing income taxes or cutting education funding, voters would have responded differently. “If you throw out a tax increase and are not able to sell it, that’s the kind of result you’re going to get,” he said of the survey results.

Spending cuts
Quinn said in his Statehouse office Tuesday afternoon that trimming state spending is the No. 1 focus. “We have to cut, cut and cut costs in the budget” to economize and save money for the taxpayers. He didn’t specify but repeated that “everything is on the table,” which could refer to anything from reducing state headcount to pulling back on educational grants. He said the core priorities of state government are public safety, education, health care and, right now, a $25 billion capital investment program that creates jobs.

“You have to cut wherever you can,” he said. “There are some things that we’d like to do normally, but if in a tough economic time, you have to cut back. I think that’s what people understand. Nobody’s happy about this.”

A special Senate committee is trying to look specifically at ways to cut state government services; yet, officials and advocates for education last week and for health care this week more often stated why their programs could not be sacrificed. Instead, some supported calls for a state income tax increase to bring in new revenue. Two more meetings about ways to reduce state spending will be held before March 24 and will touch on public employee pensions and state government operations, as well as ideas for new revenues and reductions.

On Tuesday, the committee heard from the Civic Federation, a nonpartisan think tank in Chicago. It just launched a new Institute for Illinois’ Fiscal Sustainability and issued a new report that calls for reducing spending, avoiding the creation of new programs and implementing a construction and infrastructure plan. One suggestion for reducing Medicaid costs, for instance, is to move some mental health patients from long-term care services that do not receive federal matching funds. Instead, the federation reported that clients could be moved to services that offer more integrated settings, which would receive federal matching funds and which could potentially save hundreds of millions of dollars.

Medicaid
Quinn said part of the need to cut back on spending is so that the state can have enough cash to pay its service providers, particularly medical providers who are at risk of closing their doors or laying off employees because they don’t get reimbursed by the state for months at a time.

More than 200 health care providers rallied at the Capitol Tuesday with Comptroller Dan Hynes to support a measure that would ensure that they got paid in a more timely manner. “This is just a small sampling of the thousands of providers who are desperate right now for relief,” Hynes said during a Senate committee. “These are small business owners. These are frontline service and social safety net services in our communities, and they have been devastated by these delays. They need our help.”

Hynes is again supporting a measure that would prohibit the state from deferring Medicaid bills into the next fiscal year, which has often happened as a way to make the current year’s budget appear balanced.

Pension reforms
Another area subject to reforms is public employee pension systems. Quinn said he’s considering a two-tiered system, meaning that existing employees would keep their current pension benefits but that new hires would receive lower benefits.

“We want to make sure we have adequate money not just to pay the pensions of public employees, which is an important policy goal and it’s a legal requirement, but we also want to have money to invest in health care and education and having public safety,” Quinn said. “So there’s a lot of balancing.”

While the idea has support from such think tanks as the Civic Federation, it has strong opposition from such public employee unions as the American Federation of State, County and Municipal Employees Council 31.

The Civic Federation’s report suggests ways to chip away at the state’s $73 billion unfunded pension liabilities. One idea includes imposing a moratorium on new employee benefits until the pension system had enough assets on hand to fund 90 percent of its liabilities.

“It would not be imperative to have to change the pension benefits if, in fact, the state could afford them,” said Laurence Msall, president of the Civic Federation. “But the fact it has not fully funded them for over 30 years is a strong indication to the Civic Federation that the benefits are unaffordable, and there is no comparable type benefit program in the private sector. You just don’t see people retiring after 20 years of service with a defined benefit that goes up by 3 percent a year and that allows for free health insurance.”

He said the federation’s No. 1 recommendation to the state is to stop digging and making the problem worse. “These runaway pension costs are compounded by the under-funding, but inherent in the under-funding is the state’s 30 years of not adequately funding them. And if the state was able to afford this generous of benefit, it would be funding them.”

AFSCME Council 31 said the public employee benefit levels are modest and below the national average, and they’re not the problem, according to spokesman Anders Lindall. Rather, he said, the problem is that previous governors and legislatures have chronically failed to adequately pay the state’s contribution into the pension systems, creating a mountain of unfunded liabilities.

“Cutting pensions and undermining retirement security for state employees is wrong, period,” Lindall said. “And AFSCME will oppose any unfair two-tiered system that would have employees doing equal work for unequal benefits. It’s important to know that the average benefit for a current retiree is $1,500 a month, about $18,000 a year. I think anybody that would consider that gold-plated is out of touch with reality.”

However, even legislators such as Rep. Joe Lyons, who describes himself as a pro-labor Democrat, know they have to keep an open mind and prepare for some politically tough votes this year. “It’s one of these very bitter, bitter pills that we’re going to have to at least think about swallowing,” he said.

Members of the General Assembly already have tiered pension benefits, depending on when they were elected. And Rep. Kevin McCarthy, an Orland Park Democrat who chairs the House committee on pensions, said he’s proposed a measure with the support of House Speaker Michael Madigan that would change the General Assembly’s pension system from a “defined benefit” to a “defined contribution” plan. It would create a 401(k)-type system where legislators paid into their retirement accounts, and the state matched that amount up to a certain percentage.

“People have to realize that this is a system that we just cannot afford in the long term,” McCarthy said, adding that the legislation would start with the General Assembly’s retirement system and then extrapolate whether it would work for the four other pension systems for teachers, state employees, university employees and judges.

Quinn said he does not plan to propose a 401(k)-type system for public employees.

We'll have much more on reform proposals in the next week.

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Medicaid matters

By Patrick O'Brien
Increases in Medicaid payments to doctors would cost Illinois at least $300 million a year, according to testimony at a Senate committee today. A measure attempts to increase the rate at which the state reimburses doctors at a time when payments already are delayed.

At the same time, Senate Republicans made some noise about the Democratic leadership blocking two bills of Sen. Carole Pankau, a Roselle Republican, from being heard in committee. Both measures seek to tighten requirements for Medicaid. One asks for income verification, and one would make it more difficult for undocumented immigrants to receive All Kids benefits, except in emergencies.

Pankau said there was no valid reason for the bills to be blocked and called the move a violation of trust. The move by Senate Democrats was made 20 minutes before a series of witnesses were scheduled to testify in committee.

The increased reimbursements to doctors weren’t met with the warmest reaction, either.

Sen. Susan Garrett, a Lake Forest Democrat, said the measure won’t help pay doctors more as the state struggles to match sagging revenues with increasing demand for health care services. “If there’s no money here to make the payments, even though we owe more money, all we’re going to do to keep up with payments is to slow down the process,” she said.

Sen. Dale Righter, a Mattoon Republican, said the state already is attempting to expand state-sponsored health care faster than it can afford to, given the state’s current budget deficit. He cited an estimate by the bipartisan Commission on Government Forecasting and Accountability that projects a $750 million deficit for the current fiscal year.

Estimates from the commission put revenue growth for the next budget year below $700 million. Increased Medicaid reimbursements, then, could eat up that entire amount if enacted, according to both supporters and opponents of the measure.

Righter also said that as doctors continue to wait for state Medicaid payments, access to health care would get more difficult as doctors stop practicing in Illinois or stop taking Medicaid patients altogether.

The never-ending wait for school construction money
By Bethany Jaeger
Nearly one year ago, legislators thought they were closer to releasing state funds to clear a five-year waiting list of nearly two dozen schools that needed money for major construction projects. Despite receiving legislative approval to do so last year, funding was withheld based on an unexpected “technicality” that was more rooted in politics.

The House again approved a measure that would release $150 million that has been held hostage since 2002. “This is a tarnish and a shame on the state of Illinois, the fact that we’re going on six years now, this state could not keep a promise to the school children in these communities,” said Rep. Roger Eddy, a Hutsonville Republican and school superintendent.

Rep. Lisa Dugan, the Bradley Democrat sponsoring the legislation, said the measure only deals with the $150 million for school construction, nothing else that could deter the governor from signing it into law.

The measure now goes to the Senate.

Budget hearings
Decatur held the first of 19 regional budget hearings across the state called for by House Speaker Michael Madigan. The meetings could be the start of another contentious budget battle as lawmakers seek to highlight concerns about Gov. Rod Blagojevich’s proposed budget.

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Pay now or later?

State Comptroller Dan Hynes wrote a letter to the editor that published in Springfield’s State Journal-Register that continues his effort to force conversation about the state’s delayed Medicaid bills. The topic is old, yet there could be an increased interest, some say urgency, to fix the problem in light of Gov. Rod Blagojevich’s recent statements that he’ll continue to push to expand a state health care program to 147,000 people without legislative approval.

Another 147,000 people in a Medicaid program means more bills to pay and, without adequate cash coming in to pay those bills, more debt. The comptroller’s point for rekindling the debate relates to “Section 25” of the State Finance Act (scroll down to the bottom to “fiscal year limitations”). State agencies are allowed to — and often do — defer medical bills until they can pay them with next year’s revenues. And they don’t have to notify the General Assembly to do so. The comptroller’s letter to the editor says, “In essence, then, the General Assembly has given the governor a blank check for health care spending.”

Hynes adds that the “loophole” also misrepresents the state’s current fiscal condition. His office says currently, Medicaid bills aren’t as backlogged as they have been, but the backlog exceeded $2 billion two years ago according to a March report. (You can see a here chart dating back to 1990.) Health care providers are currently waiting an average of two months for payment from the Department of Healthcare and Family Services. The agency can make expedited payments to doctors and hospitals that care for a lot of Medicaid patients, but everyone else has to wait as a result, says Carol Knowles, the comptroller’s spokeswoman. Because of Section 25, there’s no limit to how long agencies can hold their medical bills (other types of bills have to be paid by August 31 each year).

The comptroller wants to eliminate that. “For years I have urged the elimination of the Section 25 loophole, arguing that its existence allows state leaders to deny the true costs of state-provided health care and to sidestep requirements that the state maintain a balanced budget,” Hynes says in his letter.

He drafted legislation last spring that would have tightened the Section 25 rule and required the state to pay medical bills within four months of the new fiscal year. The October 31 deadline would give a little leeway in case of a cash flow problem or a complicated billing process at the end of the previous fiscal year.

Democratic Rep. Will Davis of Homewood sponsored the measure and says the objective was to try to avoid constantly carrying a deficit. Despite gaining bipartisan support, it went nowhere. Davis says the measure was still a legitimate effort and important issue for his community, where some providers care for mostly Medicaid patients. “Some people have tried to make it be a political issue between [the comptroller] and the governor. I really don’t think it’s political. It has a definite impact on my community and how people are being served in my community.”

Sen. Christine Radogno, a Lemont Republican and Deputy Minority Leader, says there’s consensus that Section 25 gives too much flexibility to the administration and that it should be tightened. Senate Republicans also sponsored a package of measures dealing with fiscal responsibility even before the governor’s recent actions to advance his health care plan without legislative approval. Radogno says she’ll try again but realizes it could share the same fate as a lot of good government and ethics measures. “None of that kind of stuff is moving.”

It also would be super hard to eliminate Section 25 for two reasons: One, the first year could actually cost a lot of money and time for state agencies that have to process their medical bills by a certain date if they don’t have enough cash. The Department of Healthcare and Family Services, for instance, said in a fiscal note to the General Assembly that an unintended consequence could be that cash-flow problems in the agency could require medical providers to file a claim with the state’s Court of Claims. And two, lawmakers would have to have the political will to end the practice of deferring bills. As it stands, if they push off $2 billion of bills into the future, that frees up $2 billion they can spend now on initiatives in their districts.

“It helps them avoid the tough decisions,” Knowles says. “The first year of undertaking a change like this would be very painful and difficult for the state, but the consequences of not doing are much greater.”

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