This is the Illinois Policy Institute’s fourth annual alternative vision for Illinois. In this report, we’ve charted a path that significantly reduces the state’s backlog of bills without borrowing and without new taxes, while meeting its pension liabilities. In addition, the state returns billions of dollars to taxpayers by repealing the January 2011 tax hikes. Our vision allows for an Illinois that puts taxpayers first, restrains state spending and puts the state back on the path to fiscal solvency.

In previous editions of Budget Solutions, the Institute has crafted viable, line-by-line alternatives to the plans advanced by the governor and the legislature. Each year, we proposed reforms that would have erased deficits without a tax hike. Lawmakers instead chose to continue taxing and spending, and today the state’s backlog of bills has climbed to $8.5 billion. Now is the opportunity to end Illinois’ legacy of fiscal mismanagement and chart a new course. Budget Solutions 2013 offers one such course.
Accountability all-around ($3.5 billion in savings)

Transform school funding. Potential savings: $1.1 billion

• Amend the General State Aid formula to eliminate state subsidies for school districts in communities with property tax caps and those in Tax Increment Financing districts.

Local pension accountability. Potential savings: $800 million

• School districts should be responsible for the cost of their employees; the state should not pay for the pension costs of non-state employees.

End non-transparent state funding to local governments. ?Potential savings: $1.6 billion

• In conjunction with a repeal of the tax hike, Illinois should eliminate most transfers out of the General Revenue Fund. The largest of these transfers, the Local Government Distributive Fund, allows local governments to increase their budgets without directly taxing residents to pay for them. This reduces the accountability of local officials and the transparency of local government finances.

Sensible spending ($1.9 billion in savings)

Overhaul Medicaid. Potential savings: $1.7 billion

• To ensure Illinois’ Medicaid program provides the most vulnerable population with access to quality health care, Medicaid’s fee-for-services program must transform into a sliding scale premium assistance program, paired with health savings accounts for nonelderly and nondisabled patients. Illinois also should revisit eligibility requirements.

Introduce Competitive Grant Funding. Potential savings: $200 million

• Programs could vie for the state’s scarce resources based on program effectiveness and need from a pool of $150 million; therefore, every item whose final 2012 funding is $5 million or below will not receive any automatic funding, but is qualified to earn its funding through a proposed program called Competitive Grant Funding.

Realignment with reality ($1.6 billion in savings)

Reform state retiree health care. Potential savings: at least $425 million

• To contain skyrocketing retiree health care costs, the state must institute the following reforms: increase retiree contributions toward premiums, cap retiree subsidies and end retiree health benefits for new hires.

Reform human services. Potential savings: $500 million

• Illinois cannot afford the level of human services it is currently promising; therefore, Budget Solutions 2013 reduces human services funding by $500 million and increases transparency, efficiency and accountability while ensuring that those in need will have access to the core services they require.

?Rightsize state employee pay. Potential savings: $520 million

• State employee compensation is out of balance with the private sector; to restore some equity to state employee compensation, salaries should be reduced by 10 percent, which could save the state approximately $520 million in fiscal year 2013.

Reform pension cost-of-living-adjustments. ?Potential savings: $120 million – $150 million

• Reforming COLAs will help make the pension system sustainable and protect government retirees by having an immediate and significant impact on Illinois’ underfunding problems. Illinois could have upwards of a $10 billion in savings for the state government – money that could instead be spent on education or human services, or returned to taxpayers.