Commentary on Gov. Quinn’s budget address

This week, Gov. Quinn submitted his budget proposals for fiscal year 2013, which starts July 1, 2012. The governor said that the state’s “rendezvous with reality has arrived.” But while the governor recognized the state’s problems, he offered few concrete reforms on how to solve these problems. Below is the Institute’s commentary on Gov. Quinn’s...

This week, Gov. Quinn submitted his budget proposals for fiscal year 2013, which starts July 1, 2012. The governor said that the state’s “rendezvous with reality has arrived.” But while the governor recognized the state’s problems, he offered few concrete reforms on how to solve these problems. Below is the Institute’s commentary on Gov. Quinn’s budget address.

Another Budget FAIL?

• Spending continues to climb. What Illinois needs is to reform spending and significantly pay down the billions in unpaid bills. However, Gov. Quinn’s budget does just the opposite. His proposed budget for fiscal year 2013 increases state spending by $212 million to $33.939 billion, up from $33.727 billion during fiscal year 2012. Of the $33.939 billion in spending, $162 million is going to pay down bills.

But these numbers underestimate actual state spending. Without significant Medicaid reform, the fiscal year 2013 budget will actually be closer to $36.5 billion. (The Medicaid section below details how last year’s budget did not appropriate funding for nearly $2 billion of Medicaid liabilities, bringing the actual fiscal year 2012 budget to nearly $36 billion. A similar problem could occur in fiscal year 2013.)

Illinois’ spending has been spiraling out-of-control for years. From 2000 to 2010, state per capita spending grew by 71 percent, more than twice Illinois’ growth in GDP per capita. Simply put, state spending is growing much faster than the economy that supports it and significantly more than the rate of inflation. Illinois needs a real balanced budget and an honest spending cap in order to break the cycle of spending beyond its means.

• Spending lower than 2008? Gov. Quinn touted that spending in fiscal year 2013 would be lower than in fiscal year 2008. But an examination of those figures reveals that while 2013 agency appropriations will be a mere $30 million less than in 2008, total operating expenditures and transfers out will be $3.4 billion larger than in fiscal year 2008. It doesn’t make sense to take credit for cutting spending on agencies, when overall spending is increasing. While Quinn may claim that he’s rolling back to 2008 levels, the reality is that pensions are crowding out agency appropriations and leaving less money for core government services.

• The cycle of unpaid bills continues. The state is stuck in a cycle of spending beyond its means. The governor’s budget does practically nothing to solve the state’s backlog, paying down only 3 percent of the state’s nearly $5.2 billion in unpaid bills. Without significant spending reforms, the state will never be able to dig itself out of the spending hole it has created.

• Quinn’s spending plan will cement the January 2011 “temporary” tax hikes. The income tax hike passed by the legislature in January 2011 is scheduled to partially sunset in 2015. If the governor intended to uphold the promise to sunset a portion of the tax hike, state spending would need to be at a much lower level in order to pay down bills. But rather than treating this temporary tax hike as temporary, the governor is setting the state up to face a major revenue reduction when the tax hike is scheduled to sunset. This will create the appearance of a “crisis,” leading the governor to ask for permanently higher taxes. Springfield’s promises of a sunset will be broken with this proposed budget.

Strong rhetoric, empty words

• Pension reforms are necessary. At the start of the year, the Illinois Policy Institute released a series of reports entitled, “Pensions vs. schools,” showing how pension costs are crowding out other state spending items, such as education. Gov. Quinn highlighted this unfortunate situation, warning: “We must stabilize and strengthen our pension systems to prevent them from swallowing up our core programs in education, health care, and public safety and to ensure that we can pay all our bills.”

  To address this crowding out problem, comprehensive pension reform is necessary. Gov. Quinn acknowledged that the state needs to address three important pension costs: retiree health care costs, cost-of-living-adjustments for retirees and costs for non-state employee pensions.

But instead of giving strong support to a particular solution, the governor has created a pension panel. The pension crisis is not a new problem. The legislature has been debating these issues for multiple years. State leaders know the problems, as well as the solutions. Those who don’t want reform have failed to offer alternatives.

• Reforms on Medicaid left vague. Gov. Quinn emphasized that Medicaid must be reformed in order to continue, but failed to offer detailed solutions or ideas. If the state continues on the same path, we can expect the same results experienced in fiscal year 2012. After the state budget passed last year, legislators and the governor were trumpeting the austerity of the budget and the spending cuts they made. But that budget did not appropriate enough funding to cover the state’s actual Medicaid liabilities, which the state would incur, regardless of appropriations. The Illinois Policy Institute outlined the budget trick in two briefs last year: “Budget FAIL” and “Medicaid FAIL.” The governor acknowledged this problem: “Last year’s appropriation by the General Assembly for Medicaid fell $1.9 billion short of what Medicaid actually cost. Illinois is the only state that intentionally kicks its current Medicaid bills into future fiscal years.” Interestingly, the governor failed to take any responsibility for this failed budget – which he signed.

In this budget, the governor holds general revenue fund spending on Medicaid flat even though liabilities are expected to increase $600 million. If the governor would like to keep unpaid bills from growing while holding Medicaid spending flat, he will need to cut $2.9 billion from Medicaid. He mentioned cutting reimbursement rates, but this has proven ineffective in the past. Illinois already has the lowest reimbursement rates in the region. Cutting rates will force even more doctors to turn away patients on Medicaid, hurting care for the poor – the very people Medicaid was meant to protect. The governor also mentioned cutting eligibility and services, but did not lay out a major reform plan. In fact, the governor left Medicaid line items blank in his budget document. He failed to make real proposals.

Additionally, his Medicaid funding sources are higher than agency estimates released last month. In this budget, Gov. Quinn expects $4.69 billion from the Healthcare Provider Relief Fund, Drug Rebate Fund, Tobacco Settlement Recovery Fund, LTC Provider Fund and the Hospital Provider Fund. But the Department of Healthcare and Family Services only expects $1.766 billion from those funds – $2.9 billion less than the governor’s estimate. The governor needs to account for these differences.

Gov. Quinn should refocus Medicaid to those most in need. In 2000, Medicaid covered 1 in 8 Illinoisans. By the end of this decade, 1 in 3 Illinoisans will be on Medicaid. It has ballooned from a safety net into a middle class entitlement. Instead of trapping people into government dependency, Illinois should help the poor buy private health insurance and empower them to make healthy, cost-conscious decisions.

More of the same

• Gov. Quinn continues to look for more revenues. Despite receiving an additional $7 billion in revenues from the 2011 record tax hike, the state budget plans for additional “loophole revenue.” The governor said “many of these loopholes are based on politics, not economics.” But was it politics or economics when the governor hiked taxes on families and businesses while giving sweetheart tax deals to favored corporations like Sears, Motorola and the Chicago Mercantile Exchange? The governor claims that closing loopholes will generate revenues for targeted relief to individuals and businesses. A better solution would be to lower taxes for everyone and have an even playing field without special deals or tax credits.

• Education reform not mentioned. In one of the largest expenditures in the budget, education, Gov. Quinn will not cut spending. Despite record dollars going into education, and worsening results, the governor is not embracing reforms such as charter schools and other forms of parental choice which could improve outcomes while reducing the cost to taxpayers. Dumping more money into a failing system is not the answer. Illinois’ children deserve better – they deserve the choice to escape failing schools and the opportunity to attend schools that meet their individual needs.

Gov. Quinn ended his speech by saying “And together we will make the will of the people the law of the land!” If Gov. Quinn is truly concerned about the will of the people, he would focus on repealing the 2011 income tax hike. In a January 2012 poll, 68 percent of voters opposed the income tax hike, and 53 percent of Illinois voters believed the tax hike should be repealed immediately.

The bottom line: This budget proposal will not give confidence to voters that Illinois is serious about fixing the state’s problems. But at least the governor has now acknowledged Illinois has a problem.