A short guide to the game of cutting the State Budget in 2012
Truly, this is an impossible year to be in Springfield, protecting programs and institutions. Everyone says so. From the Commission on Government Accountability and Forecasting economists to legislators with a heart to lobbyists in suits, the refrain is "prepare for the worst year ever."
The reasons are plastered over every newspaper and news show. First is the challenge of escalating Medicaid costs. Another problem is that the FY12 budget did not allocate enough funding so there is a build- up of back bills. By June, the Civic Federation of Chicago predicts that the total unpaid Medicaid bill will be $1.8 billion.
Second is the problem of meeting pension fund obligations. This year's payment for public pensions is $5.2 billion, triple what it cost in FY2008.
Third is the backlog of unpaid bills in the General Funds category. This does not include Medicaid or employee health insurance. The deficit is $5,668 billion, an increase from $976 billion, four years ago.
And finally, more Illinois citizens are requesting help. The recession is not over for many. The unemployment rate for Illinois was 9.8% in December, compared to the national rate of 8.5%.
The good news is that, according to the bipartisan legislative Commission on Government Accountability and Forecasting, the cumulative overall base revenue including federal sources is up by $1.684 billion over last year at the same time. This is primarily due to the higher income tax rates and the continued sales tax growth. If federal sources were excluded, the increase in revenues would be greater—some $3.470 billion. The bad news is that this barely covers the increase in payments into the pension fund.
The Governor and the General Assembly face the following situation. The revenue estimates are set at $33,719 billion. This is $500 million more than FY12 but not enough to cover current expenses, pay increased pension and Medicaid costs, and pay off old bills. Exactly what strategies will be used to trim the budget?
Like King Solomon, some will choose to apply a flat reduction across the board. "Let's just trim 9% from every budget. That is the fairest way to go." A thousand tiny cuts.
Not so fast, say some legislators. What about our programs that we value the most?
The response: invest in those programs that are the most significant for a healthy state. For Governor Pat Quinn, that was more money in early childhood education, community care for older adults, veteran programs, and the MAP scholarship program which helps low income students go to college.
That is not fair, say other legislators. What about the programs that bring jobs as well as services to my community?
The response: more money moved into programs in districts where legislators have the power to influence the appropriations process by refusing to sign onto an agreement unless their favorite programs are protected. Likewise, those programs—or facilities as it turns out in this proposed budget—in districts where the legislators aren't essential to getting to a budget deal become very vulnerable.
But what happened to the "Budgeting for Results" approach? Us good government gurus—members of the Governor's team, leading legislators, agency administrators and advocates alike—want a rational approach to our problem. When passed last year, this was embraced as a way to build public confidence in government-funded programs through using performance data in the decision-making process. The answer here is that it is too early to use this approach. Thoughtful, politically influential people are involved in moving BFR into reality. But there are many pieces in the process.
Medicaid reform? Policy leaders are looking for dramatic change. The Governor's challenge to the legislature, recommending $2.7 billion in cuts from the Medicaid, program is dramatic. (Please note that the $2.7 billion is actually half Federal dollars and half State dollars. The impact is $2.7 billion in less spending but only $1.35 billion in less spending on the State side.)
There are different ways to skin the Medicaid cat. One is to make it more difficult for people to qualify for Medicaid by lowering income levels or by restricting the level of need that makes an individual "eligible." The second approach is to eliminate or more tightly control utilization of "optional" services. A third approach is to reduce rates to providers. And finally, government could turn the whole business of paying for and managing health care over to managed care companies. Doubtless there are other approaches as well. All are in play. Each approach has its own interest groups, fighting to either maintain status quo or make changes according to their own agenda.
Pension reform? To understand pension reform, it is important to decouple the fiscal problems due to the state's failure to adequately fund the pension program over the past two decades from the question of the design (benefit levels, retirement age, required contributions, etc.) of a sustainable pension program for state and local government employees. Another question concerns the constitutionality of changing the design of pension program for current employees. Even if there was an agreement about pension reform passed this year, it might be years before it would have much impact on the budget because of the existing obligations.
In Springfield, sometimes it does feel like a game. It is a pleasure to watch those who are brilliant in their play. But, come May 31, the consequences will be very real.