Budget deal reached but only builds a bridge

By Bethany Jaeger, with Jamey Dunn and Hilary Russell contributing
The state now has an operating budget in place, although the legislature likely will have to address a remaining $4 billion to $5 billion deficit later this year or early next year. Gov. Pat Quinn enacted the 12-month spending plan soon after it won approval by the General Assembly Wednesday night.

Numerous legislators described the package as less than ideal, the least bad option or a bridge to buy time until lawmakers agree on alternative revenue sources and long-term reforms. Instead of generating new revenue through a state income tax, the spending plan relies on various forms of borrowing and debt instruments.


Several lawmakers echoed the sentiments of House Majority Leader Barbara Flynn Currie: “We have run out of options,” just as state workers and agencies have “run out of time.”

The governor signed the spending portion of the bill (Senate Bill 1216) late Wednesday night, which will allow the comptroller’s office to issue hard copies of paychecks to 5,000 to 6,000 state employees Thursday, said Carol Knowles, spokeswoman for the comptroller.

Human service agencies are in a less certain position. While community-based providers received some assurance of state support, the governor will have wide discretion when deciding how to divvy out limited remaining funds and where to further reduce spending.

The budget deal primarily relies on borrowing to pay public employee pensions, borrowing from state agencies and essentially borrowing from Medicaid providers that don’t receive federal stimulus funds because the payment cycle is likely to lengthen.

Sen. Donne Trotter, a Chicago Democrat and budget negotiator for his caucus, said, “It’s not the best deal, but it will keep us going until we can really sit down and get a grasp on how we’re going to change doing business here in the state of Illinois.”

Even Rep. Bill Black, a Danville Republican, who berated the recent budget-making process as primarily behind closed doors and inadequate for essential state services, ended up voting for the bill that he disliked. “Because there is no alternative,” he said afterward.

Spending = SB 1216
Grant-funded services will receive an average of 86 percent of the funding level originally sought by the governor, while much of state government operations will receive about the same level as last fiscal year.

The Illinois Department of Transportation will get some extra money to hire engineers who will handle the increased workload generated by the federal stimulus package and state’s $31 billion capital construction program recently enacted.

Cost-cutting measures (included in the BIMP) = SB 1912
There will be significant cuts, but the legislature left it up to the governor to decide when and where. Quinn also will have authority to take “administrative charge backs,” which basically are loans from state agencies that the state has to repay.

Members of the executive branch and of the General Assembly will have to take 12 unpaid days off, which amounts to about 4.5 percent of legislators’ annual salaries and stipends, according to Rep. Frank Mautino, assistant majority leader from Spring Valley. The governor also said he hopes to negotiate furlough days with unionized employees to avert the need for layoffs as large as 2,600 workers.

The governor now has authority to ask agencies to reserve a percentage of their funding in an attempt to save an additional $1.1 billion (on top of the $1 billion he’s already supposed to cut). He would have a rare range of flexibility in deciding how to cut that $1.1 billion.

“There is a check on it, but it’s a much greater latitude than anyone’s ever had, the first year of [former Gov. Rod] Blagojevich included,” Mautino said. If Quinn if were to lower a service provider’s payment rate or raise co-payment amounts for people enrolled in state-sponsored programs, then he would have to go first get approval from the legislative panel called the Joint Committee on Administrative Rules.

The governor won’t need that committee’s approval to tell state agencies to reserve a percentage of their funds to, say, hold the line on travel costs. To close a prison or other state facility, he would still have to go through a public review process of another legislative panel, the Commission on Government Forecasting and Accountability.

Elementary and secondary schools will receive about $161 more in general state aid per student than they received last year, but that’s less than the governor originally planned. Mautino said the hope among some lawmakers is that he’ll put more of his discretionary spending money into grants for early childhood education and other education-related programs.

Borrowing = SB 1292
One of the main revenue sources that prevented the need for deeper cuts is a short-term borrowing scheme that increased to about $3.5 billion. Of that, $2.2 billion will go to community-based human services. The governor will have wide discretion in spending the remaining $1.2 billion.

Rep. Patricia Bellock, a Hinsdale Republican, said such groups as substance abuse providers fear that their funding will remain cut because their services are not matched by federal Medicaid reimbursements. Currie said during floor debate that the governor would have discretion to shift money to those services.

The borrowing scheme received mixed reactions. “This is one of the only cards we have left on the table,” said Rep. Kevin McCarthy, an Orland Park Democrat.

“We are not acting prudently,” said Rep. Jack Franks, a Marengo Democrat. “This will not balance the budget. Let’s not kid ourselves. This is only smoke and mirrors.”

Rep. Dave Winters, a Shirland Republican, added that borrowing this year would automatically create a budget hole next year because it’s a one-time revenue source that will have to be repaid by about $750 million a year. Sen. Bill Brady, a Republican from Bloomington, said that the budget sets the state up to fall off of a “financial cliff” next year because it relies on short-term borrowing and stimulus funds that will not be available in the future.

What’s not in the budget?
What the budget deal will not do is address the state’s multibillion-dollar backlog of unpaid bills. In fact, the spending plan might even create longer payment delays for providers that don’t receive extra federal stimulus funds for Medicaid reimbursements.

The state will maintain payment cycles for providers such as hospitals that capture extra federal stimulus funds. That does not include pharmacists or some grant-funded human services, however.

Sen. Jeff Schoenberg, an Evanston Democrat, said the longer-term structural deficit will continue to plague state-funded services. “One thing that we’ll know with absolute certainty is that all of the hospitals, nursing homes and community-based health and human service providers will continue to experience severe cash flow problems,” particularly as the economic downturn makes it harder for them to access lines of credit, said Schoenberg, who said he’s working on two backup proposals if the borrowing schemes don’t pan out as hoped.

What’s next?
The legislature adjourned without a date certain to return, although the annual fall “veto session” is scheduled to start October 14.

When the legislature comes back, it’ll have an opportunity to reassess whether the revenue outlook improved from the economic stimulus and state construction programs. And when crafting next year’s budget, they won’t have to tackle as large of a pension payment ($4 billion topped a ramped-up payment schedule this year).

But Senate President John Cullerton said the state won’t be able to borrow its way through another year and that a tax increase is “inevitable.” “Now you see why we need the tax increase, if for no other reason than to pay [bills] instead of borrowing.”

Chicago Democrat Sen. James Meeks, longtime advocate for an income tax increase similar to House Bill 174 that the Senate approved in May, was absent from the floor during the vote. Meeks has campaigned for the income tax increase because he said it would provide property tax relief and create more equitable funding for education. Earlier in the day, Meeks said: “You either borrow or you vote for revenue. So since I voted for revenue, I’m not voting for borrowing.”

Budget bills

FYI: These are the five bills the governor signed Wednesday night (the links might take a little bit longer to work):

• SB 1216 = spending bill
• SB 1292 = bonding bill ($3.5 billion)
• SB 1912 = budget implementation bill (with cost-cutting measures)
• SB 1433 = fund sweeps
• HB 2206 = designates state and federal funds (link not available, yet)

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12-month budget deal within reach

By Bethany Jaeger, with Jamey Dunn contributing
The top four legislative leaders and the governor have a general agreement to work toward a full 12-month budget, as opposed to a partial-year budget that would last only five months, without raising income taxes.

But even with a general agreement, the state still is likely to face a deficit that the legislature would have to address this fall or winter, possibly during its annual fall “veto” session. The size of that deficit, however, is still unknown or, at least, debatable. The governor’s most recent estimate is a $9.2 billion gap in revenues versus spending.

The leaders met twice with the governor Tuesday. Senate Minority Leader Christine Radogno said after the second meeting that while the state would still have a massive backlog of unpaid bills, the revenue outlook could improve with activity from the federal stimulus package, the statewide construction program enacted Monday and other longer-term reforms to Medicaid and pension liabilities sought by Republicans. “So we have to wait and see how the reforms and how the stimulus elements come together, and that may improve our revenue position,” she said. “I don’t know that. But I do know, as of tonight, we should avoid having a meltdown in state government.”

Not all were so sure. “They’re close," said Rep. Art Turner, a Chicago Democrat, "but … close counts in horseshoes. This is politics. We still haven’t gotten there, yet.”

The new fiscal year started July 1. Layoff notices to state employees went out July 7. Numerous human services providers that get state funding have reduced programs and laid off their own employees because their shoestring budgets can’t survive without knowing when they would receive their next state payments.

The general agreement among legislative leaders includes enacting a 12-month budget that relies on revenue from refinancing state debt (Senate Bill 1609, which already was enacted), sweeping dedicated funds (SB 1433) and borrowing more money. The short-term borrowing scheme has changed from its original version. Instead of floating $2.2 billion in bonds, the state would float $3.6 billion. The governor also would still have to cut an additional $1 billion in spending. The legislature would give him wide discretion to cut as he saw fit.

The short-term borrowing would help the state make its $4 billion payment into the public employee pension system this fiscal year. Borrowing would free up money that would be used to prevent severe cuts to community-based services. While numbers vary, one estimate by a House Democrat is that the new budget deal could result in service providers receiving about a 13 percent cut, as opposed to a 50 percent cut, as previously approved. The governor vetoed that measure (SB 1197).

Human services

So instead of the so-called 50 percent budget for human services, providers would get about 87 percent of what they received in state support last fiscal year.

“We’re getting very close to what [the governor] was looking for,” said House Minority Leader Tom Cross. But, he added, the situation has been painted as more severe than it needed to be. “I think the approach a month ago was to attempt to scare legislators into a tax increase. I didn’t think that was a good approach,” Cross said. “I think at the end of the day, [cuts to human services] will not be nearly as severely as the governor portrayed six weeks ago.”

Both Republican leaders and Senate President John Cullerton added that state employees and service providers now need reassurance that they’ll still get paid. “Unfortunately, some people come to believe that they’re going to be shut down, that their not-for-profit agencies are not going to be able to operate,” Cullerton said. “And that’s been unfortunate because that was never the case, never had to be the case.”

Under the new version of a budget deal, about $2.2 billion of the short-term borrowing scheme would benefit human services. Quinn would be able to decide how to spend the additional $1.3 billion that the legislature is expected to add to the borrowing scheme Wednesday.

Income tax update

An income tax increase temporarily is off the table. Quinn recently said he would delay his campaign for a tax increase until the fall or winter. Fewer votes would be needed in January. And some legislators have requested the governor “tone down the rhetoric” for the next few months, which would allow them to find out whether they face serious opponents in the 2010 elections before being called to vote on a tax increase.

But the idea of a tax hike still has support, particularly among Senate Democrats. “It’s not dead,” said Sen. Terry Link, a Waukegan Democrat. “It may be on pause, but it’s definitely not dead.” Sooner or later, he added, state government will have to have a “revenue infusion” to keep operating.

Cullerton gave a sneak peak into his campaign for a tax increase when he seeks support from Republicans. He said if the legislature had approved an income tax increase this year, the state could have used the revenue to pay its backlogged bills rather than borrowing money to do so. “That would be a conservative, responsible response to a fiscal crisis,” he said. “That’s what our income tax increase could be characterized as.”

After spending most of the day in closed-door meetings, some legislators headed to the Major League Baseball All Star baseball game in St. Louis, where President Barack Obama was scheduled to toss the ceremonial opening pitch.

The legislative leaders are scheduled to meet again at 11 a.m. Wednesday. And they expect to take action on parts of the budget deal as early as Wednesday afternoon.

AFSCME lawsuit

If things fall into place tomorrow, then some groups of state workers would be paid up to a few days late. In an attempt to ensure that state workers continue to get paid if things fall apart and a budget is not in place, the American Federation of State, County and Municipal Employees Council 31 filed a lawsuit today in St. Clair County.

The union made a similar move in 2007 when the legislature failed to produce a budget by the end of the fiscal year. AFSCME spokesman Anders Lindall said, “Unfortunately, we’re in the same boat.” The lawsuit would apply to all state employees.

“The fundamental legal principles are the same for any state employee,” Lindall said. “If you work, you are entitled to be paid in full and on time for that work.” He added that if lawmakers can agree on a budget in the next few days, the suit would not be necessary.

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Budget not the only thing in limbo

By Hilary Russell
Just as the state’s operating budget is in limbo with five days left in the fiscal year, many substantive bills were left in the lurch at the end of the regularly scheduled spring session. The following is a list of measures that Illinois Issues magazine covered in our monthly “legislative checklist” throughout the spring. See the full list in the July/August print edition. In the meantime, here is a list of bills that stalled but that could come up in this fall’s or next spring’s legislative sessions:



HJRCA 31 The constitutional amendment sponsored by Rep. Jack Franks, a Morengo Democrat, would give voters the option to remove a sitting governor from office. The resolution would require voters to decide whether they wanted to change the state’s Constitution to include a so-called “recall” provision. The bill passed the House, but it didn’t get called for a final vote in the Senate. Senate President John Cullerton recently said he would not call the measure for a vote until Gov. Pat Quinn signed another ethics reform measure, HB 7, which would cap the amount individuals, businesses and political organizations could contribute to candidates. Franks’ recall measure doesn’t have to be approved until May 2010, and he said he expects that it would pass without problems before then.

HB 2643, SB 1292 Newly hired state employees and teachers would receive less generous pension benefits than current employees. Quinn proposed the so-called two-tiered pension plan as a way to save the state money in the next fiscal year and to reduce the mounting pension liabilities in the long run. But public employee union members strongly oppose the idea and argue it ultimately won’t save the money projected by the governor’s office. The legislation, sponsored by Rep. Kevin McCarthy, an Orland Park Democrat, and Sen. Don Harmon, an Oak Park Democrat, stalled in both chambers.

SB 1381 A bill allowing the limited use of medical marijuana, sponsored by Sen. Bill Haine, an Alton Democrat, narrowly passed in the Senate, marking the first time in Illinois’ legislative history that such a proposal won approval. The clock ran out before House sponsor Rep. Lou Lang, a Skokie Democrat, presented it to the full chamber. Lang said he didn’t have enough votes to pass it and that he plans to lobby for the bill and could call it in the future.

SB 744, sponsored by Sen. Terry Link, proposed opening new casinos in Chicago, Danville, Rockford and Waukegan, as well as adding gaming positions at existing riverboats and allowing slot machines at horse racing tracks. According to Link, a Waukegan Democrat, the gaming package could generate as much as $1 billion a year. While the Senate approved the measure, the House sponsor, Lang, said he chose not to call the bill and would like to make changes so the bill would not specify where the gaming facilities would have to be built.

HB 2234 would recognize civil unions and give same-sex partners some of the same legal rights, including power-of-attorney, as married couples. Rep. Greg Harris, a Chicago Democrat, sponsored the legislation. It narrowly passed out of committee but wasn’t called on the floor because, Harris said, he didn’t have enough votes to ensure passage. He added that new legislation in Iowa that now legitimizes same-sex marriage could help pave the way for passage of Illinois’ bill in the future; however, Harris’ civil unions measure would not be the same as same-sex marriage.

HB 397 redefines stalking. The measure amends the 1961 criminal code by defining stalking as a behavior intended to terrorize or endanger another person through intimidation or threats. Rep. Dan Brady, a Bloomington Republican, sponsored the measure. The bill stalled in the House. Brady said the measure is undergoing further negotiations between the state’s attorney’s office and the attorney general’s office. He expects to present it again during the 2010 spring session.

HB 2633, sponsored by Democratic Rep. Julie Hamos of Evanston, called for stricter rules to define how and when inmates in minimum- and maximum-security prisons were transferred to Tamms Correctional Center in Alexander County. Questions about the treatment and living conditions of the prisoners prompted Hamos to write the bill, which she said is on hold because a new director recently took over the center. She said she wants to wait to see what kind of changes will come about as a result.

HB 288 proposes that public schools could give students a few moments before class begins to observe a moment of reflection. The bill is sponsored by Rep. John Fritchey, a Chicago Democrat, and Sen. Bill Haine, an Alton Democrat. The moment of reflection would be determined on a school-by-school basis. Fritchey’s definition of a moment of reflection would replace the existing Student Reflection and Student Prayer Act, which requires every school to have a moment of silence during which students could either reflect on the day ahead or pray. Because the law lacked consequences for not observing the moment of silence, some schools observed it while others did not.

Controversy has surrounded the moment of silence issue because federal court deemed it unconstitutional to require public school students to pray during school hours.

The law invited a lawsuit. Fritchey, who voted against the original moment of silence bill, proposed the new version that would remove the “student prayer act” from the name and allow teachers to choose whether to honor the moment.

Haine said the role of the government is to encourage freedom of expression, not force it on individuals who may hold different beliefs, but he said he didn’t know if he could get enough votes for the bill to pass next session.

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Everything in limbo

By Bethany Jaeger, with Jamey Dunn and Hilary Russell contributing
Illinois’ human service providers, as well as other state contractors, remain in limbo as to whether they’ll receive state funding after July 1. The General Assembly finished its special legislative session this afternoon without sending a spending plan to the governor. Lawmakers aren’t scheduled to return until Monday afternoon (the Senate won’t be back until Tuesday), which some providers said would be too late. Providers, many of whom rallied at the Capitol yesterday, anticipate having to close their doors or lay off employees without a state operating budget in place by then.



“What’s going on right now is cruel, it’s cynical and it doesn’t need to be happening. And it should have been addressed this week,” Senate Minority Leader Christine Radogno said after the legislature adjourned. She added: “There is a lack of clarity, a lack of leadership, in terms of what is going on. And in the meantime, people are dangling in the wind thinking that their lives are going to be inextricably altered.”

She proposed enacting a temporary budget to keep state services going, uninterrupted, and to give service providers more predictability.

Gov. Pat Quinn continues to publicly reject the idea of a temporary budget and said lawmakers still have time to enact a full-year balanced budget within six days. But he said balancing the budget, which he projects will carry a $9.2 billion deficit, will require a two-year income tax increase to generate $4.2 billion. (Comptroller Dan Hynes calculated the deficit at $7 billion.)

Legislative leaders of both political parties have cast doubt on the governor’s ability to gain enough votes in each chamber to approve a tax increase by July 1, although House Minority Leader Tom Cross said a few of his members are leaning toward a tax increase if they see action on other efficiencies and long-term spending reforms first.

Senate Democrats maintain that they approved a version of a permanent income tax increase in House Bill 174, which never got called for a vote in the House. According to Sen. James Meeks, the caucus doesn’t want to give up on the idea of offering property tax relief and increased education funding. Meeks said a temporary increase would result in a permanent increase in two years. “Temporary should scream out to everybody saying, ‘In two years, they’ll be back.’”

There could be more immediate support for a short-term borrowing scheme. A plan backed by Quinn would issue pension obligation notes rather than bonds, which typically are repaid over longer periods of time with higher interest costs. The House advanced the plan, Senate Bill 415, today. It would allow the state to make its full contribution into the public employee pension systems and free up $2.2 billion to help plug the deficit.

“If we get $2 billion to help close the deficit, that’s a good thing,” Quinn said after finishing a series of meetings with all four legislative caucuses. “We’re making progress, but we still have $7 billion to go.”

The governor and all four caucuses appear to agree one goal: to reduce spending by another $1 billion. But they might disagree on how to do that.

Quinn said his administration could save about $125 million by mandating 12 unpaid days off, or furlough days, for state employees, including unionized workers. Layoffs also could be considered, he said, although he added that he wouldn’t pursue layoffs until after he and the General Assembly settled on whether the state would generate new revenues first. “Under our contract, we can lay off employees if we don’t have the money to pay them,” he said.

Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees Council 31, said union leaders already met with the administration last week and determined that furlough days and layoffs wouldn’t save significant amounts of money. Henry Bayer, Council 31 executive director, said last week that even if every state employee worked the entire year unpaid, the state would only save about $3 billion. Lindall added this afternoon, “Any number of furlough days would be an insignificant savings to the state but a very real reduction in services.”

Cross said his caucus agrees with the need to look for $1 billion in cuts and recommends moratoriums on programs, furlough days and salary freezes, as well as reduced travel budgets.

Capital and recall
Two other items on hold include the $29 billion capital construction program and a provision that would allow voters to decide whether they wanted to change the state Constitution so they could recall the sitting governor.

Quinn said he will not sign the construction program without an operating budget in place. Democratic Sens. Martin Sandoval of Chicago and John Sullivan of Rushville said the capital plan and the operating budget have nothing to do with one another. In a Statehouse news conference, they joined organized labor groups to say Quinn has fallen through on his promise to immediately put people to work. "People are falling off the edge, losing their homes, having a very difficult time making ends meet, and he’s decided to hold the jobs bill as a political football until he gets his tax hike,” Sandoval said, citing the state’s 10.1 percent unemployment rate.

On the other hand, the Senate Democrats have held one of Quinn’s initiatives, House Joint Resolution Constitutional Amendment 31: a recall provision. Senate President John Cullerton said yesterday he would not call the provision for a vote until Quinn signed an ethics package that would limit the amount individuals, businesses and political organizations could donate to candidates. However, the Senate hasn’t even sent the measure, HB 7, to the governor’s desk.

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Pension plan delays tax hike vote, for now

By Bethany Jaeger, with Jamey Dunn and Hilary Russell contributing
The latest scheme for the General Assembly to get closer to a balanced budget is to borrow money to fully pay the state’s contribution into the public employee pension system and to free up about $2 billion to help stave off deep cuts to human services.


This on a day when more than 5,000 advocates, parents and children rallied at the Capitol with Gov. Pat Quinn to urge an income tax increase to help fight those cuts. Top Democratic legislators indicated today, however, that they would not vote for an income tax increase this week. And if they did, there wouldn’t be enough support among Democrats to approve it without Republican votes. The GOP remains united against a tax increase, at least, officially. Some Republican members in both chambers have privately said they could support a tax increase but have stuck with their caucuses.

Senate Minority Leader Christine Radogno said that Republicans are not ready to vote for an income tax increase and described the projected cuts to human services as a “cynical ploy,” adding that spending reductions could be spread fairly across all areas of state government.

The idea to issue pension obligation notes, which we wrote about earlier this week, poses a less politically risky option. The short-term borrowing plan would be repaid within five years and would fund the state’s $4 billion contribution into the public employee pension system for the fiscal year that starts July 1.

It’s generally agreed that the plan would free up about $2.2 billion, which the General Assembly would put into the general revenue fund and give the governor, essentially, a blank check. The ball would be in Quinn’s court, then, to cut or to plug where he saw fit.

“This is more discretion than we’ve ever given any other governor, simply because the times require it,” said Rep. Frank Mautino, assistant majority leader from Spring Valley.

He said the pension obligation notes would combine with previously approved authority to sweep extra money (Senate Bill 1433) out of dedicated funds and to refinance other state debt (SB 1609). All three revenue sources combined would allow the spending authority to come within $2 billion of the governor’s proposed budget. Quinn wanted authority to spend $28 billion. The latest plan would authorize about $26 billion, meaning he would still have to cut back spending.

The legislature could vote on the pension plan Wednesday, according to Mautino.

A vote on Quinn’s proposed two-year tax hike, however, would not happen until the governor provided a list of specific cuts he would make if he didn’t have new tax revenues to spend, according to several House Democrats. His temporary tax increase would generate about $4.5 billion. But there’s still debate about the size of the budget deficit, said Rep. Art Turner, deputy majority leader from Chicago.

“The biggest issue right now is just trying to put the bean counters together to come up with what’s the agreed number,” he said. “So then from there, we can … say, ‘What’s going to be the number that we have to use in terms of the cuts?’”

A Republican, Rep. Richard Myers of Colchester, said he’d be willing to look at a tax increase if he knew where the money was specifically going to be spent.

Comptroller Dan Hynes added to the debate with a letter to the governor. He wrote: “I believe that part of your difficulty in obtaining votes for an income tax increase is the fact that the public is confused about how much money is really needed to fix the deficit. Legislators are, therefore, understandably reluctant to vote for an ever-changing proposal for an ill-defined problem. In a sense, we have all been given a false choice: raise taxes by $4 [billion] to $5 billion or cut human services by the same amount.”

He proposed starting over, operating on a 60-day budget to keep services going while the legislature found more ways to cut spending. He cited across-the-board cuts to contracts, grants and agency spending. And then he suggested such new revenue sources as an expansion of the sales tax, building new casinos and increasing cigarette taxes. All of those proposals came up during the spring legislative session but failed to advance in both chambers.

Senate Democrats point to their version of an income tax increase, which also would offer property tax relief and an expansion of the sales tax. Senate President John Cullerton said his caucus already took the hard vote on House Bill 174 last month and that it’s up to the other caucuses to make the next move. “Anything is negotiable, as long as we keep the principles in mind that we need to balance our budget and not have these draconian cuts that all the people surrounding the capital are complaining about today.”

Cullerton added that his caucus would not vote on the governor’s desired “recall” provision until Quinn enacted campaign finance reforms approved by the legislature last month. The House already approved the recall provision, which would allow voters to decide whether to change the state Constitution so they could recall the governor at the time. The provision awaits final action in the Senate.

The rally
By Hilary Russell and Jamey Dunn, with Bethany Jaeger contributing
The secretary of state’s office confirmed that more than 5,000 people attended the rally coordinated by numerous social service providers and public employee unions. Police temporarily blocked more people from entering the Capitol out of safety concerns, said Henry Haupt, spokesman for the secretary of state.

The temperature rose as participants chanted, “People before politics,” “Do the people’s work,” and “No budget cuts.” Signs advocated for everything from substance abuse treatment services to early childhood education and autism. The anecdotes were endless.

For instance, Michelle Lefrere, who has epilepsy and volunteers with Springfield’s Epilepsy Resource Center, said without an income tax increase, the doors to the center would close June 30. Having used the center since the age of 9 and turning 40 next year, she said: “There will be no counseling, no recommendations to doctors, no job placement. There won’t be any help for people with epilepsy in Springfield or the certain communities. There won’t be any money for research.”

After the rally, Quinn remained optimistic that the legislature would vote on a tax increase by June 30, the end of the fiscal year. In any case, he said, “I am not going to preside over a dismantling of the fundamental human safety net that we are proud of in Illinois.”

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Note a possible pension plan

By Bethany Jaeger
Watch for a new pension proposal that could help buy some time for the state to recover from the economic slump and free up about $2 billion during the next cash-strapped year.

Gov. Pat Quinn’s administration could propose issuing pension obligation notes, which differ from pension obligation bonds. A note is a form of short-term borrowing that would have to be repaid within five years. The state does short-term borrowing all the time. The notes could carry a lower interest rate than pension obligation bonds, which are repaid over much longer periods of time.



The idea was talked about at a recent meeting of a new pension reform task force. Rep. Roger Eddy, a Hutsonville Republican, serves on that panel of legislators, labor organizations, unions and business groups. “This has some hope,” he said.

The idea could come up this week, when the governor called legislators back to Springfield for a special legislative session.

The legislature is scheduled to return Tuesday, seven days before Illinois’ new fiscal year starts. Quinn’s special session proclamation says he urges the legislature to consider measures, particularly an income tax increase, that would result in a balanced budget, as well as measures needed to implement a major construction program and a constitutional amendment to allow voters to recall elected officials. Quinn and Senate President John Cullerton specifically mentioned House Bill 174, the education-funding bill formerly known as a “tax swap,” as a potential solution for the state to generate revenue and knock down some of the deficit and to provide some property tax relief.

House Democrats didn’t have enough votes needed at the end of May, which means it could be even harder to acquire an extra majority of votes needed now that the legislative session has stretched into June. An extra majority would require at least some Republicans. GOP leaders, however, have strongly opposed the idea of a tax increase until they see progress on government reforms, including cheaper models of Medicaid health insurance programs and ways to reduce the state’s long-term pension debt.

One of the largest pressure points on the state budget for the next fiscal year is the contribution to the public employee pension system. Illinois is supposed to pay about $4 billion. Quinn proposed skipping next year’s payment to free up about $2 billion to help fill what his office estimates will be an $11.6 billion deficit. The legislature rejected the idea of skipping the payment; however, the Democratic-approved budget only authorized $1.5 billion for the state’s contribution into the pension system. If enacted, money would have to be skimmed from other state programs to cover the full $4 billion payment, which is required by law.

The idea to issue pension notes could take some pressure off to find the extra money needed to make the full payment, according to Eddy.

With the $1.5 billion already approved, one idea would be to issue about $2.2 billion in pension notes. That would get the state to about $3.7 billion, leaving only about $300 million that the state needed to find to get all the way up to $4 billion.

Eddy added that once the economy recovered and revenue started flowing into the state again, the state would be better able to cope with the annual contributions.

Any money freed up by the pension notes could help ease some pressure to cut human services, as well as buy some more time for the pension reform task force and a separate Medicaid reform task force to recommend ways to save money. The pension panel is supposed to issue a report to the General Assembly November 1, which is just before the regularly scheduled fall veto session. The panel is scheduled to meet once a month through October, and all meetings are public and subject to the Open Meetings Act and the Freedom of Information Act, which Eddy said prevents a 200-page report being dropped on legislators’ desks 15 minutes before they’re supposed to vote on it.

“This is not how we approached the problem before,” which is a good thing, he said, adding, “Any hint that we’re going to become serious about pension modernization, Medicaid reform, looking at job creation, all those are good signs that we’re really moving off the dime.”

The strategy of issuing pension notes differs from when former Gov. Rod Blagojevich’s administration issued an unprecedented $10 billion in pension obligation bonds in 2003. He and the legislature skipped that year’s payment and planned to use the interest earned on the investments to repay the debt. The strategy backfired when the economy tanked last fall. Pension notes, on the other hand, would be obligated directly to the state pension fund rather than to an investment bank.

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Two-tiered pension plan stalls

Gov. Pat Quinn's proposal to provide less generous pension benefits for future teachers and state employees has been held and is unlikely to advance in the state legislature before the May 31 deadline.

Sen. Don Harmon, an Oak Park Democrat sponsoring Quinn's proposal in his chamber, said today that the governor asked for more time to negotiate with public employee and teachers' unions, both strong opponents to the two-tiered proposal. See background here. Harmon held HB 2643. Another version is SB 1292.

The proposal also would have allowed Quinn to skim the state's payment into the five public employee pension systems for teachers, lawmakers, judges, university employees and state workers. Illinois is scheduled to pay nearly $4 billion into the systems next fiscal year, but the amount that the state will actually pay is part of ongoing budget negotiations between the governor and the four legislative leaders.

They continue to meet behind closed doors this evening as they try to hash out an operating budget that's projected to have a nearly $12 billion deficit by the end of next fiscal year. We'll have more as soon as possible.

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House challenges idea to skim pensions

By Bethany Jaeger and Jamey Dunn
The General Assembly should fully fund the state’s contribution into the public employee pension systems, according to a measure approved by the House today. But the move contradicts Gov. Pat Quinn’s proposal to short the pension payment to free up some money that could help fill a $7.4 billion budget deficit next fiscal year.



Today’s floor debate over SB 1186, sponsored by House Speaker Michael Madigan, pitted the need to repay long-term debt against the immediate decline in state revenues. Gov. Pat Quinn proposed skipping about $2.3 billion in payments next fiscal year. Madigan today essentially took that option off the table — for now — saying he and the governor have a “legitimate difference of opinion.”

Next fiscal year, which starts July 1, is the last year of a so-called “ramp-up” payment that is part of a statutory schedule to force the state to gradually fund its share of the long-term pension obligations. Next year’s payment is supposed to exceed $4 billion. But the deficit is projected to reach at least $7.4 billion, according to Madigan.

The speaker said the bill to force full payment reflects that there was little support for a partial payment (102 members voted in support of full payment). But it also simply reinforces existing statute. The entire House GOP supported full payment. Fourteen Democrats, on the other hand, voted “present.” Several said that making a partial payment would free up more than $2.2 billion that could help fund safety net services during the economic recession.

Madigan laid out the revenue picture with and without a full pension contribution, which could bolster his argument that the state should increase the state income tax to balance the budget and pay its bills. Here’s Madigan’s break down:

• $16.9 billion – The amount already approved by the House to fund basic state operations and employee contracts. (It’s not yet approved by the Senate.)
• $3.5 billion – The amount left over to dole out to state services.
• $10 billion – The amount needed to fund the rest of Quinn’s proposed spending plan.
• $7 billion – The amount that would have to be cut to balance the budget without an income tax increase.

But even with an income tax increase of 1.5 percentage points, as proposed by Quinn, the state would only garner about $3.7 billion. Legislators would still have to cut nearly $3 billion more to achieve a balanced budget.

Sen. Don Harmon, an Oak Park Democrat, said that the cuts that would be needed without a tax increase could be more than most lawmakers want to consider. “I don’t know if any of us have come to grips fully with what cuts of that magnitude would mean to people who live in our districts,” he said. “We’ve got pages and pages and pages of potential cuts, and they will hurt real people. And we’re trying to balance that.”

Harmon added that the Senate Democratic Caucus sees the pension payments as part of the larger budget negotiations. “Obviously, we’d all like to make the full pension payment. It’s just a question of the competing needs and the limited revenue available. It’s within the context of the overall budget development, not a stand alone issue.”

Republican Sen. Matt Murphy of Palatine disagreed that Democrats are looking at the bigger budget picture, which he said could lead to a piecemeal approach and, ultimately, mistakes. “It’s almost like they’re doing these things in a vacuum,” he said. He suggested short-term borrowing as a way to fully fund pensions and avoid an income tax increase.

The legislature could always do what it did last year: approve an unbalanced budget and force the governor to cut programs over the summer. There are many ways this scenario could play out.

Meanwhile, Quinn’s effort to enact a two-tiered system that would provide less generous benefits to newly hired teachers and state employees has stalled but is still in negotiations behind closed doors.

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Prepare for revenue vs. spending showdown

By Bethany Jaeger
The General Assembly has five days until the constitutional deadline of May 31 to approve a state operating budget, and there are only three days until Senate President John Cullerton wanted to adjourn so everyone could go home by this weekend.

Things are still pretty fluid in the Capitol, with lots of options being discussed but few commitments being made to any of them.


“There’s Plan A, Plan B, Plan C, and, so far, we have not seen B nor C,” said Sen. Donne Trotter, budget negotiator for Senate Democrats.

Plan A includes funding basic portions of the budget to keep the lights on and to secure federal stimulus funds regardless of whether the legislature approves an income tax increase. And that plan, approved by the House last week, wouldn’t fulfill spending obligations for state programs and public employee pensions. House and Senate Democrats are circulating lists of programs that would not be funded under the core budget plan, forcing members to rank programs that could be cut or not.

Those lists are leading up to the plea for a state income tax increase, but for that to happen, Democrats need Republican support. Senate President John Cullerton said he doesn’t believe his caucus has 30 votes necessary to approve an income tax increase, leading him to turn to Republicans. The GOP, however, doesn’t want to approve an income tax increase unless the General Assembly first tries to trim spending and make existing programs more efficient, including instituting managed care policies and other Medicaid reforms.

Sen. Dale Righter, a deputy Republican leader from Mattoon, said, “To say that there isn’t any waste in state government is to say, ‘I agree with the last six years of Rod Blagojevich’s budgets,’ and I don’t think any of them want to say that.” He added that constituents want comprehensive reforms that affect every dollar the state spends, not just a percentage of it. He said enacting a half-year budget would unlikely include any reforms.

“Once you support that and put that into law, then you’ve locked that in place. And you’ve said, ‘OK, there’s nothing we can do about that spending.’ And I don’t think that’s the message we want to send.”

As Democrats and Republicans consider their options behind closed doors tonight, consider this breakdown of general revenue versus spending and the large gap between the two, according to Democrats.

Spending side

• Legislators are working with about $23.8 billion to dole out, including federal stimulus funds.
• The House last week approved $16.9 billion to keep the lights on and to secure federal stimulus funds, leaving about $6.9 billion to split among state programs.

Revenue side

• According to Senate Democrats, the state would need an additional $4 billion just to get to last year’s funding levels (a.k.a. a zero-based budget).
• And then it would need between $2 billion and $4 billion to pay the state’s full share into the public employee pension systems.
• That means, according to Trotter, that budget negotiators anticipate needing up to an additional $8 billion to get up to last year’s funding levels and to fully fund the pensions.
• Shorting the pension payments is always on the table. Making a minimal payment, however, would not pay down the compounding liabilities.
• So is approving a temporary budget that would distribute the money on hand but would not be enough to get through the year. Cullerton said he opposes the idea of a half-year budget.
• Gov. Pat Quinn also has proposed a two-tiered pension system so that newly hired teachers and state employees would earn less generous retirement benefits. While the administration suggests long-term savings would result, teachers’ unions strongly disagree and point to a report by the legislative Commission on Government Forecasting and Accountability.

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Two-tiered pension plan still in the works

By Bethany Jaeger
While Gov. Pat Quinn withdrew a proposal last week to require existing state employees and teachers pay more for their health care and pension benefits, creating a two-tiered pension system for newly hired workers is still very much on the table.



Proponents and opponents of the two-tiered concept contained within SB 1292 testified this afternoon before a House committee, and a committee vote is expected Thursday morning. (Changes are expected to the current version.)

A two-tiered pension system for newly hired employees is a critical part of Quinn’s overall budget plan for next fiscal year. He also would short the amount the state pays into the pension system by $2.8 billion over the next two years, but that’s completely separate from SB 1292. “This is a step we have to take, really, to get to that discussion,” said David Vaught, a senior advisor to the governor. He added that a two-tiered system is essential to maintaining a defined benefit plan for public employees. “It’s time to step up and take this one on.”

Rep. Kevin McCarthy, an Orland Park Democrat sponsoring the bill, said reduced benefits for new employees hired after August 1 would help establish a more sustainable pension system that the state could better afford in the future. Illinois ranks last in the nation in terms of having enough money on hand to afford its projected pension obligations.

“All this is going to fit into the final [budget] discussions at the end of the day, but if we don’t make reforms that are included in this bill, talk of any kind of changes in the funding system are very difficult,” he said.

Such business-based organizations as the Civic Federation's Institute for Illinois' Fiscal Sustainability and the Taxpayers Federation of Illinois support the concept of a two-tiered system for new hires. (The General Assembly already uses such a system.) Tom Johnson, president of the Taxpayers Federation of Illinois, described Quinn’s proposed changes as an appropriate way to “modify the plan to reflect today’s reality,” referring to the longer amount of time people draw on their pension benefits because they live longer.

Strong opponents include labor unions, teachers’ unions and the Center for Tax and Budget Accountability. Michael Carrigan, president of the Illinois AFL-CIO, described the proposal as “anti-worker,” while the executive director of the American Federation of State, County and Municipal Employees Council 31, Henry Bayer, said the state pensions aren’t excessive. The average annual pension benefit is $18,000. “You can’t even buy a Ford,” he said.

The Illinois Federation of Teachers’ president, Ed Geppert, testified that Quinn’s plan is “more fiscal nonsense” and that he doesn’t trust the administration’s projected savings. He added that requiring teachers to work until age 67 would cost an additional $1.4 billion in 2009 dollars for the added years of salaries.

The labor and teachers’ organizations also alleged that the state’s failure to make its regularly scheduled payments, not the level of retiree benefits, is the true root of the problem. And reducing benefits for future hires would cause a disincentive to accept and keep a state job, resulting in a lower quality workforce and education.

Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability, testified that the state can’t rely on “long-term, highly speculative” savings as a real revenue source to pay pensions. The temptation will be to take the savings up front.

McCarthy said he would try to make more concrete savings estimates available Wednesday.

The legislature’s economic forecasting arm, the Commission on Government Forecasting and Accountability, recently released a report about Quinn’s pension plan. See highlights of SB 1292 and comparisons of Quinn’s plan versus the current payment schedule.

Until Thursday morning, here’s a few highlights of SB 1292:

• If enacted, teachers, state employees and judges hired after August 1 this year would earn the lesser benefit and have to work until age 67 before they could retire without penalty. They could retire at age 62 without penalty if they already put in 35 years.
• The retirement life annuity would be 2 percent of the final average salary for each year of service, with a maximum of 70 percent of the final average salary (based on the final eight years of average salary).
• If workers wanted to retire at age 62, the retirement life annuity would decrease by half of a percent for each month they’re below age 67.
• They couldn’t work another full-time state job or teaching job after they retired and drew upon their pensions. If they did work again, they would have to start repaying into the pension system and suspend their benefits.
• The bill currently would not allow teachers and state employees to buy back time used during pregnancy leave so they could retire on time. McCarthy said he’s working to erase that provision so workers could still buy back pregnancy leave, as they can now.

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Dynamic before budget negotiations

By Bethany Jaeger
Video by Hilary Russell

Rod Blagojevich is no longer governor, and it’s easy to assume that the atmosphere within the Capitol has done a 180 with two new legislative leaders and a new governor. But today’s speeches by three legislative leaders and Gov. Pat Quinn before a business luncheon in Springfield showed little if any concrete points of agreement about how they’re going to lead Illinois out of what Quinn deems a fiscal crisis.



The state faces between an $11 billion and $12 billion deficit next fiscal year, according to the governor’s office and the legislature’s economic forecasting arm. Quinn entered the “lion’s den” this morning and afternoon by first speaking to the Illinois Education Association, a teachers’ union that strongly opposes his proposed pension reforms, and then speaking to the Illinois Retail Merchants Association and the Illinois Manufacturers Association, business groups that oppose a state income tax hike.

“The notion that some [politicians] of both parties are running around saying we can get out of this without raising the income tax — they’re living in a dream world,” Quinn said to reporters after his speech.

Much of the speeches repeated statements heard after Quinn first proposed his budget in March. But the context has changed. The Illinois General Assembly now has 25 days to try to enact a state operating budget, finance a major construction program and approve major ethics reforms. My audio recordings failed today, so what follows is a summary of each speech:

Gov. Pat Quinn: He still wants to raise the income tax and increase the personal exemption to shield low-income families from the increase, but he said he’s willing to negotiate on the personal exemption. He also still wants to create a two-tiered pension system for teachers, meaning new hires would receive a less generous pension benefit. According to the Associated Press, however, Quinn used a speech before the Illinois Education Association to reveal that he dropped his proposal to require teachers’ to pay more into their pensions by 2 percent per paycheck. “We didn’t want that to derail a fundamental reform we must adopt, and that’s having a two-tiered system for the new state employees and new teachers,” Quinn later said. “They’re still going to get a pension, a very generous pension. It just won’t be as generous as what currently exists.” He also said he would not cut Medicaid, which is something Republicans support.



House Speaker Michael Madigan: He said he’s been meeting with small groups of Democrats and asking them to rank their most important programs, narrowing the list of places members are willing to cut. The approach, he said, was abnormal because they have to accept a “zero-based budget.” He then cast an ominous cloud over negotiations for a major capital construction program by saying he is not inclined to meet with House Minority Leader Tom Cross because, he said, “when the rubber hits the road, he’s not going to be there.” Madigan and Cross have clashed in the past on everything from gaming to working with Blagojevich. Republican votes are needed in the House to approve major spending or borrowing plans, but the ongoing icy relationships could have a chilling effect on other negotiations.

House Minority Leader Tom Cross: He did not speak at the Illinois Retail Merchants Association luncheon, but he did address the media later in the Capitol. He said he would “want no part” in a capital plan that financed construction projects by increasing the state income tax or the motor fuel tax. While he hasn’t meet with Madigan, Cross said he has met with both Senate leaders and the governor and talked about revenue ideas. “The bottom line is we’re all talking,” Cross said. “And they’re, I think, fairly productive talks of narrowing down some revenue streams to raise about $1 billion. I think it’s all good.” He specifically mentioned conversations about the House’s idea to legalize video poker and to the Senate’s idea to privatize the Illinois Lottery. Why the speaker spoke out against working with him, he said, is baffling. “I think with the speaker, there’s a pattern when he doesn’t want to do something himself, he looks for a villain or for somebody else to blame. And history will show that we are for capital.”

Senate President John Cullerton: He said he agrees with Republicans that the state should trim spending before resorting to raising income taxes. However, if the state still lacked enough revenue to maintain the same level of core services, he said he will ask the GOP to help approve revenue enhancements. Some Democratic members within his caucus also are working on a plan to expand gaming to raise money, but gaming expansions have been tried and failed multiple times in the past few years. The difference this time is that Cullerton has said he will not peg new gaming revenues to pay for construction plans. That could ease some political pressure on the size of the plan, which plagued previous efforts. Madigan has been cool to the idea of expanded gaming, although his chamber did advance a measure to legalize and tax video poker machines in taverns.

Senate Minority Leader Christine Radogno: She opposes income tax increases and said the state first needs to cut spending, find efficiencies and grow the economy with a capital plan that creates jobs. She agreed with Quinn’s proposal to create a two-tiered system for newly hired teachers as a way to control costs in the long run. She added that she supports Quinn’s Illinois Reform Commission’s ideas to reform state government, including campaign contribution limits. She said she “would vote for all of them as is as opposed to having nothing.”

Radogno also said she’s been working with Cullerton and Quinn and mentioned a new chemistry within the Capitol, which bodes well for a more productive state government. “There’s hope that we can actually accomplish something,” she said.

Yet, nothing’s truly off the table right now. The legislature and the governor have a lot of negotiating to do before they’re able to enact an operating budget or a capital construction plan within 25 days, but that’s likely to require all four legislative leaders to start meeting with Quinn in the same room soon.

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State Pensions May be Merged in Illinois

Newsreleasewire.com:

Illinois Treasurer Alexi Giannoulias has proposed combining the investments of the five State-funded pension systems into one single system in an effort to cut administrative costs and fight potential fraud and abuse.

Under the proposed system, the single fund would be managed by a new Illinois Public Employees’ Retirement System (ILPERS). The treasurer estimates this change would save taxpayers up to $82 million annually and has the potential to reduce unfunded liability by $16 billion by 2045. The State’s current liability for underfunded pensions stands at a record $54 billion, which Giannoulias said ranks as a major reason to merge the five pension systems.

The plan also introduces ethics and transparency requirements to help ensure appropriate performance by board members overseeing the proposed retirement system. Those requirements would prohibit board members, their spouses, and ILPERS employees from benefiting financially from the investment system and would ban vendors with contracts exceeding $50,000 from making political contributions.

“Currently, State pension assets are invested on three separate boards, creating multiple opportunities for corruption,” said Sara Wojcicki, spokesperson for the treasurer’s office.

Giannoulias’s proposed change also would make it easier for government watchdogs to help ensure pension assets are managed and invested properly because they would monitor the actions of just one board instead of five.

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Appetizers to a bigger meal

By Bethany Jaeger
Rubber will hit the road, federal stimulus funds will begin to flow and some state operations will get a boost through the rest of the fiscal year. Gov. Pat Quinn signed multiple bills into law that will authorize the spending of about $9 billion. Surrounded by Democratic and Republican leaders, Quinn also enacted pension reforms that are designed to restructure the five public employee pension systems in response to corruption allegations exposed during the federal probe of former Gov. Rod Blagojevich.



The spending plan includes about $3 billion for a mini-capital plan, the first program to escape the halls of gridlock since before Blagojevich took office in 2003.

“It’s been 10 years since we had a capital bill,” said Senate President John Cullerton. “We’ve been in session for only 10 weeks, and we’ve already passed this major bill.”

Yet, the $3 billion plan is being framed as just a start to a larger program, which could include a $25 billion plan potentially financed by tax and fee increases. The funding proposals will face significant challenges in acquiring the number of votes needed to pass by the scheduled adjournment of May 31.

House Speaker Michael Madigan said today’s action set a precedent. “Before we did the spending, we reformed the pension systems. I think that’s how we should do this from now until the end of the session.”

All agreed that the capital bill and the pension revamp are only first steps to more construction plans and government reforms.

During a bill signing ceremony outside of his Statehouse office, Quinn touted the bipartisan cooperation. “The reform, the investment in jobs, the investment in reopening our [sites] and making sure our appropriations are proper.”

Not all 11 state historic sites that were closed by Blagojevich last year will automatically reopen by June 30, according to Dave Blanchette, spokesman for the Illinois Historic Preservation Agency. He said the supplemental spending plan earmarks $800,000 to make payroll and hire seasonal workers to accommodate increased tourism at the 18 sites that are currently open. But he said the agency could not promise the money would stretch far enough to reopen all 11 sites.

“We want to make sure we can make the money go as far as possible, but we also want to get the historic sites with the highest visibility reopened as soon as possible,” he said. High-visibility sites include the Dana-Thomas House in Springfield, the Lincoln Log Cabin near Charleston and the Hauberg Indian Museum at Black Hawk State Historic Site in Rock Island, he said.

The decision about which sites will reopen will be made by the directors of the Historic Preservation Agency and the Department of Natural Resources, which Quinn recently ordered to consolidate by July 1.

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Prosecutors target “Blagojevich Enterprise” - UPDATED

By Bethany Jaeger, with Hilary Russell and Jamey Dunn contributing
Today’s 75-page federal indictment of former Gov. Rod Blagojevich and five members of his inner circle details an extensive and long-term scheme that allegedly began in 2002, before Blagojevich took his oath of office in January 2003.


U.S. Attorney Patrick Fitzgerald’s office is now going after what’s described as the “Blagojevich Enterprise,” which includes the office of the governor and Blagojevich’s campaign fund, Friends of Blagojevich. The entity, the feds allege, primarily existed to “exercise and preserve power over Illinois government for the financial and political benefit of Blagojevich,” as well as his family members and friends.

Read the U.S. attorney's press release here. A fact sheet is here. More context and online sources of how we got here at Illinois Issues magazine.

Blagojevich and his associates allegedly conducted a pattern of dishonest behavior designed to enrich themselves, which would violate the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, according to Andrew Leipold, a law professor with the University of Illinois’ Institute of Government and Public Affairs.

Blagojevich is charged with 16 counts of federal corruption, including racketeering conspiracy, wire fraud, extortion conspiracy and attempted extortion. They each carry a maximum sentence of 20 years in prison and a $250,000 fine. He also allegedly lied to the FBI, a crime carrying a maximum five-year prison sentence and another $250,000 fine. In addition to the allegations already documented in the criminal affidavit filed with his arrest Dec. 9, 2008, today’s indictment includes new details and allegations.

Who
The indictment reads less like alphabet soup because federal prosecutors in the Northern District of Illinois have identified and, in some cases, convicted individuals as part of the ongoing probe called Operation Board Games. Joining Blagojevich in the indictment include five others:

• His brother, Rob Blagojevich of Nashville, Tenn., who chaired his campaign fund since August 2008.
• John Harris of Chicago, Blagojevich’s chief of staff from late 2005 until last December, when he was arrested with Blagojevich.
• Alonzo “Lon” Monk of Park Ridge, a lobbyist and longtime Blagojevich insider and campaign manager, as well as Blagojevich’s first chief of staff upon becoming governor in 2003.
• Christopher Kelly of Burr Ridge, a Blagojevich fundraiser and previous chair of Blagojevich’s campaign fund.
• William “Bill” Cellini of Springfield, director of the Illinois Asphalt Pavement Association, who raised money for Blagojevich and allegedly influenced officials of the Teachers’ Retirement System. He also was associated with Commonwealth Realty Advisors, a real estate management firm that invested hundreds of millions of dollars on behalf of TRS. He was indicted in October 2008 for “allegedly conspiring with others to obtain campaign funds for Blagojevich by shaking down an investment firm seeking a $220 million allocation from TRS.” This replaces that indictment.

What
Before Blagojevich even became governor, he, along with Monk, Kelly and Tony Rezko, allegedly started scheming to use the governor’s office for financial gain that would be split among them once Blagojevich left office. Blagojevich allegedly let Kelly and Rezko exercise significant influence over state government operations, and they, in turn, allegedly generated millions of dollars for Blagojevich’s campaign fund and “provided financial benefits directly to Blagojevich and his family.” For instance, one part of the scheme allegedly included Rezko's real estate business paying Patti Blagojevich, the then-governor's wife, $12,000 a month, as well as another $40,000 in commission, "even though she had done little or no work," according to the indictment.

The indictment also alleges that Blagojevich had control of his campaign fund at all times, even as the chairmen of the fund changed.

UPDATED: Some more highlights of the details:

• Before Blagojevich became governor, he, along with Monk, Kelly and Rezko, allegedly started scheming to use the governor’s office for financial gain that would be split among them once Blagojevich left office.
• Blagojevich, Monk, Kelly and Rezko allegedly agreed to use Blagojevich’s and Monk’s offices to divide financial gain among themselves, including the kickback from the Pension Obligation Bond refinancing in 2003.
• The feds say Blagojevich lied to FBI agents on March16, 2005, when he said he kept state government and politics separate and didn't want to know who contributed money to his campaign.
• From 2004 to 2006, Rezko allegedly gave Monk between $70,000 and $90,000.
• Last year, Blagojevich allegedly directed Harris to find him a paid position at various state boards, and when that didn’t work, he directed Harris to connect his wife with financial institutions. When that failed, Blagojvich directed that those institutions to no longer get state business, according to the indictment.
  

The federal prosecutors are seeking the forfeiture of all funds and assets held at four banks in the name of Friends of Blagojevich, although the campaign fund is not a defendant. Fitzgerald's office also seeks $188,370 from Blagojevich as proceeds of the alleged scheme and racketeering activity. The indictment lists Blagojevich’s apartment and Chicago home as “substitute assets.”

Now what?
The indictment comes after more than a month of public hearings conducted by two panels, one appointed by Gov. Pat Quinn and one convened as a special joint legislative committee between the House and the Senate. Within two hours of the indictment being filed office tonight, one of the byproducts of the legislative committee passed both chambers.

The General Assembly approved SB 364, crafted with the leadership of House Speaker Michael Madigan and Senate President John Cullerton. It’s aimed at reforming the state’s public employee pension system and requiring all trustees to abide by state ethics laws. All trustees of the Teachers’ Retirement System, specifically, would be replaced. And the governor would be able to appoint more trustees to that board.

The Teachers’ Retirement System, which serves more than 355,500 teachers outside of Chicago, was one of the first state government operations revealed by the feds to be corrupted by Blagojevich’s inner circle, according to Fitzgerald’s office. System officials immediately released a statement of opposition, saying the governor’s ability to appoint more members has potential to increase, not decrease, the opportunity for political influence.

The board’s statement said the rationale behind the measure “erroneously accused the elected members of the board of failing to prevent a corruption scheme in 2004 hatched by a former gubernatorial appointee,” meaning Stuart Levine. “The elected trustees of the TRS Board are angry and deeply troubled by the implication that they were somehow complicit in the illegal behavior carried out by Stuart Levine,” said Bob Lyons, a board trustee twice-elected by annuitants of the Teachers’ Retirement System following Levine’s resignation, according to the statement.

Lyons also said that terminating Jon Bauman, executive director of the system, on July 1 would unfairly punish a man who hasn’t been accused of committing a crime.

Cullerton said the reforms are designed to prevent “what Stuart Levine got away with for so long” by requiring consultants to register, requiring all board members to follow the same ethics standards applied to legislators and executive branch employees to prevent conflicts of interest and so-called pay-to-play politics.

Cullerton also offered his personal reaction to the former governor’s indictment. “I think it’s a sad situation because he is the father of a couple of kids. He lives down the street from me, and it’s always sad when stuff like this happens. But, at the same time, I can’t imagine what this place would be like if he were still the governor trying to solve the problems that we have with the incredible deficits that we have.”

Legislators of both parties added that the indictment should serve as yet another wakeup call to enact meaningful reforms to strengthen rules for campaign finance, state procurement, public access to information and even the structure of government. Ultimately, however, reforms can only make it harder for people who are bent on mischief, Leipold said. “Surely oversight can help, sunshine can help, reporting can help, but nothing’s going to stop things like this completely.”

Many just want to move on from the embarrassment. “There’s plenty of blame to go around,” said Rep. Bill Black, a Danville Republican. “I don’t care about what has happened. Let's get involved and care about how we clean this up. I want my grandkids to be proud of me.”

At the least, federal prosecutors continue to send a message that “business as usual” won’t be tolerated. Sen. Matt Murphy, a Palatine Republican, said: “And the prosecutor is serious. People who want to play that game better learn real quick it’s a losing proposition.”

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Search for a common ground

By Bethany Jaeger, with Jamey Dunn contributing
House Speaker Michael Madigan and Senate President John Cullerton advanced their first joint measure to reform state government, focusing on the management of the public employee pension systems and targeting board members appointed by former Gov. Rod Blagojevich. At the same time, the independent reform commission created by Gov. Pat Quinn issued its first set of recommendations for beefing up state ethics laws and improving transparency of government operations.



How the legislative reform committee and the governor’s reform commission will work together, however, is yet to be seen. So far, they’ve operated in similar hemispheres but in separate quarters. They’ve heard hours of testimony from a lot of the same witnesses, they’ve debated some of the same proposals and they’ve used the same language to define their missions. To date, they have not yet testified to each other's public hearings. And the governor’s reform commission is different in that it “has a voice but not a vote,” to borrow the words of Patrick Collins, former federal prosecutor and chair of the governor’s commission. What is realistic by the end of the spring legislative session depends on the level of support the proposals can gain from the legislative leaders and their members, although Quinn has indicated he's willing to use his executive powers to institute some of changes.

One item to note is that the House speaker and the Senate president have been meeting about once a week for breakfast with Quinn to talk about a broad range of issues facing the state, including everything from a potential $12.4 billion budget deficit to possible ethics reforms. Madigan told Illinois Issues this morning said he finds those meetings to be “very productive.” He added: “They’re not 100 percent harmonious. … There’s differences, but you’ve got people who are committed to working through differences and coming to a result.”

In terms of ethics, some of the proposals of the governor's reform commission already are being considered by the legislature. In addition to pension reforms advanced by Madigan and Cullerton, the governor’s reform commission offered two more starting points: The “pay” side (or campaign finance) and the “play” side (or state procurement), to borrow another Collins phrase. The governor’s Illinois Reform Commission will issue many more recommendations in its final report by the end of April.

Pension board reforms
Madigan and Cullerton started with pensions. Their measure, SB 364, would remove all members of the existing pension oversight boards, and Quinn would have 30 days to nominate new members. The governor would be able to nominate current members to stay, but they would have to get Senate approval. Board members currently are reimbursed for expenses but are not paid for their work, and that would remain.

While Madigan said he did not intend to accuse current members of corruption, he said it was important to start over with a “clean slate.” The measure also would require all board members to follow the same ethics standards currently applied to legislators and executive branch employees. The standards are meant to prevent conflicts of interest and so-called pay-to-play politics from influencing the investment decisions made by the pension boards, investment managers and consultants.

Similar pension reforms passed the House twice before but stalled in the Senate under then-President Emil Jones Jr.

Madigan said this morning that the pension reforms illustrate the good that can come out of cooperation between presiding officers. “The people of Illinois feel that they deserve better, and they’re right. And with myself and Sen. Cullerton working together — not trying to one-up anybody, not trying to play gotcha-politics — I think that we can accomplish a lot.”

Campaign contribution limits (The “pay” side of pay-to-play)
The Illinois Reform Commission recommends campaign contribution limits of $2,400 for individuals and $5,000 for political committees and would completely ban contributions from lobbyists and trusts. The legislature is split on the idea of campaign contributions, with opponents saying that there are too many loopholes and that it wouldn't reduce the cost of political campaigns. All four legislative leaders have said they could consider campaign finance reform, but contribution limits are not considered the priority. The legislature already is considering some measures that would limit contributions, including:

• HB 24: Rep. Harry Osterman’s bill resembles the commission’s recommendations. He’s a Chicago Democrat.
• SB 1768: Sen. Heather Steans’ bill would enforce similar limits for individuals and political committees that are not controlled by the candidates, but it also would cap the amount political committees for the Democratic and Republican caucuses could transfer to candidates at $30,000, among other things. She’s a Chicago Democrat.
• SB 1548: Senate Minority Leader Christine Radogno’s bill would limit donations for all individuals, political parties, corporations, unions, etc., at $10,000. She’s a Lemont Republican.
• SB 2257: Sen. Kwame Raoul’s bill would, among other things, limit individual donations at $7,500 and corporate and labor group donations at $20,000. He’s another Chicago Democrat.

Two measures would establish a voluntary public financing system for judges and set various limits on the amount candidates could raise from individuals, political committees, corporations, labor groups, etc. They include:

• SB 2144, sponsored by Raoul.
• HB 1390, sponsored by freshman Rep. Will Burns, a Chicago Democrat.

Here are more highlights from the Illinois Reform Commission's recommendations for campaign finance, including extending last year’s pay-to-play ban to prevent state contractors from donating to legislators, as well as executive officers.

Procurement (The “play” side of pay-to-play)
The Illinois Reform Commission recommends the following:

• Make the procurement officials part of an independent arm of government to shield them from political pressure.
• Establish an independent contract monitor to review contracts and expose problematic deals.
• Scale back exemptions to the procurement code.
• Apply the procurement code to legislative, judicial and such quasi-governmental bodies as the Illinois Finance Authority.
• Subject no-bid and emergency contracts to tighter scrutiny and limitations.
• Disclose subcontractors, lobbyists and agents representing clients.
• Document any contact between vendors or their agents and procurement staff.
• Post all procurement information online.

Auditor General Bill Holland echoed some of the recommendations today during a special legislative hearing about state government reforms. But he added that the procurement code currently does not prevent agencies from accepting services before the terms of a contract are settled or before the contract is officially filed. He said that was “unacceptable” and said that all documents related to the contracting process, including losing proposals, should be made public.

Sen. Jeff Schoenberg, an Evanston Democrat, said the state also should tighten provisions on informal advisers, something noted during the corruption trial and conviction of former Blagojevich adviser Tony Rezko.

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Legislators eye "adjustments"

By Bethany Jaeger, Jamey Dunn and Hilary Russell
Gov. Pat Quinn wrote his 40-minute Budget Address himself, just one indication of the change under the Capitol dome since the impeachment and removal of former Gov. Rod Blagojevich.


Wearing glasses and a navy blue suit, Quinn opened his speech Wednesday before the General Assembly to a standing ovation from Democrats and Republicans. But the tone soon changed when Quinn described the context in which he proposes a bold spending and revenue plan:

• An integrity crisis — The state citizenry is damaged and embarrassed by the “bipartisan betrayal” of former Govs. George Ryan, a Republican serving in federal prison, and Blagojevich, a Democrat fighting federal corruption allegations.
• A fiscal crisis — The budget deficit is projected to be $11.6 billion by the end of fiscal year 2010, and the state can’t afford to pay nearly $5 billion in overdue bills.
• An economic crisis — Unemployment is rising to nearly 8 percent.

“To be direct and honest, our state is facing its greatest crisis in modern times," Quinn said.

David Merriman, an economist and professor of public administration with the Institute of Government and Public Affairs, said in stark contrast to the budgets proposed by Blagojevich, “Quinn’s proposals are transparent, and the effects are relatively simple to identify. There is little or no smoke and mirrors.”

Senate President John Cullerton said he could see the looks on the faces of Democratic and Republican legislators. “Even if you didn’t agree with everything he said, it was just so gratifying to see the reaction of the members based on the governor’s sincerity and his words.”

Cullerton also pointed to the weighty proposals of an income tax increase, a road and school construction program, a reformed pension system and a slight bump in education funding. “It’s a lot of work, and he’s to be congratulated for making those proposals.”

But that doesn’t mean Quinn will get everything he wants. Legislators of both political parties already are eyeing “adjustments,” in Cullerton’s words, to ensure that an income tax increase is used as a last resort.

“If we cut as much as the governor has proposed, and we guarantee that we have paid our bills, and we guarantee that we have a capital bill, then — and only then — do we look to the income tax and determine whether we need it,” Cullerton said. “And, if so, how much we have to raise it?”

Income taxes
As we said last night, Quinn’s blueprint relies on a state income tax increase of 1.5 percentage points for individuals and 2.4 percentage points for businesses. But some of the new tax revenue would be shaved off to provide a heightened personal tax exemption, from the current $2,000 to $6,000 per individual. The net revenue: about $3.15 billion, according to House Democrats.

That’s one area subject to negotiations. Senate Democrats want to look at a personal exemption that’s lower than Quinn’s proposal or, possibly, phasing it in over a few years. Or, while they eventually could sign on to an income tax increase, they might seek a lower rate.

Pensions
Quinn also wants to restructure the public employee pension system, which we wrote about last week. Business groups have been advocating for pension reform for years. Yet, there’s a concern about Quinn’s plan to divert money away from the amount the state is supposed to pay into those systems through 2011.

Quinn proposes changing benefits for newly hired employees. Among other changes, that would increase the retirement age and require them to pay more into their retirement benefits. At the same time, Quinn proposes shorting the amount the state pays into the pension system by $500 million this year and $2.3 billion next fiscal year (CORRECTION: I misread a chart and mistakenly thought there would be a third year of reduced pension funding. I was wrong. There are only two years, totaling $2.8 billion. I sincerely apologize.). The pension reforms are estimated to save about $160 million by 2045.

Cullerton said while he believes the governor’s pension reforms could save money over time, “we just have to examine the numbers and make sure that those savings that we would get in the future would justify lower payments into those funds right now.”

Public employee unions reject the idea in its entirety. According to Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees Council 31, retiree benefits average about $18,000 a year. He said the state’s debt should have nothing to do with employees who consistently contribute to their benefits. “Cutting future benefits will not reduce the state’s current debt by a single penny, and skipping payments on the basis of such imagined savings will only compound the current crisis.”

State employees
AFSCME also opposes Quinn’s idea of making current employees, minus public safety, health care and university workers, take four unpaid days off, called furlough days, and pay more into their health care plans.

There’s a contract in place, Lindall said. “The state can’t force changes in any of these areas. Under our contract, they have to negotiate it. If they don’t negotiate those changes, we will enforce our contract in court.”

What else is on the table?
Republicans say everything — from budget cuts to expanded gaming — should be on the table before resorting to an income tax increase.

While Senate Minority Leader Christine Radogno agreed with parts of Quinn’s proposed budget such as pension reforms and the removal of a gas tax increase as a revenue source, she called an income tax increase “premature and irresponsible right now.”

House Minority Leader Tom Cross agreed that Medicaid spending should be reduced and, he added, lawmakers need to ensure they assess all the possibilities for using federal stimulus funds to help fill in the deficit.

Neither GOP leader would say that the state could pay off its debts without raising taxes, but they both said that tax increases should only be considered when all other options have been exhausted. Both also said that Republicans would be less wary of a tax increase if it would have a set end date.

Expanded gaming as a revenue source isn’t dead, either. Rep. Jim Durkin, a Western Springs Republican, said the state still should consider leasing the Illinois Lottery to a private entity to raise money, which has been tried before. Radogno agreed that the state should look to the “voluntary activity of gambling” for increased revenues.

Democrats also have been considering expanding gaming as a revenue source, although Cullerton said he would not intend to expand gaming as a way to pay for a capital construction plan. He did say gaming could be used to lessen the need for an income tax increase.

We'll talk more about capital plans soon.

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