Rauner Budget Doesn’t Use 'Pixie Dust,' But It’s Fanciful Nonetheless
Commentary: The governor's plan would rely on some iffy savings from shifting pensions costs to schools and universities and getting state workers to pay more for their health care.
To his credit, Gov. Bruce Rauner did not rely on "pixie dust and magic beans" - to quote state Comptroller Susana Mendoza - in proposing an ostensibly balanced budget for Fiscal Year 2019 that includes an additional $330 million for public schools.
Instead, the governor used less fanciful means to achieve a spending plan in which revenues actually will exceed expenditures by some $351 million come July 1, 2019. He simply penciled in some $1.5 billion in cost reductions that, to put it charitably, seem a little iffy.
Moreover, if one looks at the fine print in his 554-page operating budget, right at the bottom of page 62 one finds a projected budgetary deficit of $5.6 billion for FY '19. That's hardly a mark of a balanced budget under the traditional yardstick in use through most of the last 50 years, a comparison of the state's cash in the bank on June 30 to the bills remaining to be paid over the next two months. By that measure, Illinois has not had a positive year-end budgetary balance since its $300 million surplus in 2001.
Definitions aside, more problematic for Rauner are the savings he's booked from cutting state spending for teachers' and university pensions and for health care coverage for state workers and retired teachers. The governor wants to:
• Shift to suburban and downstate public school districts some of the cost of funding future pension benefits for their teachers, costing them some $262 million next year. The amount equals one-quarter of the districts' FY '19 normal costs, the amount needed to pay for future benefits earned during a given year. The current proposal is the first step toward the governor's ultimate goal, requiring the locals to contribute the entire normal costs each year.
• Require Chicago Public Schools to once again pay the full normal costs for their teachers, some $228 million in FY '19, thus undoing a key change that helped win legislative approval of last year's school funding overhaul. (Previously, the state contributed virtually nothing to the Chicago teachers' retirement fund, instead letting local property taxpayers shoulder the burden. All the while, the state poured billions - some of it income and sales taxes paid by Chicagoans - into the retirement kitty for teachers from every other school district in the state.)
• Pass on to state universities 25 percent of faculty and staff pension normal costs, some $101 million, plus $105 million in health insurance costs, for a total estimated hit of $206 million. Not to worry, though; the budget proposes offsetting grants to the schools, although Rauner's overall recommendation for higher education - $1.1 billion - remains some 10 percent less than the schools received in FY2015.
• Eliminate state assistance in paying health care costs for retired teachers, saving an estimated $129 million.
• Reduce health care coverage for state employees by some $470 million, chiefly by cutting benefits sharply and increasing premiums substantially. Health care is one of the key issues in the ongoing contract standoff between the Rauner administration and the American Federation of State, County, and Municipal Employees (AFSCME), the state's largest public workers' union, now in court.
To save even a nickel, though, the governor needs the legislature to revise existing statutes that spell out the state's pension and health care obligations, and maybe also a favorable court ruling that would let him cut state worker health care coverage over union objections.
Don't count on lawmakers falling in line, though, as they hear from constituents concerned about the potential harm of the governor's ideas.
Rauner's proposed shift in teachers' pension and health care costs certainly undercuts his claim of unprecedented funding levels for elementary and secondary education; in fact, for some school districts, the added cost could exceed the new money they'd get under the revamped formula, potentially forcing a harsh choice between raising property taxes or cutting programs.
But the governor told legislators making local school districts share in the pension costs of their teachers would give local officials greater incentive to lower costs, using "the tools they need to more than offset the costs," including "more flexibility in contracting, bidding and sharing services," Rauner-speak for neutering teachers' unions, a long-time goal the legislature's Democratic majorities are hardly likely to embrace.
"He claims to be investing more money in our public schools," said Dan Montgomery, president of the Illinois Federation of Teachers, which includes the Chicago Teachers' Union. "When you do the math instead of taking him at his word, you learn that the new money he's proposing today will be offset by additional costs he wants to impose."
The plan "actually puts less money into education," noted Senate President John Cullerton, a Chicago Democrat, adding the speech seemed "intentionally deceptive." In a leaders' meeting before the governor's address, Cullerton said, Rauner "said he wants to roll back taxes and put more money in education. Here's the problem. His budget does the opposite. He spends the entire tax increase. And he cuts money for education."
Republican critics also chastised the governor for building his budget plan in part on the $5 billion in new revenue from last year's income tax increase that he's railed against, with the sharpest reaction from Rep. Jeanne Ives, the Wheaton Republican who's challenging Rauner for the GOP nomination in the March 20 primary.
"Governor Rauner outlined a budget that relies on the same income tax hike that he promises to 'immediately roll back' on the stump," said Ives. "And his promised property tax freeze - as inadequate as it is - becomes a massive property tax hike once he pushes pensions back on local districts. Today, Rauner proved again that he has never made a promise he couldn't break."
Maybe Ives needs to be a bit more patient because Rauner did offer a possible rollback of one-quarter of one percent - equal to 25 cents less on every $100 owed - contingent once again on figuring some way around a unanimous Illinois Supreme Court ruling that pension benefits can't be cut.
"If you work with me to take the next logical step and pass true pension reform, we will be able to enact a nearly $1 billion tax cut, and start rolling back the income tax rate," the governor promised.
If - a very big if - a magic formula can be concocted to undo the 2015 high court ruling, a skeptic might suggest a better use of that $1 billion windfall would be to start paying down some of the bill backlog, which stood at $8.9 billion the morning of Rauner's address and was virtually ignored during his 35-minute talk.
And a realist might suggest what's truly needed to cure the state's fiscal woes is not just cutting taxes, but rather broadening the tax base and doing some serious belt-tightening. Indeed, such a strategy was outlined by The Civic Federation, hardly a bunch of tax-and-spenders, the week before the budget address.
In its FY2019 Budget Roadmap, the nonpartisan fiscal watchdog stressed the need to control spending, calling for restricting annual agency spending growth to 2.1 percent for at least the next five years.
"But more revenue is also needed to close the FY2019 operating deficit, pay off the State's accumulated bills and address Illinois' other pressing challenges," the federation noted. Its recommendations included expanding the income tax base to cover all federally taxable retirement income, which would bring in an estimated $2.5 billion in FY2019, growing to $2.9 billion over the next three years, and extending the sales tax base to 14 additional services now taxed in Wisconsin, good for more than $200 million next fiscal year, rising to an estimated $588 million by FY2021.
Anyone who's spent any time watching Illinois government, though, won't be surprised when such sound advice is ignored by a governor and lawmakers focused on the coming elections.
Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois Springfield.
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