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State of Illinois Recommended Budget Analysis

State of Illinois Recommended Budget Analysis

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Published by Zoe Galland
State of Illinois Recommended Budget Analysis
State of Illinois Recommended Budget Analysis

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Published by: Zoe Galland on May 10, 2013
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10/01/2013

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The Civic Federation supports the following aspects of the Governor’s FY2014 State of Illinois
budget.

Governor’s Prioritization of Pension Reform

The State of Illinois has underfunded its pension funds for decades, promising employees future
benefits that it cannot afford to pay. The State’s obligations under its current pension funding
law, combined with debt payments on past borrowing for pensions, will consume nearly 25% of
State-source General Funds revenues in FY2014 and grow to approximately 35% by FY2033.
Yet if the State scales back its contributions and devotes more resources to current services, the
pension funds face insolvency.

Public pensions should offer retirement security to employees and be affordable for taxpayers.
The Governor, for the second year in a row, has publicly stated that without comprehensive
pension reform the State will not be able to meet its obligations to retirees and continue to
properly fund essential government services.

The Civic Federation supports the Governor’s call for comprehensive pension reform as part of

the FY2014 budget.

The Governor has publicly supported Senate Bill 1 as amended in the House, which would
stabilize the State’s retirement systems over the long term and includes shared sacrifice by
current employees, retirees and taxpayers.3

It appears to be a strong plan based on actuarial

reality.

The proposal includes a 100% funding goal and follows actuarially-based best practices for
pension funding. It includes a common sense limit on an unaffordable benefit enhancement—the
compounded automatic annual increase of 3%—as well as a phased-in increase in the retirement
age to 67, a cap on the salary on which a pension is based and a two percentage point increase in

workers’ contributions.

The Civic Federation supports reforms similar to those included in SB1 as amended in the
House. Without comprehensive pension reform, these costs will continue to outpace revenue
growth and lead to further reductions in agency operating funds.

Governor’s Transformation of the Medicaid Program

The Civic Federation supports the Governor’s efforts to transform the Medicaid program. The
Illinois Department of Healthcare and Family Services (HFS) is moving to enroll two-thirds of
recipients in managed care by January 2015.4

Managed care is designed to improve the quality of
care and lower costs by rewarding healthcare providers for keeping people healthy, rather than

3

Governor Pat Quinn, “Statement from Governor Pat Quinn on Illinois House’s Passage of Historic and
Comprehensive Pension Reform,” news release, May 2, 2013.

4

Illinois Department of Healthcare and Family Services, Care Coordination Roll-Out Plan, January 2013-January
2015
, November 29, 2012.

DRAFT – EMBARGOED UNTIL 12:01 A.M., MONDAY, MAY 13

7

tying payment to the volume of services provided. The agency’s target for managed care

enrollment exceeds the 50% requirement in a Medicaid reform law passed in 2011.5

The State is also working on another goal of the 2011 legislation: reducing reliance on
institutional care for the elderly and disabled. The effort to move elderly and disabled residents
from institutions to community settings and keep them out of nursing homes—known as
rebalancing—complies with the Supreme Court’s Olmstead opinion.6

The State closed its
Jacksonville Developmental Center in November 2012 and is in the process of closing the
Murray Developmental Center. According to State officials, it costs an average of $200,000 a
year for a resident to live at Jacksonville, compared with an average of $84,000 in a smaller
community setting. The State is also implementing consent decrees relating to three federal
lawsuits challenging its provision of services to the disabled.

The State is facing a decision on whether to expand Medicaid eligibility under the Affordable
Care Act (ACA) in 2014. For newly eligible recipients, the State would not bear additional costs
until calendar year 2017 because the federal government reimburses 100% of costs from 2014
through 2016 and at least 90% thereafter. HFS estimates that the State will receive $12.2 billion
in additional federal revenues and spend $573.3 million in State funds on the newly eligible
through 2020.7

The FY2014 budget includes $56 million for previously eligible individuals who
had not enrolled in Medicaid but are expected to sign up after January 2014 due to the ACA.
These costs will be reimbursed by the federal government at the regular rate of 50%, meaning
that the State’s net cost is $28 million in FY2014.

The Civic Federation supports the Medicaid expansion due to the resulting significant increase in
federal resources compared to projected State expenditures. Critics of Medicaid expansion are
concerned that the federal government might reduce scheduled Medicaid reimbursement rates
due to its own budgetary problems. To ease those concerns, proposed legislation in Illinois to
expand Medicaid ends coverage for the newly eligible population if the federal reimbursement
rate drops below 90%.8

Reducing General Funds Transfers Out

The State of Illinois’ annual General Funds expenditures include payments to Other State Funds

through statutory transfers that are not part of the appropriation process. These transfers fund a
wide range of State expenses outside of the General Funds, including debt service owed on
outstanding bonds, revenue sharing with local governments and payments to revolving funds.
However, statutory transfers are also used to fund some State operations outside the General
Funds through appropriations involving the State’s more than 400 Special Funds.

The Civic Federation supports the Governor’s proposal in the FY2014 budget to reduce these

transfers as a balanced approach to controlling State expenditures in the face of rising pension
costs.

5

Public Act 96-1501.

6

U.S. Department of Justice, Olmstead: Community Integration for Everyone
http://www.ada.gov/olmstead/index.htm (last visited on May 5, 2013).

7

Illinois Department of Healthcare and Family Services, Medicaid Financing for the Uninsured: How the Revenues

and Costs Are Computed,
http://www2.illinois.gov/hfs/SiteCollectionDocuments/ACAHowRevenuesandCostsareComputed.pdf (last visited
on May 9, 2013).

8

98th

Illinois General Assembly, Senate Bill 26, passed by Senate on February 28, 2013.

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8

The Governor’s recommended budget for FY2014 caps income tax payments to local

governments at the FY2012 level of $1.095 billion. This is a decrease of $27 million from the
amount estimated to be paid in FY2013, and $68 million from the projected payment for
FY2014, which was based on the statutory percentages now in effect and the expected growth in
total income tax revenues.The budget also reduces funding for Public Transportation and
Downstate Public Transportation Funds by capping transfers to these funds at the FY2012 level.

In its first annual report, the Governor’s Budgeting for Results Commission recommended that

all statutory transfers be evaluated for history, intent and current need in the areas funded.9

The
goal is to ensure that State resources deliver the greatest possible value to taxpayers. The report
suggested that funding provided for ongoing State operations through statutory transfers out of
General Funds should be largely eliminated, excluding transfers for debt service, local
government revenue sharing, payments to revolving funds and cash flow transfers. Instead,
ongoing State operations historically funded by statutory transfers should be reviewed annually
as part of the State’s General Funds appropriations process.

At a time of significant fiscal strain, the State should scrutinize all annual operating spending as
part of the annual appropriation process and ensure that all resources are allocated to the most
critical priorities.

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