January 6, 2011

When the 2012 legislative session gets underway later this month, one issue is likely to overshadow all others – the continuing weak position of the Illinois state budget.

That was underscored when the Governor's Office of Management and Budget on Jan. 3 released preliminary revenue and spending projections for the next three fiscal years. While Governor Quinn isn't scheduled to deliver his formal budget address until February 22, the projections (and an accompanying report) offer a preview of just how serious the financial challenges facing Illinois are.

The projections, once again, affirmed the warnings that Senate Republicans have been sounding for years. A detailed "Reality Check" budgeting roadmap to balance the budget, eliminate the state's deficit, and phase out the Democrats' January 2011 tax increase was released by the Senate GOP last March. While Democrats rejected the Senate Republican plan last spring, that roadmap of possible reductions could serve as a guide in 2012.

For the coming fiscal year, the Governor's office promised a tightly balanced budget that would spend $33.7 billion, based on $34.1 billion in projected revenues. That budget would keep spending slightly under revenues, allowing for a modest surplus to reduce the state's backlog of bills. But, achieving that goal will be far from easy.

Under the outline presented by the budget office, virtually all state spending must remain flat for the next three years. In order to achieve a balanced budget there could be no increase in education, public safety, welfare and healthcare spending.

That's a tall order, given that in just one area of state spending, Medicaid, current projections show that Illinois would need to spend about $3 billion more next year just to keep its current level of services and prevent the existing backlog of bills from growing.

However, there are achievable alternatives. The "Reality Check" plan offered by Senate Republicans last March contained a menu of more than $6.5 billion in spending cuts and revenue generators to bring the budget into line with available revenues before the temporary income tax increase is to expire in three years.

Medicaid costs have skyrocketed during the Quinn-Blagojevich years, growing by four billion in just eight years. The current year's budget pushes more than $2 billion in bills into the upcoming fiscal year and, even with that juggling of the books, the state will still end this budget year more than $500 million in the red, according to the Governor's office figures.

The Governor's budget director, David Vaught, acknowledged that the state must control Medicaid expenses. “We have to have real cost reductions, however they are arrived at, that begin to get this under control,” he told reporters after the release of the budget projections.

Holding the state's healthcare spending flat for four years, as the Governor suggests, will require taming the Medicaid monster. Senate Republicans outlined an extensive series of possible savings in the "Reality Check" plan. Just as Medicaid spending accounts for a major portion of the budget, large savings are also possible by trimming the program.

For example, it is estimated that simply aligning Illinois' generous Medicaid benefits to the national average would save $1.6 billion. Other savings could be achieved by increasing patient co-pays, rolling back eligibility at the higher income levels, establishing asset tests across the board and reviewing optional services not mandated by the federal government.

There were also signs that the Governor's office may finally come to the table to negotiate genuine savings in the state's deeply-indebted pension systems. The Governor has announced a work group to negotiate further reforms to the systems.

The Governor's budget office plan also anticipates level funding for education through 2015. To achieve savings in education, Senate Republicans last year proposed reviewing all programs not related to basic education and mandated categorical grants, reforming the special education formula that benefits Chicago schools over other schools in the state and bringing under control the massive growth in the state's supplemental grants targeted to Chicago schools.

Other ideas Republicans put on the table last year included $90 million savings by eliminating questionable programs and agencies, reducing costs in the state's employee health insurance program, further reforms of the state's workers' compensation system and eliminating non-essential programs and policies put into place under former Governor and convicted felon Rod Blagojevich.