Just as Illinois citizens want to know when federal stimulus money will trickle down to help them pay their mortgages or open the door to jobs, state officials want to know when the money will help them avoid drastic cuts to services or painful increases in state taxes.

Illinois likely will have to do both. The amount of money that state government expects to receive — about $9 billion, depending on the source of the estimates — won’t be enough to meet the needs of a decade of infrastructure projects, a $5 billion backlog in unpaid bills and a deepening deficit made worse by decreasing revenues.

Some good news is that the White House estimates the stimulus could help create or save as many as 148,000 jobs in Illinois throughout the next two years. 

But because the state’s needs exceed its means, Gov. Pat Quinn and legislators will have to tread carefully as they divvy out the money.

The man overseeing the effort is Jack Lavin. As Quinn’s chief operating officer, he also manages the overall effort to put the state back on the road to economic recovery. In particular, Lavin says the stimulus funds have to be coupled with a major capital construction program to build and repair roads, bridges and schools.

“To really get economic recovery, we need a capital bill, and we need to make sure that the regular operating budget of the state is balanced and that we’re marshaling all the resources — stimulus, capital, operating budget of all the agencies — toward economic recovery. I mean, that’s the only way we’re going to do it.”

According to Lavin, about $2 billion of the stimulus funds could help ease the state’s deficit in each of the next two years. Projections of the deficit, however, are as high as $11.6 billion.

“Clearly the economic stimulus is going to help, but it’s just one piece of putting together a budget that has a significant deficit,” he says, pausing to add: “Maybe significant isn’t a strong enough word. This is unprecedented in Illinois history, and it’s going to be tough.”

Anticipation of the federal funds sparks a few concerns among legislators. In addition to knowing the stimulus funds aren’t enough to help the state heal from the recession and underlying deficit, lawmakers also fear that the one-time influx of federal cash will build a false sense of hope that the state will be able to maintain the higher levels of funding once the federal money runs out. Agency directors also project that they’ll need to hire more staff to handle the increased workload.

Whether the state can maintain higher levels of funding beyond the next two or three years is a concern among Democrats and Republicans alike. 

GOP?Sen. Matt Murphy of Palatine spoke during a late February legislative committee hearing about the stimulus package: “We’re going to get all this money coming in, and it’s coming in at one time. Are there strings attached to some parts of this that require us to start a new program here or expand a program there, that we’re going to be living with indefinitely and, at some point, the state’s going to have to fund?”

Concerns similar to Murphy’s resonate across the country, according to Carl Tubbesing, deputy executive director of the National Conference of State Legislatures based in Washington, D.C. 

“The theory, of course, behind it is that if the federal government provides this money over the first couple of years, state economies will start to improve, and they would be able to assume some of these costs. But a lot of legislators are worried that they’ll make these commitments and build expectations, and then the money goes away, and they’ll have to deal with that in their budgets in a couple of years.”

The arrival date of the federal funds depends on which bucket of money they are coming from and which projects they would fund. Some of the rules also require the governor’s office to file statements about the intended use of the money and the level of state funding dedicated to the projects.

Other portions of the federal stimulus will go directly to local governments, meaning they won’t necessarily affect the state’s budget for day-to-day operations.

The consolidated time frame for some of the spending also raises some red flags for legislators, particularly as frustrations from the administration of former Gov. Rod Blagojevich spill over to this administration. Lawmakers warn Quinn, who was lieutenant governor under Blagojevich but whose leadership style drastically differs, that the legislative branch needs to have a say in how the money is distributed.

“It’s not news that this past administration, it was not known for being very transparent and accountable,” Sen. Martin Sandoval, a Chicago Democrat, said to Lavin during a February committee. “In fact, that’s why he’s gone.”

When learning how the Illinois Department of Transportation formed its list of “shovel-ready” projects, Sandoval said: “The government is broken, and the systems and the processes that have been used over the last six years don’t work, shouldn’t work, and we shouldn’t be using them. And so there should be leadership from the governor’s office, from your office, demanding transparency and accountability in the prioritization process before we get notified.”

Lavin emphasizes the administration’s desire to make the process transparent and accountable, forming partnerships with lawmakers and agency officials. He adds that Quinn has made it clear that he wants his administration to work closely with lawmakers and, in fact, has regularly met with legislative leaders.

The other half of the battle is to win the confidence of the general public, Lavin says, so they feel good about what state government is doing and start to spend money.

“The only way we’re going to get out of this is by working together.” 

Three areas the legislature has closely studied include transportation, education and Medicaid. Here are some details:

TRANSPORTATION
Some stimulus funds come with strings attached, as well as use-it-or-lose-it provisions.

The Illinois Department of Transportation, for instance, must indicate to the feds by July the amount of state dollars designated for specific projects. Then Congress will come through and sweep any money that’s left over, according to Christine Reed, director of highways and chief engineer for the department.

“We do not want to lose those federal funds. We’ve been very, very aggressive to make sure not only do we not lose that federal money, but we’re first in line to say, ‘Hey, give us Mississippi and Montana’s money ’cause we’re ready to go,’” she told Illinois senators in late February.

The department expected to receive $400 million by the end of March. In total, it expects to receive about $936 million for roads and bridges. Still, Milton Sees, former secretary of transportation, said in late February that the stimulus funds were “woefully inadequate” to meet all of the state’s road construction needs.

Federal legislation dictates that 30 percent of the transportation funds must be set aside for local agencies. Reed said that amounts to about $281 million, most of which will be directed to major metropolitan areas. Some will be available for rural areas.

A majority of the first wave of transportation projects will resurface dilapidated roads, which are considered short-term projects. The second wave of funding could allow for longer-term projects that, for instance, could improve traffic congestion at busy intersections.

But the more complex the project, the more engineering and design work required.

The Federal Highway Administration already sent a letter to Quinn and department officials stating concerns that the agency would not have enough staff, such as engineers, to manage the number of large projects funded through the stimulus.

Reed said in February that the agency is rehiring some retirees or temporary contract workers to handle the increased workload.

EDUCATION
The governor will have discretion over how to spend certain portions of the money. One example is increased education funding.

“What you find is that the federal bill gives the parameters in areas, but there will be a significant amount of discretion at the state level as to, say, how much goes to K-12, how much goes to higher ed,” Judy Erwin, executive director of the Illinois Board of Higher Education, said in late February. “Those are going to be policy decisions.”

The governor’s office has encouraged state agency directors to be as creative as possible, she said. “We don’t exactly know what the federal rules are going to be, but I think we’re all going to try to push the envelope as far as we can.”

State education officials for elementary, secondary and post-secondary levels expect to receive more than $2 billion of stimulus funds over two fiscal years. But that won’t meet the need. 

Christopher Koch, state school superintendent, estimates that K-12 institutions statewide need about $2 billion for construction and an additional $2.5 billion to bring the amount spent per-student in line with recommendations of an independent state panel, the Education Funding Advisory Board.

The stimulus funds won’t pay for construction of new school buildings, although they could fund rehabilitation or renovation of existing schools.

Many of the schools, including higher education institutions, haven’t received state aid payments since September, and public universities and community colleges experienced a midyear 2.5 percent recision in funds this winter.

“So regardless of what the budget book says, they’re looking at having to borrow money to meet payroll, possibly, just because there just isn’t any money,” Erwin said.

The education portion of the federal stimulus package was written with states such as California, not Illinois, in mind, Erwin said. She and Koch told legislators in late February that federal rules intend to ensure that all public institutions are funded at 2006 levels. Because Illinois has increased funding each year since 2006, they said Illinois may capture less money than other states.

The effort to be creative could include some risk. 

Erwin and Koch say the state could be allowed to temporarily divert money away from public education to trigger the flow of more federal stimulus funds that could backfill the hole. But they don’t recommend it, and it would require federal approval.

Sen. Dave Syverson, a Rockford Republican, said during the committee hearing that local school officials expect funding increases that they may never see. “They’re not going to be getting huge increases over what they got this year.”

Sen. James Meeks, a Chicago Demo-crat, added, “It seems quite amazing that we are the only people who can get billions of new dollars, hundreds of millions of unexpected dollars, and at the end of the day, end up at a net loss.”

In addition to “stabilization” funds for education, the stimulus will grant about $420 million to local districts based on the number of students living in poverty and the number of students enrolled. 

But the portion of the stimulus funds that could be used for technology, early education or special education might not start trickling down to schools until the 2009-2010 school year, according to Koch.

That could be too late for school districts as they draft their budgets for the next fiscal year and try to figure out whether they need to lay off staff, says Rep. Roger Eddy, a Hutsonville Republican and a school superintendent.

One bright spot is for higher education, which will get a significant boost in the Federal Pell Grant Program that provides needs-based grants to low-income undergraduate students. The maximum grant amount is increasing from $5,350 this school year to $5,550 in 2010 and 2011.

Stanley Ikenberry, former president of the University of Illinois and a current professor with an appointment with the Institute of Government and Public Affairs, says increased student financial aid will become even more important as public and private institutions consider raising their tuition and fees to compensate for losing as much as 50 percent of the value of their endowments from stock market declines.

During Blagojevich’s administration, students of all income levels in Illinois have paid more in tuition as state funding levels for higher education decreased, Ikenberry says. 

For instance, Glenn Poshard, president of Southern Illinois University, said last month that the institution received $9 million less this year than it did eight years ago, and tuition has nearly doubled since 2004.

MEDICAID
The state could receive $2.9 billion in federal Medicaid reimbursements, which pay hospitals, nursing homes and long-term care providers that care for low-income and disabled patients.

The feds also are offering a temporary increase, from about 50 percent to about 60 percent, in the rate at which the state is reimbursed. But it’s all predicated on the requirement that the state pays medical providers within 30 days of receiving the bill. 

That’s a tall order for Illinois, which is on its way to a record high backlog of $3 billion in overdue Medicaid bills, according to Comptroller Dan Hynes. He says providers are waiting as long as 10 months for payment. 

Hynes worked with Democratic Sen. Jeff Schoenberg of Evanston to advance a plan that would use an existing Medicaid program to earn the enhanced reimbursement rate, potentially capturing an extra $160 million that could help pay nursing homes, long-term care facilities and services for the developmentally disabled through 2010.

“The federal stimulus plan, in addition to giving us a chance to recoup hundreds of millions of dollars in additional funds — billions of dollars, actually — it is causing us, forcing us, to come into compliance with something that Sen. Schoenberg and I have been fighting for years, which is to pay our providers on time,” Hynes says. 

Sen. Dale Righter, a Republican from Mattoon, says one concern is that the influx of Medicaid dollars could entice legislators to create new programs that the state can’t maintain. 

“It’s clearly not a good move when you’re leaving the Medicaid providers out there to hang, if you will, trying to borrow money from banks or whoever it might be to stay afloat.” ?

The highlights

According to early estimates, Illinois could receive about $7 billion for programs and state operations. That includes funding for existing programs:

• $2.9 billion for Medicaid.
• $2 billion for school aid.
• $110 million for workforce investment programs.
• $276 million for “green” jobs and weatherization programs.

The stimulus package also could bring in about $2 billion for infrastructure and capital construction projects:

• $935 million to rebuild highways and bridges.
• $371 million for transit assistance.
• $260 million for wastewater and clean drinking water projects.
• $222 million for public housing.
• $24 million for education technology.
• $110 million for energy programs, some of which could be used for operations and some of which could be used for construction.

The state also will be able to compete for grants in a number of areas:

• Mattoon could compete for funding to rekindle the first-of-its-kind clean-coal FutureGen project.
• Homeland security, broadband infrastructure and Army Corps of Engineers projects also could be eligible for grants.

Statehouse Bureau Chief Bethany Jaeger

Bethany Jaeger is Statehouse bureau chief of Illinois Issues magazine. She is responsible for reporting and writing news and analysis on state government and politics. She edits the People section of the magazine. She's news editor of the Web Site and writes the magazine's Statehouse blog. She has been a health reporter for The Herald & Review in Decatur and was managing editor of The Chronicle of Hoopeston. She has a bachelor's degree in journalism from the University of Illinois at Urbana-Champaign and a master's degree in public affairs reporting at the University of Illinois at Springfield. She joined the staff January 2006.

Illinois Issues, April 2009