Illinois Issues: The Budget That Wasn't
The governor describes the stopgap budget as a bridge to reform. But it could also be called an excavator — digging the state’s fiscal hole deeper.
After the House and Senate approved a stopgap budget at the end of June, Gov. Bruce Rauner and Republican legislative leaders held a news conference in front of his office touting the plan meant to prop up the state for another six months or so.
“Today’s a good day for the taxpayers because we stopped the Democrat majority from passing a $7 billion unbalanced budget on the people of Illinois and every taxpayer. So the taxpayers won,” House Minority leader Jim Durkin said, referring to an earlier budget proposal backed by Democratic House Speaker Michael Madigan. According to Rauner’s budget office, if Madigan’s plan had been tacked onto the billions the state is spending under legal agreements and court orders, it would have sunk Illinois $7 billion in the red by the end of the current fiscal year.
Senate Minority Leader Christine Radogno praised the temporary budget as “affordable” without any increased taxes. The plan calls for funding K-12 schools through the entire fiscal year. It will tap some special funds for higher education and social services agencies. Universities and colleges got roughly 30 percent of usual funding last fiscal year, and social service agencies haven’t received payment for programs the state is not required by court order to cover. This money is expected to partially backfill for the lack of funding last fiscal year and carry colleges, universities and social service providers through half of the current fiscal year.
How does Rauner explain putting his signature on legislation that would leave the state $8 billion in the hole? He simply refuses to call the spending plan a budget. If it's not a budget, it can't be unbalanced. Right?
Additional funding for the stopgap budget will be found through a few one-time-only maneuvers, including waiving the requirement that $480 million already borrowed from special funds be repaid and spending down the state’s rainy day fund. Like the budget plan floated by Madigan, the stopgap will piggyback on court-ordered spending already in place.
“There is no honeypot of money out there. Everything must be paid for,” Radogno said. She may be right about the lack of a honeypot of money. But under the stopgap budget plan, everything is certainly not paid for. An analysis from the bipartisan Commission on Government Forecasting and Accountability found that, if nothing changes, the plan would leave the state nearly $8 billion in deficit for the current fiscal year.
At that news conference, Rauner reiterated his past claim that he would never sign an unbalanced state budget. “I’ve been very clear on two things from day one, and those two things aren’t changing, and they won’t change. One is: I will not sign off on an unbalanced budget, and I’m not going to. And number two: I will not sign off on any new taxes without meaningful structural reform,” he said.
So how does Rauner explain putting his signature on legislation that would leave the state $8 billion in the hole? He simply refuses to call the spending plan a budget. If it’s not a budget, it can’t be unbalanced. Right? “This is just a small step in the process of making Illinois strong and healthy and vibrant. This is a small step in the right direction. This is not a budget. This is not a balanced budget. This is not a solution to our long-term challenges. This is a bridge to reform. That’s what this is,” Rauner said. When asked directly about the shortfall, he points to the state's long history of bad budget decisions, saying he can't recall a time when Illinois did have a balanced budget.
“It’s not even close to being balanced,” says Richard Dye, co-director of the Fiscal Futures Project at the University of Illinois Institute of Government and Public Affairs. “What was passed was with either optimism or ignorance of what revenues were actually flowing in. So it’s not clear that everything that was approved in the stopgap budget can be funded because the cash flow through the state through the comptroller’s office is just not sufficient.”
Earlier this month, Comptroller Leslie Munger announced that she expects that state to wrap up the calendar year with a $10 billion stack of unpaid bills. That’s about $3 billion more than what the state owed last year at the same time. Munger said passage of the stopgap budget might give the impression that the state will begin paying down its overdue bills in a timely fashion. “Unfortunately, this is not the case because in addition to having the legal authority to make state payments, we must also have the necessary dollars to make those payments. And sadly, cash flow will remain extremely limited for the time being (and) for the foreseeable future.”
Munger said she plans to fast track payments to those who didn’t receive any for all of last year. “While the stopgap is a positive step forward, it is a very short-term step. It does not address our larger financial issues and our limited available cash. Nor does it provide a predicable funding stream that would allow organizations throughout our state that rely on state funding to plan and budget for the coming year.”
The passage of the short-term budget also did not reassure social service agencies who haven’t received payments for services they provided under contract with the state. The Pay Now Illinois coalition is a group of nearly 100 such providers who are suing the state to try and make it pay up. Andrea Durbin, who is chair of the coalition and chief executive officer of the Illinois Collaboration on Youth, says that in the lead up to passage of the budget, she got several calls from providers considering joining the suit. The group recently added 17 new plaintiffs. “It’s telling to me that ... more organizations wanted to join even after the stopgap was signed, and that, I think, says something about how people are really feeling about how certain that solution is or might be.”
Moody’s bond rating agency also seemed to indicate how certain of a solution it viewed the stopgap budget to be. Shortly after it passed with its $1 billion in operating funds for higher education, Moody’s downgraded the credit ratings of Eastern Illinois University, Governor’s State University, Northeastern Illinois University and Northern Illinois University. Illinois typically funds higher education to the tune of nearly $2 billion a year. Last fiscal year, universities and community colleges only got $600 million.
We've hit the bottom. This is the low point in the evolution of Illinois. And now, we begin to move up.
Durbin says the groups in her coalition, which doesn’t begin to cover all the providers owed, could lay claim to roughly 40 percent of the money currently in the key special fund meant to cover human services spending in the stopgap budget. Overall, the plan calls for providers to get roughly 65 percent of the money that would typically be needed to cover for last fiscal year and six month of the current fiscal year.
But the group’s suit says that because of the state’s cash flow problems, providers are worried about whether they will receive any money for last fiscal year, or if they get payment, that it might only cover a small percentage of what they spent. “It is impossible to tell whether many of the plaintiffs will be paid at all for any of their costs in fiscal year 2016. And if they are paid anything at all, it may be no more than 20 percent, 15 percent, 10 percent or even five percent of these contracts that have now been fully performed,” the complaint says.
Most of the agencies suing have also signed on to new state contracts for the current fiscal year. According to the lawsuit, these new agreements require a similar level of services, even though most providers have had to make cuts, including layoffs. The suit claims that if a court doesn’t make the state pay, “all of the plaintiffs will suffer a grievous downgrading of their capabilities: and in the next 60 or so days, at least some will collapse. Even for those who do not collapse, they will be unable to rehire professional staff, or restore programs to carry out service requirements for fiscal year 2017. The State’s infrastructure for providing human services is, without exaggeration, in severe jeopardy.”
The stopgap plan gave spending authority to pay for things that weren't being funded without a budget, and it allowed the state to tap into some special funds and sources of money. But Illinois still can’t afford to pay for all the education, health care, social services, pension payments, bond payments, and other costs it incurs on a daily basis. Instead, it has now begun its second fiscal year of spending like the temporary income tax increase is still in place, even though tax rates have rolled back.
“The state needs new revenues if anything close to current programs are going to be maintained,” Dye says. “The longer we wait, the bigger the hole, the bigger the negative side effects of any solution.” The backlog will pile up. Deeper cuts and higher taxes will be needed to fill the widening budget gap. Because social service agencies, universities and community colleges are on unequal fiscal footing heading into this fiscal year, some will continue to struggle even if they do receive payment.
While the stopgap budget in many ways appears to prolong and possibly even deepen the state’s fiscal calamity, the state’s leaders generally say they see it as a glimmer of hope that a grand bargain can be reached after the November general election. Although opinions on how that bargain might be reached appear to diverge along political lines.
Shortly after the stopgap budget was approved in the House, Madigan described it as “very important work” that was accomplished after “serious compromise and good-faith efforts.” He said that the plan is proof that Democrats and Republicans can work together to get a budget passed. But he went on to say that previous efforts at putting a comprehensive budget in place were foiled by Rauner’s insistence that some parts of his so-called Turnaround Agenda become law before he will consider a tax increase. “The difference today is that the governor has dropped his demand that his agenda be considered before a budget could be approved,” Madigan said on the House floor after the stopgap passed.
Rauner described the bipartisan deal as an important exercise in trust and relationship building. He said that the state’s worst days are now behind it. “I believe and I firmly hope that right now we’ve hit the bottom. This is the low point in the evolution of Illinois. And now, we begin to move up.” In the months following the approval of the temporary budget, the governor has continued to push for his agenda, saying he would never cease to try to change what he describes as the gradual decline of the state. Just this week, he renewed his call for lawmakers to approve a constitutional amendment that would limit the number of terms legislators can serve.
Radogno says that overcoming partisan gridlock, even if just to pass a temporary plan, was an encouraging breakthrough. “I think that we’ll continue this kind of model of cooperation.”
Munger joins her fellow Republicans in looking on the bright side. “No one can deny that we have serious financial problems in our state. It is long past time that we all accept responsibility for the decisions of the past and work hard and diligently on the road to recovery.” She says the first step on that road is the “passage of a comprehensive balanced budget,” and she thinks lawmakers and the governor can build off the collaborative work that went into passage of the temporary budget. “I’m an optimist, and I believe that all of this is possible.”
But Dye’s view falls on the other end of the spectrum. “I come at this somewhat pessimistically. … It’s hard to be optimistic. Even if there were new revenue sources, are they sufficient to pay down the backlog? Are they sufficient to catch up … the extent to which different agencies have not been funded for a year and a half?”
Dye says he expects that if a budget deal is reached after November, it will rely on accounting gimmicks and push some costs into future years because trying to completely tackle the deficit would be virtually politically impossible. “We really are in a position where things have gotten so bad that we can’t have expectations of taxing and spending levels kind of what they were like in recent years. Things have to change in terms of the nature of government and what people expect to have to pay or expect to get. “