Budget Solutions 2013: Innovation For Illinois

budget solutions
I N N O VAT I O N F O R I L L I N O I S
2013
(click a section name to be taken directly there)
Contents
Introduction............................................................................................................................................................ 4 An.effective.balanced.budget.requirement.and.an.honest.spending.limit...................................... 7 Accountability.all-around..............................................................................................................................11 Transform.school.funding................................................................................................................................... 12 Local.pension.accountability............................................................................................................................... 16 End.non-transparent.state.funding.to.local.governments...............................................................................18 Sensible.spending...................................................................................................................................................23 Overhaul.Medicaid............................................................................................................................................... 24 Introduce.Competitive.Grant.Funding..............................................................................................................34 Realignment.with.reality.................................................................................................................................37 Reform.state.retiree.health.care.......................................................................................................................... 38 Reform.human.services....................................................................................................................................... 42 . Rightsize.state.employee.pay............................................................................................................................... 46 Reform.cost.of.living.adjustments......................................................................................................................50 Conclusion..............................................................................................................................................................54 Appendix:.Financials............................................................................................................................................58 Endnotes...................................................................................................................................................................63
Vision, Mission and Approach of the Illinois Policy Institute

Vision
The.Illinois.Policy.Institutes.vision.is.to.make.Illinois.first.in.economic.outlook.and.job.creation.and.to.become.a. free.enterprise.leader.for.the.rest.of.America.
Mission
The.Illinois.Policy.Institute.inspires.changes.in.hearts,.minds.and.laws.through.our.mission.to.promote.personal. freedom.and.prosperity.in.Illinois.and.America..As.a.leading.independent.research.and.education.organization,. the.Institute.generates.positive.and.sustainable.policy.solutions.for.citizens.and.lawmakers.that.help.unleash.talent. and.entrepreneurial.ability.
Approach.
The.Illinois.Policy.Institutes.approach.is.to.transform.liberty.principles.into.marketable.policies.that.become.law.. The.ultimate.sign.of.success.is.when.free.market.ideas.are.turned.into.law.and.change.lives.for.the.better..What. does.this.look.like?.Individuals.and.businesses.become.more.prosperous.without.the.fear.of.government.favoritism. or.interference,.families.can.choose.a.high.quality.education.for.their.kids,.and.citizens.respect.their.government. because.it.is.open.and.transparent.to.all.
www.IllinoisPolicy.org
Cover photo: Illinois Policy Institute
budget solutions
2013
Authors
amanda Griffin-Johnson, senior budget and tax policy analyst JonaThan inGram, health care policy analyst Ted dabrowski, vice president of policy
Special thanks to Chris andriesen, Milton Friedman intern
budget solutions
2013
Introduction
t the Illinois Policy Institute, we have a bold vision: to make Illinois first in economic outlook and job creation, and to become a free enterprise leader for the rest of America.
Illinois can be a destination for economic opportunity. The state boasts rich natural resources and the headquarters of many of the worlds leading companies. It is a major transportation hub and has vast financial and technological industries. But state leadership has taken Illinois down a path of poor policy choices. Where does this leave us? Years of overspending have caused the state to carry a backlog of $8.5 billion in unpaid bills. Medicaid costs are rising faster than state government can pay them. Lawmakers avoided pension reforms, and now the system is underfunded by a staggering $85 billion. And earlier this year, Moodys Investors Service gave Illinois the lowest rating among U.S. states. For much of 2011, the unemployment rate hovered near 10 percent. In fact, while most states saw a drop in the jobless rate, last year Illinois sent more people to the unemployment line than any other state in the nation. And for more than a decade, taxpayers have fled Illinois for greener pastures. Illinois lost residents at a rate of one every 10 minutes on a net basis between 1995 and 2009. That trend continues. In December, the Bureau of Labor Statistics reported that Illinois lost 66,000 residents between June 2010 and June 2011 alone. It doesnt have to be this way. Illinois can regain its position as an economic leader. But to do so, lawmakers must enact substantive reforms that improve the way Illinois government operates. Enter Budget Solutions 2013.
Illinois can be a destination for economic opportunity. But state leadership has taken Illinois down a path of poor policy choices. Where does this leave us?
Introduction
budget solutions
2013
This is the Institutes fourth annual alternative vision for Illinois. In the following pages, weve charted a path that significantly reduces the states 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 states 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, Medicaids 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 states 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.
In the following pages, weve charted a path that significantly reduces the states backlog of bills without borrowing and without new taxes, while meeting its pension liabilities.
Introduction
budget solutions
2013
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
Now is the opportunity to end Illinois legacy of fiscal mismanagement and chart a new course. Budget Solutions 2013 offers one such course.
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.
Budget Solutions 2013 - Savings in billions

Accountability all-around Transform school funding Local pension accountability End non-transparent state funding to local governments Sensible spending Overhaul Medicaid Introduce Competitive Grant Funding Realignment with reality Reform state retiree health care Reform human services Rightsize state employee pay $3.500 $1.100 $0.800 $1.600 $1.860 $1.660 $0.200 $1.565 $0.425 $0.500 $0.520 $0.120 $6.925
Introduction
Click here to return to the table of contents.
Reform pension cost of living adjustments Total
budget solutions
2013
An effective balanced budget requirement and an honest spending limit

The problem
The first step to getting Illinois back on track is to implement spending controls that provide Illinois with long term fiscal sustainability. An effective balanced budget requirement and an honest spending limit will ensure the state does not fall back into the same pattern of higher spending, irresponsible borrowing and burdensome tax increases. For years, Illinois has spent beyond its means. In fiscal year 2012, the state will have more than $8.5 billion in unpaid bills and unaddressed obligations.1 Since 2000, total direct bond obligations have more than tripled to $30.6 billion. Illinois pension systems have been chronically underfunded and are now regarded as the worst-funded in the nation. The underfunded amount exceeds $85 billion. The state has consistently run general fund deficits. These excesses have occurred despite the states constitutional requirement to balance its budget. The requirement was meant to compel legislators to budget within a sustainable fiscal framework and to ensure the state spends within its means. Four major loopholes exist in the current balanced budget requirement. These loopholes have enabled excessive state spending: 1. The requirement does not specify revenue sources. This allows lawmakers to shuffle costs into funds not subject to the requirement. Additionally, they can fill revenue shortfalls with borrowing, pushing todays spending costs onto tomorrows taxpayers. 2. The amendment allows lawmakers to appropriate less than the amount necessary to cover the states annual legal obligations. In fiscal year 2012, the state appropriated $1 billion less than necessary to pay its Medicaid bills. 3. It permits lawmakers to independently estimate revenues. This can lead to unrealistic projections as legislators attempt to balance the budget. 4. There is no limit to the amount of debt that can be carried over into future years. This allows legislators meet the balanced budget requirement while burdening their successors with the costs. Graphic 1 shows how Illinois spending has grown over the 20 years. Actual annual operating expenditures far exceed other spending measures that serve as reasonable spending benchmarks. The blue line below shows what spending growth would look like if spending were limited to growth in gross domestic product, while the green line shows what spending growth would look like if spending were limited to population growth plus inflation.
Four major loopholes exist in the current balanced budget requirement. These loopholes have enabled excessive state spending.
budget solutions
2013
Graphic 1. State operational spending in nominal dollars
While spending has skyrocketed in the last 20 years, population has increased at a slower pace.
Source: U.S. Census Bureau and Illinois Policy Institute calculations
While spending has skyrocketed in the last 20 years, population has increased at a slower pace. The population-plus-inflation-growth spending cap displays this trend above, but another way to think about this trend is through spending per capita. Graphic 2 below shows how, after adjusting for inflation, state operational spending per capita increased 85 percent between 1990 and 2010. Graphic 2. State operational spending per capita (adjusted for inflation)
Source: U.S. Census Bureau and Illinois Policy Institute
budget solutions
2013
Since 2000, heavy borrowing has supported Illinois spending habits. The state tapped the longterm bond market three separate times to fund the states pension systems. Borrowing to pay for pensions allowed legislators to irresponsibly increase spending on major programs above the levels the state could afford. The Institute for Truth in Accounting has identified Illinois as the third-worst state in the nation when measured by the amount of debt and bills owed per taxpayer.2 In response to public recognition that Illinois has a spending problem, legislators in January 2011 placed a budgetary cap on spending while also approving the largest income tax hike in state history. The statutory spending cap is designed to curb spending by having the ability to repeal the tax hike if the cap is exceeded. Unfortunately, this is an ineffective fiscal constraint because the caps are too high. The Illinois Comptrollers Office released revenue numbers that show the cap to be billions of dollars above expected revenue (see Graphic 3). This is the equivalent of a family with an income of $50,000 agreeing to buckle down and not spend more than $54,000. Graphic 3. Revenue forecasts compared to the statutory spending cap (dollars in millions)
Fiscal year
2012 2013 2014 2015
Base revenues
$27,000 $27,810 $28,644 $29,504
Tax increase
$7,000 $7,210 $7,426 $5,048
Total revenues
$34,000 $35,020 $36,071 $34,552
Statutory spending cap

$36,818 $37,554 $38,305 $39,072
Difference between spending cap and total revenue

$2,818 $2,534 $2,234 $4,520
Source: Illinois Comptrollers Office
The current spending cap fails to address the root cause of the states ongoing budgetary crisis and perpetual deficit spending: the lack of a spending brake that halts chronic irresponsibility on the part of the General Assembly and successive governors. The solution proposed below is meant to stop the states annual budgetary shenanigans that lead to unbalanced budgets, underfunded pensions and a debt burden that continues to grow, despite the record revenues flowing into state coffers.
Our solution
Illinois should amend the constitutional requirement to balance the budget. The amendment must include: A clear definition of what qualifies as revenue. Illinois balanced budget amendment should clearly state which types of revenue are included in estimated funds. It will make clear that borrowing should not be counted as revenue and neither should fund sweeps or refinancing debt. Further, the amendment should apply to all state funds so that lawmakers cannot simply push operating deficits into special funds.
The current spending cap fails to address the root cause of the states ongoing budgetary crisis and perpetual deficit spending: the lack of a spending brake that halts chronic irresponsibility on the part of the General Assembly and successive governors.
budget solutions
2013
An independent certification of revenue estimates. Requiring the state comptroller to complete an independent certification of revenue estimates prevents legislators from using artificially inflated estimates to hike spending above sustainable levels. Requiring the comptroller to independently verify and endorse planned expenditures as less than or equal to estimated revenues certifies that the budget is indeed balanced. Additionally, revising planned expenditures and revenue estimates throughout the year allows government the flexibility needed to respond to changes. A spending cap of inflation plus population growth. This will allow state spending to grow every year in a steady, predictable way, helping policymakers provide services efficiently and effectively. A requirement that the state meet all of its debt, pension and other obligations in the year they are due. The habit of carrying forward obligations into the next budget year is unsustainable; moreover, it is poor stewardship. As of 2008, 38 states had a cannot carry over deficit provision that limits the size of the deficit that can be carried over from one year to the next, forcing politicians to deal with fiscal imbalances as they occur, rather than pushing problems into future years and onto future taxpayers.
It is the rapid, excessive growth in spending during the good times that lock in spending levels that become unsustainable when inevitable economic slowdowns occur.
Why this works

The fundamental problem in Illinois state government is a lack of spending discipline. For years, taxpayers provided Illinois government with record revenues. After inflation, state spending has increased 39 percent between 2000 and 2010.3 State leaders spent every dime and borrowed billions more, with the total general obligation and capital debt growing to $30.6 billion in fiscal year 2011 from $8.4 billion in fiscal year 2001.4 The General Assembly and successive governors have demonstrated year after year that they lack the discipline to set priorities and rein in spending. Each year they spend more money by expanding government obligations to insupportable levels. These expansions of state government obligations create structural overspending, which in turn leads to the so-called structural deficits. It is the rapid, excessive growth in spending during the good times that lock in spending levels that become unsustainable when inevitable economic slowdowns occur. An honest spending limit and a real balanced budget requirement solve these issues. They limit overall spending growth to a reasonable, affordable amount through the use of the spending cap. This cap will let government grow each year to keep pace with inflation and population growth, while protecting residents from tax increases and borrowing brought on by overspending. An honest spending limit will also change incentives for government policymakers. For the first time in decades, lawmakers will face the constraints of fiscal discipline.
10
Accountability all-around
Transform school funding Local pension accountability End non-transparent state funding to local governments
ow. the. state. collects,. spends. and. distributes. taxpayer. dollars.has.become.complex.and.incomprehensible..State. subsidies. for. public. education. has. enabled. local. governments. to. get. around. community-imposed. tax. caps.. Meanwhile,. the. state. is. forced. to. pick. up. the. higher. pension. costs. that. resulted. from. decisions. made. by. local. school. district. officials.. The. state. also. uses. the. Illinois. income. tax. to. collect. money. from. local. taxpayers,. only. to. redistribute. it. back. to. communities. through. the. Local. Government. Distributive. Fund.. Rather. than. having. a. maze. of. funds. and. disbursements,. the. following. proposals. will. help. restore. accountability. at. every. level. of. government.
budget solutions
2013
budget solutions
2013
AccountAbility All-Around Transform school funding

Potential savings: $1.1 billion
The problem
The distribution of state education funding is unfair to Illinois students and taxpayers. One of the sources of funding for Illinois public schools is General State Aid, or GSA. The idea behind GSA is to assure that money for education flows to school districts with low property tax revenues per pupil. In many areas of the state, GSA money is used to make sure each district has a base amount of money to spend per pupil, also known as the foundation level. As recently as 2000, $9 out of every $10 from the $2.8 billion-plus GSA fund was used to support foundation levels.5 However, today only $5 of every $10 from the GSA fund supports foundation levels. What changed? In addition to granting more funds to districts with large poverty populations, the GSA formula was amended to provide specific subsides to two select groups of districts: Group 1. School districts operating in communities with property tax caps For districts in this first group, GSA subsidies benefit school districts whose local tax revenue growth is limited by laws that cap increases in annual property taxes. These laws were put into place specifically to curb spending and to improve accountability at the local government and local school district levels. The targeted GSA subsidies, then, are problematic for two reasons: First, the state subsidies allow school districts to bypass local spending limits, damaging local taxpayers ability to hold district officials accountable for their spending decisions. Second, the subsidies come at the expense of state taxpayers or students in other districts that are denied the use of those funds. In 2010, the state spent $630 million in GSA subsidies on districts impacted by property tax caps. The funds were distributed as follows6: $509 million, or 81 percent, was spent on 40 school districts in tax-capped communities. Illinois has 867 school districts statewide. Chicago Public Schools received more than $309 million of the $630 million spent on districts in tax-capped communities. More than 503 districts received nothing. Group 2. School districts operating in Tax Increment Financing districts For the second group, the GSA subsidies go to districts whose local tax revenues are siphoned off partially by tax increment financing districts, or TIFs.7 In this situation, TIFs, and the local governments that control them, take tax revenue that otherwise would be available for schools and use it to fund real estate developments in blighted areas. The GSA was amended to compensate those districts by making up the shortfall. In effect, the state is funding local government-backed real estate projects through the GSA, at the expense of state taxpayers or students in other districts that are denied use of those funds. In 2010, TIFs generated more than $1.15 billion in tax revenues for the local governments that control them.8 This means, by definition, that local governments held $1.15 billion in taxable revenues that was off-limits to other taxing jurisdictions such as schools, libraries and park 12
Accountability all-around: Transform school funding
The distribution of state education funding is unfair to Illinois students and taxpayers.
budget solutions
2013
districts. Since schools districts command about 50 percent of local government tax revenues, they were unable to tap approximately half of the $1.15 billion held by local governments. These and other changes to the GSA formula make it extremely difficult to understand how public education in Illinois is financed. The system is neither transparent nor intuitive. Today the state is spending record amounts of money on K-12 education, which makes it especially important for policymakers and the public to understand how public schools are funded. In 2010, Illinois taxpayers spent $28.6 billion on public schools and $13,568 per child record amounts in both categories.9 Inflation-adjusted spending per pupil rose 46 percent between 1991 and 2010. Graphic 4. Growth in ISBE appropriations (2005 dollars) compared to growth in enrollment
Ending the subsidies will eliminate the process of diverting funds to select districts and will return spending accountability to the local school districts.
Source: Illinois State Board of Education
Our solution
Amend the GSA formula to eliminate state subsidies for districts located in communities with property tax caps. State subsidies drain money from taxpayers and allow local school districts to bypass the local spending limits that the tax caps were intended to impose. Ending the subsidies will eliminate the process of diverting funds to select districts and will return spending accountability to the local school districts. This subsidy can be eliminated immediately and with virtually no impact on the amount of the Foundation Level currently in place. Amend the GSA formula to eliminate state subsidies for districts located within TIF districts. TIFs are vehicles for local governments who choose to partition their local tax resources to foster development or to politically divide the local tax pie. The state has no business inserting itself, via the state education formula, into the way individual municipalities decide to split local tax revenues. The value of TIFs is debateable, and state education funding should not be mixed up with economic development projects at the local level.
13
budget solutions
2013
Why this works

Illinois education funding has proven impossible for most taxpayers and policymakers to understand. The complexities of tax caps and TIFs have distorted Illinois education funding formulas and eliminated whatever transparency may have originally existed. Money no longer flows to those most in need, but instead to districts given special consideration. Eliminating subsidies for districts with special consideration will allow the GSA once again provide education dollars to districts most in need. This in turn will help restore responsible state spending and bring back accountability to local spending and tax decisions.
The complexities of tax caps and TIFs have distorted Illinois education funding formulas and eliminated whatever transparency may have originally existed. Money no longer flows to those most in need, but instead to districts given special consideration.
14
(Page intentionally left blank)
budget solutions
2013
AccountAbility All-Around Local pension accountability

Potential savings: $800 million
The problem
A tenet of good budgeting is that costs should be paid where they are incurred. But in Illinois, the state pays for teachers pensions even though teachers are school district employees, not state employees. This creates a system without accountability or transparency. Pension funds have three main sources of funding: investment income, employee contributions and employer contributions. While the state pays the lions share of the employer contribution to the Teachers Retirement Fund, or TRS (see Graphic 5), it doesnt have to be that way. Teachers in Chicago participate in a separate pension fund, and their employer, the Chicago school district, is responsible for the employer contribution. Graphic 5. 2011 Teachers Retirement System funding by source
The state should not pay for the pension costs of individuals who are not state employees.
Source: TRS Comprehensive Annual Financial Report 201110
To make matters more complex, many school districts are picking up the employee portion of the pension contribution. Teachers are supposed to contribute 9.4 percent of their paycheck toward their own retirement fund. But in the 2009-2010 school year, 48 percent of school districts paid the entire employee pension contribution.11 An additional 16 percent of districts paid for at least part of the employee contribution.12 The teacher pension system is set up like a restaurant where everyone picks up the tab for the person to his or her left. Rather than having musical chairs of responsibilities, teachers should pay the employee portion of the contribution and school districts should pay the employer contribution. (For more information, see the Institutes paper Teachers pensions: Whos really paying? at www.illinoispolicy.org/TRS.) The current pension system obscures financial responsibilities and creates unintended consequences. Illinois goes to great lengths to provide additional funding to poor school districts and districts with high poverty rates. While the states poverty grant policy attempts to give proportionally more funding to less wealthy school districts, the way the TRS is funded operates in the opposite direction. Pension support from the state gives wealthier districts more funding per student than less affluent districts. A large factor in this is the fact that wealthier districts are 16
Accountability all-around: Local pension accountability
budget solutions
inclined to have higher teacher salaries. This means that the state is subsidizing wealthy districts through the pension system.
2013
Our solution
The state should not pay for the pension costs of individuals who are not state employees. Instead, pension costs should be paid by the entity in which they are incurred, and school districts should pay for the pension costs related to their employees. Going forward, school districts should be responsible for the normal cost of their employees, which is the value of the benefits that active employees accrue each year. Additionally, school districts should stop picking up the employee portion of pension contributions. This is in the best interests of districts from both a financial and a transparency standpoint.
Normal costs in the future

For the next 10 years, the states normal cost for TRS will be approximately $800 million annually. Then the normal cost decreases gradually. This is because of the new Tier 2 pension system for employees hired after Jan. 1, 2011. Those employees contribute the same amount as Tier 1 employees, but the benefits are much smaller. Therefore, the employee contribution will eventually more than cover the normal cost as active Tier 2 employees become more prevalent than active Tier 1 employees in the system. Funding the retirements of former employees on the backs of current employees may cause regulatory problems regarding the structure of the pension system.
Why it works
When pension costs are borne by the state but salaries are set by the school district, there are mixed incentives. School districts want to reward their teachers now, but the state is the one that will be paying for this reward for years to come. In fact, many school districts give bonuses or offer 6 percent annual raises to teachers in their last years of work to boost pension payouts.13 While this is an added cost to the school district for those few years, it significantly adds to the cost of the pension for decades into retirement. Under the current system, school districts have little incentive to curb those types of perks, because the majority of the cost will be paid for by the state. Instead, the school district should be responsible for the new benefits accrued by employees each year. This way, the district will be fully on the hook for any sweeteners offered and will make more fiscally responsible decisions. Making school districts responsible for these costs will also prevent the state from subsidizing wealthy school districts. If individual districts would like to pay their teachers higher salaries, that is their choice but taxpayers statewide should not have to pick up the tab for those higher pensions. Recently, State Senate President John Cullerton recognized the regressive nature of the pension subsidy when discussing local districts paying more toward their pension costs. He told the State Journal-Registers editorial board14:
You guys arent paying a lot to your teachers down here. The people that benefit tremendously are the wealthier suburban school districts. Theyre paying gym teachers $150,000. They never have to worry about paying the normal cost into a pension fund.
Additionally, this practice could curb the pension underfunding that has plagued the system for years. When local governments are responsible for pension costs, they are much less likely to skip payments than the state government. This is because they must ask the state government for permission to skip a payment. But while the state has skipped its share of pension payments, it wouldnt have any incentive to allow local governments to do so since this wouldnt bring any relief to the state budget. In this way, having local pension responsibility can help ensure underfunding does not continue in the future. Local pension responsibility is not an unusual practice. School districts in New York pay the entire employer pension cost,15 and in California, the school districts pay a majority of the employer cost.16 Illinois sorely needs the increased transparency and accountability these reforms would produce, and taxpayers deserve a clear and understandable pension system, which aligns incentives with cost savings.
Accountability all-around: Local pension accountability
At alitaep udition repernatum, omni aliquatur, tem aborit velectibus expe prehenit ario iusda sitis dendaes et eium ressit rat ullendusae
17
budget solutions
2013
AccountAbility All-Around End non-transparent state funding to local governments

The problem
A significant portion of state income tax receipts in Illinois is distributed to local governments via the Local Government Distributive Fund, or LGDF. This fund was established in 1969 in conjunction with the states first income tax and annually receives approximately $1.1 billion of state income tax revenues. The LGDF redistributes the tax revenue to county and municipal governments on a per capita basis.
The Local Government Distributive Fund has sent local governments billions of dollars. This program continues even as the state runs up higher budget deficits and increases its backlog of unpaid bills.
As shown in Graphic 6, the LGDF has sent local governments billions of dollars. This program continues even as the state runs up higher budget deficits and increases its backlog of unpaid bills. Illinois cannot afford to keep sharing tax revenue. Graphic 6. Income tax disbursements to local governments, actual and inflation-adjusted 2010 dollars
Source: Illinois Department of Revenue, Bureau of Labor Statistics, Illinois Policy Institute calculations
This tax sharing program is one of the many top-down spending programs that reduce spending transparency and accountability at both the state and local levels. The Taxpayers Federation of Illinois, or TFI, studied this issue and the 230 different state and local tax sharing programs that exist in Illinois. 17
18
Accountability all-around: End non-transparent state funding to local governments
budget solutions
2013
TFI calculated that in 2009, the states 11 largest revenue sharing programs had $13.2 billion in total tax revenues, which were subsequently shared with local governments via multiple and, in some cases, complex redistribution formulas. (See Transform school funding and Local pension accountability chapters for more details.) As seen in Graphic 7, the LGDF accounted for only 20 percent of the value of these revenue sharing programs in 2009. Graphic 7. Local government revenue sharing programs in 2009
Source: Taxpayers Federation of Illinois
The LGDF is one of many funds, such as the Public Transportation Fund and the Tourism Promotion Fund, that receive transfers of cash from the General Revenue Fund, or GRF. These legislatively-required transfers out of the GRF siphon off significant amounts of state funding. In 2011, Illinois transferred more than $2 billion out of the GRF (see Graphic 8). The LGDF received slightly more than $1 billion of those transfers.18
This tax sharing program is one of the many topdown spending programs that reduce spending transparency and accountability at both the state and local levels.
19
budget solutions
2013
Graphic 8. Illinois transfers out of general funds (in millions)

Fund
Local Government Distributive Public Transportation Downstate Public Transportation School Infrastructure Workers Compensation U of I Hospital Services Metropolitan Exp., Aud. & Office Bldg. Tourism Promotion Agriculture Premium Live and Learn Audit Expense DCFS Children Services
FY2011 Revised
$1,042.1 $409.0 $170.2 $68.3 $55.0 $45.0 $37.9 $30.3 $23.8 $20.9 $17.1 $17.0 $15.8 $15.4 $14.0 $12.3 $9.4 $8.1 $6.7 $5.0 $5.0 $5.0 $4.8 $4.6 $3.0 $2.4 $1.7 $1.7 $1.7 $1.7 $1.5 $1.4 $1.1 $1.0 $0.5 $0.4 $0.3 $0.1 $2,061.2
FY2012 Rec.
$1,087.2 $429.4 $175.0 $62.9 $55.0 $60.0 $37.9 $30.8 $23.8 $20.9 $17.9 $15.8 $15.4 $14.0 $14.5 $10.1 $8.1 $9.0 $5.0 $5.0 $5.0 $4.9 $4.6 $2.4 $1.7 $1.7 $1.7 $1.7 $3.0 $1.4 $1.1 $0.5 $0.6 $0.3 $0.1 $0.2 $160.0 $17.1 $5.2 $5.0 $1.0 $0.5 $2,317.4
U of I Income Fund Capital Litigation Trust Partners for Conservation Coal Technology Development Estate Tax Collection Distributive State Treasurers Bank Service Trust Lincoln Presidential Library Communication Revolving Comprehensive Regional Planning Digital Divide Elimination Illinois Veterans Rehabilitation Professional Services IL Capital Revolving Loan Illinois Thoroughbred Breeders Tax Check Off Funds Illinois Standardbred Breeders Build Illinois Fair and Exposition Corporate HQ Relocation Assistance Violence Prevention Youth Alcoholism & Substance Abuse Prevention DHS Private Resources Intermodal Facilities Promotion Amtrak Intercity Rail Municipal Economic Development Heartsaver AED Federal Financing Cost Reimbursement Healthcare Provider Relief State Garage Revolving Metropolitan Pier and Exposition Authority Incentive Public Utility IL Veterans Assistance Senior Citizen Real Estate Deferred Tax Revolving Total Legislatively Required Transfers
Ultimately, the LGDF and all the other funds that collect money from the state income tax is little more than a state subsidy to localities that dont want to stay within the tax rates demanded by local voters.
Source: Taxpayers Federation of Illinois
20
budget solutions
2013
This large amount of top-down spending separates jurisdictions that collect tax revenues from those that spend them. Ultimately, the LGDF and all the other funds that collect money from the state income tax is little more than a state subsidy to localities that dont want to stay within the tax rates demanded by local voters.
Our solution
The state cannot afford to continue funding all of these special funds. At a time when the state needs to make every penny count, these transfers out of the GRF are often done without transparency or accountability. Illinois should eliminate most or all of the transfers out of the GRF, including state income tax receipts to localities. These funds would be better used by the state to pay down bills and reduce the burden on taxpayers. This change fits together well with the proposed repeal of the state income tax hike as: Billions in annual tax dollars are returned from the state government to local residents and businesses. Accountability for spending and investing those funds is returned to the productive forces in the economy and kept away from the state bureaucracy. The state no longer is a collector and distributor of the above tax dollars, returning accountability for taxing and spending to the local governments. Local governments will have to then prioritize spending or prove the necessity and effectiveness of programs that require additional funding. Along with the elimination of the transfers, the state government should also reduce and eliminate many unfunded or partially funded mandates that increase costs to local governments. A review by the Taxpayers Action Board found that mandates are a major contributor to inefficiencies in government spending. A solution is to ensure that all mandates, current and future, contain a sunset provision. This would guarantee that mandates no longer meeting their original objectives would face extinction, while those that need to be maintained would require a renewal process.
Why this works

LGDF is an outdated sweetener that allows local government to provide services without directly taxing residents to pay for them. This reduces the accountability of local officials and the transparency of local government finances. Eliminating this top-down subsidy allows the state to better meet its obligations. Equally important, it helps ensure that the services provided by local government reflect the willingness of residents to pay for those services through direct taxes.
LGDF is an outdated sweetener that allows local government to provide services without directly taxing residents to pay for them. This reduces the accountability of local officials and the transparency of local government finances.
21
Sensible spending
Overhaul Medicaid Introduce Competitive Grant Funding
tate. government. must. spend. taxpayer. money. in. a. manner. that. is. both. prudent. and. effective.. Unfortunately,. one. of. the. states. major. programs,. Medicaid,. is. failing. on. both. of. those. fronts..Illinois.Medicaid.not.only.fails.the.population.it.was.meant. to. protect,. but. costs. are. rising. faster. than. the. state. can. afford. to. pay.. This. is. not. the. only. arena. in. which. state. dollars. could. be. more. wisely. spent.. Throughout. the. budget,. small. programs. routinely.are.overlooked.and.receive.little.scrutiny..The.following. proposals.will.help.reshape.failing.programs.and.add.a.new.level.of. accountability.to.make.sure.Illinois.gets.the.most.out.of.every.dollar..
budget solutions
2013
budget solutions
2013
SenSible Spending Overhaul Medicaid

The problem
In Illinois, Medicaid is failing the states most vulnerable populations. Medicaid is a joint state and federal program that aims to provide health care to the poor and disadvantaged. It is funded by federal, state and local taxes and is administered by state governments. Each state receives federal reimbursement of actual expenditures according to their Federal Medical Assistance Percentage, or FMAP rate. This rate can range from 50 percent to 83 percent of expenditures, depending upon the states per capita personal income. Historically, half of all Medicaid spending in Illinois is paid for with federal funds.19
In Illinois, Medicaid is failing the states most vulnerable populations.
In Illinois, Medicaid serves both the nondisabled low-income population and the elderly, blind and disabled populations. While there may be some overlap between these two groups, each group may require different policies tailored to their specific needs. As Graphic 9 shows, children and nondisabled adults currently make up 83 percent of enrollees, but only account for 48 percent of Medicaid spending.20 Graphic 9. Children and nondisabled adults make up majority of Medicaid patients
Share of Medicaid and Childrens Health Insurance Program (AllKids) enrollment by age and disability status in fiscal year 2012
Source: Illinois Policy Institute calculations
The number of people in Illinois Medicaid program has increased significantly in recent years. In 2000, approximately 1.5 million people were enrolled in Illinois Medicaid program. By 2010, that number had increased by more than 80 percent to 2.8 million Medicaid patients
24
Sensible spending: Overhaul Medicaid
budget solutions
2013
(see Graphic 10).21 As a comparison, over that same time period, Illinois population only grew 3.3 percent.22 This means that 12.2 percent of Illinoisans were enrolled in Medicaid in 2000, but just ten years later that proportion grew to 21.5 of the states population. Graphic 10. Number of Medicaid enrollees in Illinois
Source: Medicaid Statistical Information System
12.2 percent of Illinoisans were enrolled in Medicaid in 2000, but just ten years later that proportion grew to 21.5 of the states population.
Additionally, as Medicaid grew, the composition of Medicaid enrollees changed. Medicaid historically has focused on individuals and families under the Federal Poverty Level, or FPL. In 2003, a majority of Medicaid patients in Illinois had incomes below 100 percent of the FPL. After expansions of eligibility in the following years, only 37 percent of Medicaid patients were below 100 percent of the FPL (see Graphic 11).23 Graphic 11. Proportion of Illinois Medicaid patients above and below 100 percent of the Federal Poverty Level 2003 2011
Source: U.S. Census Bureau Sensible spending: Overhaul Medicaid
25
budget solutions
2013
Even with these Medicaid expansions, the number of uninsured people in Illinois continued to climb over this time period (see Graphic12). This suggests that rather than covering previously uninsured individuals, Medicaid expansions have crowded out private sector insurance coverage while leaving the uninsured population largely unaffected. Graphic 12. Number of uninsured people in Illinois
Unfortunately, the states low reimbursement rates and long delays in paying providers have forced many doctors to make Medicaid patients wait longer for care, if they agree to see them at all. The states reimbursement fees are substantially below the national average.
Source: U.S. Census Bureau
Currently, the Medicaid program in Illinois operates on a fee-for-service basis, reimbursing doctors and hospitals for services they provide at a specified rate. Unfortunately, the states low reimbursement rates and long delays in paying providers have forced many doctors to make Medicaid patients wait longer for care, if they agree to see them at all. The states reimbursement fees are substantially below the national average (see Graphic 13). In fact, only six states have lower fees than Illinois.24 Worse yet, the Medicaid fees for primary care physicians are only 57 percent of the already-low Medicare fees.25 These fees generally do not even cover the actual cost of providing services.26 It is no surprise, then, that doctors simply cant afford to keep their doors open if they take more Medicaid patients. In spite of this, Gov. Quinn has proposed cutting these low fees by another 6 percent.27 Graphic 13. Illinois reimbursement rates are lowest in region
Medicaid reimbursement rates indexed to U.S. average
Source: Zuckerman et al.
26
budget solutions
2013
As if the low fees werent challenging enough, Illinois payment delays make the problem even worse. A study of 21 state Medicaid programs found that Illinois had the third-longest Medicaid payment cycle.28 Since then, the state has increased the payment cycle to a record 162 days, more than twice as long as the previous record delays.29-30 These factors have created an environment in which Medicaid enrollees theoretically have medical coverage, but limited access to care. Children on Medicaid, for example, are six times more likely than privately insured patients to be denied an appointment to see a specialist.31 For some specialists, the barriers are even worse. Medicaid patients have only a one in five chance of seeing an orthopedic specialist, while privately insured patients are denied appointments only 2 percent of the time.32 These same barriers exist when seeking new primary care physicians and urgent follow-up care.33 A majority of doctors are now taking few or no new Medicaid patients.34 Medicaid patients are even less likely to see a physician than uninsured patients, even in safety net clinics.35-36 Graphic 14. Medicaid patients are far less likely to see a specialist
Likelihood of scheduling appointment, by insurance status and specialist type
Children on Medicaid are six times more likely than privately insured patients to be denied an appointment to see a specialist.
Source: Bisgaier and Rhodes, New England Journal of Medicine
Even when doctors agree to see them, Medicaid patients often wait longer for services.37 To see an endocrinologist, for example, children on Medicaid must wait on average 103 days, more than twice as long as privately insured patients.38 For all specialties, the average wait for Medicaid patients is 22 days longer than privately insured patients.39
27
budget solutions
2013
Graphic 15. Medicaid patients wait longer to receive care

Length of wait times, by insurance status and specialty type (days)
The access barriers Medicaid patients often face have forced many to seek nonurgent care from emergency rooms. Medicaid patients seek emergency room care about twice as often as both privately insured and uninsured patients.
Source: Bisgaier and Rhodes, New England Journal of Medicine
The access barriers Medicaid patients often face have forced many to seek non-urgent care from emergency rooms. Medicaid patients seek emergency room care about twice as often as both privately insured and uninsured patients.40-41 This disparity is even larger for preventable conditions: Medicaid patients with preventable conditions seek hospital care seven times as often as privately insured patients, and three times as often as the uninsured.42-44 Graphic 16. Access barriers force Medicaid patients to use emergency rooms for preventable conditions
Number of emergency visits for preventable conditions per 1,000 people in 2007, by insurance status
Source: Tang et al.
28
budget solutions
2013
While this type of use of emergency rooms has steadily declined for uninsured and privately insured patients, it has grown by 38 percent for Medicaid patients. Indeed, four out of five patients who seek emergency room care on a frequent basis are enrolled in either Medicare or Medicaid.45 By segregating Medicaid patients into inferior care, the system ensures that when theyre actually able to get care usually from hospitals it is at a much greater cost to the taxpayer. If and when Medicaid patients receive care, they frequently suffer worse outcomes than both privately insured and uninsured patients. They have the greatest risk of mortality during common surgeries and this greater risk remains even after discharge.46-47 Medicaid patients experience the longest hospital stays and are more likely to have surgical complications.48-49 Graphic 17. Medicaid patients are more likely to die after heart surgery
Likelihood of in-hospital death following percutaneous coronary intervention, by insurance type
Source: Gaglia et al.
Much of this disparity stems from poor access to care. Because access to the very best providers is severely limited, Medicaid patients are often forced to use lower quality doctors, hospitals and specialists. High-volume surgical centers, for example, generally provide the best care.50 Unfortunately, Medicaid patients are the least likely group to use these high-volume hospitals, ultimately leading to lower quality care.51 Limited access to early screening and treatment also contributes heavily to their poorer outcomes. It is no surprise, then, that Medicaid patients are more likely to be diagnosed with diseases at later, less treatable stages. The odds of being diagnosed with a late-stage melanoma, for example, are nearly twice as high for Medicaid patients than for the uninsured, and nearly five times greater than for those who are privately insured.52 There are similar disparities in late-stage diagnosis for other types of cancer.53-54 The problems Illinois Medicaid program faces today are alarming, but they will only grow worse in the coming years. Illinois currently faces a shortage of doctors, nurses and other health care providers, particularly in rural areas. There are primary care provider shortages
If and when Medicaid patients receive care, they frequently suffer worse outcomes than both privately insured and uninsured patients. They have the greatest risk of mortality during common surgeries and this greater risk remains even after discharge.
29
budget solutions
2013
in all but five of Illinois 102 counties.55 The fact that half of recent graduates from Illinois medical schools are fleeing the state exacerbates the already grim situation.56 While the supply of physicians continues to shrink, ObamaCares massive expansion of Medicaid will cause demand to explode. ObamaCare is expected to add another 1.5 million people to Illinois Medicaid program in 2014 alone.57 What was created as a temporary safety net for Americas most vulnerable population will serve more than a third of the population in just the first few years of ObamaCare, with that number growing over time. These additional enrollees are expected to cost Illinois $20 billion in just the first 10 years of implementation.58 In response to the states current fiscal crisis, Illinois has already delayed payments to doctors and hospitals far longer than ever before. If the state cannot provide the most vulnerable populations with adequate access to medical care today, how can it be expected to provide quality care to one-third of Illinoisans by slashing reimbursement rates and delaying payments?
Health Savings Accounts

Health Savings Accounts, or HSAs, are an alternative to traditional health insurance that has been growing in popularity, especially among low-income groups. When tied with a high-deductible health insurance plan, HSAs allow individuals to save money in a tax-free account, which they use to pay for health care-related expenses. Funds in HSAs accumulate over time, earn interest tax-free and can be willed to surviving beneficiaries. Because the money is in an individual account, HSAs provide incentives for consumers to ask questions and use their funds more cautiously, which leads to cost containment. A similar program can be developed specifically for Medicaid participants.
Our solution
If Illinois Medicaid program is ever going to provide the most vulnerable population with access to quality health care, serious reform is necessary. This reform should begin with transforming Medicaids fee-for-services program into a sliding scale premium assistance program, paired with health savings accounts for nonelderly and nondisabled patients. Illinois should also revisit eligibility requirements to ensure that the most vulnerable residents arent crowded out of the safety net by middle class families. Premium assistance models provide recipients with a defined contribution toward the purchase of private health insurance.59 This contribution would be placed in a Medicaid Savings Account, or MSA, similar to a Health Savings Account (see sidebar for more information on Health Savings Accounts). Using the funds in this personal MSA, individuals can select the insurance that best fits their needs and preferences. After paying for the insurance premium, Medicaid patients could use remaining funds in the account for health care expenses such as doctor visit co-pays, prescription drugs and hospital stays. Premium assistance models have traditionally found wide, bipartisan support and are already used for certain low-income children, elderly drug benefits and the middle class.60 Graphic 18. Budget Solutions proposal to provide Medicaid assistance to nondisabled and nonelderly on a sliding scale
Suggested subsidy levels by federal poverty level
Federal poverty level

Below 50% 50% to below 75% 75% to below 100% 100% to below 125% 125% to below 150% 150% or more
Subsidy level
100% 90% 75% 50% 30% 10%
30
budget solutions
2013
To protect the most vulnerable and avoid trapping the poor into government dependency, the state should determine premium assistance and MSA deposits on a sliding scale (see Graphic 18). The poorest enrollees would receive full subsidies based on the average insurance premium and deductible cost by age in Illinois, but the subsidies would gradually phase out for those who can afford to pay a portion of their health care cost (see Graphic 19). Graphic 19. Budget Solutions proposal for individual premium and MSA subsidies by age (nondisabled and nonelderly)
Below 50% 50% to below 75% 75% to below 100% 100% to below 125% 125% to below 150% 150% or more
Age 0-18
$3,770 $3,393 $2,828 $1,885 $1,131 $377
Age 19-24
$4,403 $3,963 $3,302 $2,202 $1,321 $440
Age 25-34
$4,433 $3,990 $3,325 $2,217 $1,330 $443
Age 35-44
$5,170 $4,653 $3,878 $2,585 $1,551 $517
Age 45-54
$6,134 $5,521 $4,601 $3,067 $1,840 $613
Age 55-64
$7,344 $6,610 $5,508 $3,672 $2,203 $734
Average
$4,110 $3,876 $3,241 $2,067 $1,303 $426
Unfortunately, the nature of todays Medicaid program ensures that the state cannot enact these reforms alone. Federal rules and regulations give states little flexibility in designing and implementing their Medicaid programs. In order to implement these reforms, Illinois would need to seek a Medicaid waiver from the Centers for Medicare and Medicaid or amend its state plan. Illinois should seek greater flexibility by asking to receive federal matching funds as a block grant. This block grant should be accompanied by a global waiver, freeing the state from much of the federal micromanagement the current program faces. In exchange for giving the state more freedom, the federal government would receive budget certainty and, ultimately, long-term savings. The 2011 House Budget, or the Ryan Plan, contained exactly this kind of trade-off. Rhode Islands recent experience with similar freedom and funding has produced very promising results. After only 18 months, the state had reduced its Medicaid spending by 30 percent and drastically improved quality of care, with only modest reforms to wellness programs, copayments, provider audits, fraud prevention, competitive bidding and long-term care services. It is a testament to the idea that it is possible to provide better services at lower costs, and that more money does not always mean better outcomes. Like Rhode Island, Illinois should seek a block grant equal to what it could be expected to receive under the current state plan. The state Department of Healthcare and Family Services reports that federal matching funds on fiscal year 2013 liabilities will reach $5.73 billion, of which $4.85 billion will pass through the states General Revenue Fund. After implementing these reforms, the state would be responsible for $3.51 billion of matching funds, with $2.63 billion coming from the General Revenue Fund.
Illinois should seek greater flexibility by asking to receive federal matching funds as a block grant.
31
budget solutions
2013
Graphic 20. General Revenue Funds Medicaid liabilities by funding source (in billions)
General Fiscal year Budget Revenue Fund 2012 Solutions 2013
State funds Federal funds Total General Revenue Funds $4.29 $4.29 $8.58 $2.63 $4.85 $7.48
Fiscal year 2013 without reform

$4.85 $4.85 $9.69
Change from FY2012 to Budget Solutions 2013

-$1.66 $0.56 -$1.10
Source: Illinois Department of Healthcare and Family Services and Illinois Policy Institute calculations
To put these federal figures into sharper perspective, Illinois receives relatively low federal funding compared to the level of poverty in Illinois. For example, if the federal government were to give each state a portion of a total sum of federal Medicaid dollars as a block grant, allocated by the share of people in poverty each state has, Illinois would receive more than $11 billion in federal funds for fiscal year 2013.61 If the federal government refuses to give a block grant in either of these manners, the state would need to implement sliding scale assistance for the disabled and elderly, as well.
By transforming Medicaid to a sliding scale premium assistance program, the state can improve outcomes for Medicaid patients while spending less taxpayer money.
Why this works

Illinois current Medicaid system does not provide enrollees with true access to care despite its enormous price tag for taxpayers. Instead of continuing to pour money into a failing system, Medicaid needs to be fundamentally reformed. The top-down price controls and government micromanagement of the current Medicaid system have not worked. By transforming Medicaid to a sliding scale premium assistance program, the state can improve outcomes for Medicaid patients while spending less taxpayer money. These reforms will stabilize spending through strong competition and market forces. They would give the most vulnerable residents the freedom to choose health plans that meet their needs, rather than the requirements imposed by bureaucrats in Springfield or Washington, D.C. The freedom to select plans based on price, range of options and quality would foster a competitive market that creates more value for less money. Transforming Medicaid into a premium assistance program would give Medicaid enrollees a vested interest in making sure that their health care dollars are spent efficiently by empowering them to find the best value in plans and providers. This program would also ensure that the most vulnerable members of society have access to quality doctors and portable coverage. Doctors will no longer need to limit the number of Medicaid patients they see due to low and late reimbursements from the state. Instead, Medicaid patients will look like any other patients with private insurance. This would ensure continuity of care, as Medicaid patients would no longer need to change doctors as they fall in or out of Medicaid eligibility. With these changes, Medicaid can be a program that offers actual access to health care, not just meaningless coverage.
32
budget solutions
2013
Additional Medicaid tables Graphic 21. Average premium and deductible in individual market by age
Age 0-18
Premium MSA deposit Total cost $1,224 $2,546 $3,770
Age 19-24
$1,320 $3,083 $4,403
Age 25-34
$1,668 $2,765 $4,433
Age 35-44
$2,304 $2,866 $5,170
Age 45-54
$3,012 $3,122 $6,134
Age 55-64
$3,996 $3,348 $7,344
Average
$2,196 $2,935 $5,131
Graphic 22. Illinois Medicaid enrollment for nondisabled, nonelderly

Below 50% 50% to below 75% 75% to below 100% 100% to below 125% 125% to below 150% 150% to below 175% 175% or more Total
Age 0-18
326,815 148,842 152,817 220,656 142,422 123,774 490,086 1,605,412
Age 19-24
31,335 7,258 9,131 7,431 8,302 16,835 44,868 125,160
Age 25-34
15,460 24,342 16,098 23,718 22,536 21,619 66,769 190,543
Age 35-44
29,318 12,651 13,910 17,909 14,333 15,921 60,303 164,345
Age 45-54
10,426 14,838 3,090 12,356 13,841 5,206 53,946 113,703
Age 55-64
13,790 12,556 21,306 8,646 14,142 12,755 18,644 101,839
Total
427,144 220,488 216,351 290,716 215,576 196,111 734,615 2,301,001
Source: U.S. Census Bureau, Illinois Department of Healthcare and Family Services and Illinois Policy Institute calculations
Transforming Medicaid into a premium assistance program would give Medicaid enrollees a vested interest in making sure that their health care dollars are spent efficiently by empowering them to find the best value in plans and providers.
33
budget solutions
2013
SenSible Spending Introduce Competitive Grant Funding

The problem
Every year the state budget has several hundred grants of less than $5 million each spread over various departments. Most of these are relatively small initiatives that receive relatively little attention and even less scrutiny. Added together, these small line items cost approximately $350 million per year, a sum larger than the total operating budget of several state agencies. Illinois taxpayers cannot continue to fund all these programs, but that also doesnt mean they all must go.
Graphic 23. Examples of programs eligible for Competitive Grant Funding

Department
Office of the Governor Department of Agriculture Illinois Violence Prevention Authority Board of Higher Education Office of the Lieutenant Governor Illinois Arts Council Board of Higher Education Illinois Community Colleges Central Management Services Illinois Arts Council
Through Competitive Grant Funding, programs will have to vie for the states scarce resources based on program effectiveness and need from a pool of $150 million.
Program
Expenses related to ethnic celebrations, special receptions and other events Awards and premiums at the Illinois State Fair Bullying prevention Diversifying Higher Education Faculty in Illinois grants For operational expenses of the Office of the Lieutenant Governor Grants to public radio and television stations and related administrative expenses Grow Your Own Teachers Community Colleges Workforce Development grants For expenses of the Upward Mobility Program Grants and financial assistance for arts organizations
Fiscal year 2012 appropriation

$50,000 $202,100 $300,000 $1,640,000 $2,001,300 $2,147,000 $2,500,000 $3,311,300 $4,037,500 $4,214,400
Source: Illinois appropriation bills: HB3717, HB2168, HB3700 and HB0124
Our solution
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. Through Competitive Grant Funding, programs will have to vie for the states scarce resources based on program effectiveness and need from a pool of $150 million. The size of the pool of money available for small projects would grow at a steady rate of population plus inflation in future years. If a small program is vital to an agencys mission, then that agency can submit a detailed proposal to an independent review panel that will publish clear assessment guidelines. Similar programs at the federal level, such as the federal Government Accountability Offices Program Assessment Rating Tool (PART), and the federal Department of Educations Invest in Innovation Grant awards, could serve as models for Competitive Grant Funding. 34
Sensible spending: Introduce Competitive Grant Funding
budget solutions
2013
Unfortunately, some may attempt to undermine the purpose of the program, which is to bring transparency and accountability to small, often overlooked programs. It would be possible for legislators to bundle programs together to have them move them beyond the $5 million barrier. If that were to happen, those programs would no longer need to compete for funding. For example, in the fiscal year 2012 budget, there is a $5 million line item in the Department on Aging that reads For Expenses of the Discretionary Government Projects.62 This gives no information as to what the funding will go toward and leaves taxpayers in the dark as to how their money is being spent. This is not good governance. If legislators try to bundle items to avoid the Competitive Grant Funding process, they will reveal themselves as mere politicians, not true reformers.
Why this works

While many of these small programs may be worthwhile, there is not a lot of scrutiny or transparency as to how money for these smaller state budget items is spent. But taken together, these programs add up to a significant amount. Competitive Grant Funding will increase transparency and produce a wealth of standardized information. Based on the publicly available information with each proposal, policymakers will have to prioritize what is eligible for funding and what is not. If successful, this program could serve as an accountable funding model for larger programs in the future. Competitive Grant Funding would save the state an estimated $200 million in fiscal year 2013 and the competition for dollars will ensure that state money goes to the most necessary and effective programs. Also, by requiring that every program provide vital information during the competition process, taxpayers will gain information and transparency about these programs and the governments decision-making process. This will help valuable programs get the funding they need while ensuring that taxpayer dollars are protected and responsibly stewarded.
While many of these small programs may be worthwhile, there is not a lot of scrutiny or transparency as to how money for these smaller state budget items is spent. But taken together, these programs add up to a significant amount.
Sensible spending: Introduce Competitive Grant Funding
35
Realignment with reality

Reform state retiree health care Reform human services Rightsize state employee pay Reform cost of living adjustments
tate. government. is. insulated. from. many. of. the. financial. pressures.faced.in.the.private.sector..But.the.poor.economy. has. forced. Illinois. families. to. tighten. their. belts. at. home,. and. the.state.must.do.so.as.well..The.status.quo.must.end..No.longer. can. Illinois. afford. lavish. benefits. for. state. workers. and. retirees,. costly. pension. perks. and. unfunded. promises. to. human. services. providers.. The. following. proposals. will. help. the. state. realign. spending.with.the.reality.of.todays.economy.and.fiscal.condition. so. Illinois. can. once. again. walk. along. a. sustainable. fiscal. path.
budget solutions
2013
budget solutions
2013
reAlignment with reAlity Reform state retiree health care

Potential savings: at least $425 million
The problem
Illinois underfunded pension funds have garnered a lot of attention, and rightly so; the states five pension systems are short approximately $85 billion. But the state has another grossly unfunded liability has been largely ignored: retiree health care. The state has promised more than $100 billion in state retiree health benefits over the next 30 years, yet it has set aside nothing to pay for them.63 These unfunded promises are growing 2.5 times faster than state revenues and, if left unreformed, will work in tandem with rising pension costs to dramatically crowd out resources for core government services. One such service that would be crowded out is health care for the poor and disadvantaged. In Illinois, three general groups of people receive free or subsidized health care: the poor, both children and adults; the disabled and the elderly; and retired state employees, many of whom will receive more than $1 million in pension payments over the course of their retirement. The state cannot afford the health care costs of all these groups, particularly with the costs of ObamaCare looming on the horizon. (For more details, see the Medicaid reform section.) Illinois administers three major health insurance programs for retired state employees: the State Employee Group Insurance Program, or SEGIP; the Teachers Retirement Insurance Program, or TRIP; and the College Insurance Program, or CIP. Together, these three programs provide health insurance to more than 180,000 retirees, dependents and surviving spouses.64 Each year the state pays for these health care plans with current revenues rather than assets built up over time. This is problematic because the cost for these programs is expected to increase an average of 4.5 percent per year.65-66 This future growth may be understated, as it is far below the historical average. Even so, it is nearly two times faster than the states expected tax revenue growth. Even assuming a modest 4.5 percent growth, the total cost to taxpayers of providing this insurance will exceed $100 billion over the next 30 years.67-68 The latest actuarial valuation for these programs estimates it has an unfunded liability of nearly $45 billion the amount the state should set aside today in order to meet these obligations in the future.69-70
The state has promised more than $100 billion in state retiree health benefits over the next 30 years, yet it has set aside nothing to pay for them.
38
Realignment with reality: Reform state retiree health care
budget solutions
2013
Graphic 24. Retiree health insurance to cost taxpayers more than $5 billion annually within 30 years
Annual employer costs for retiree health insurance, by program
Generous coverage for retired state employees is competing with resources for the steadily eroding services that Illinois poor receive under Medicaid. The states low reimbursement rates and long payment delays to doctors and hospitals have already left the states most vulnerable population with few options.71-76 They must wait much longer to receive care, if they can get that care at all.77-78 With nowhere to turn, Medicaid patients seek non-urgent care from hospital emergency rooms.79-80 The programs mismanagement has created huge access barriers that will only grow more impenetrable over the coming years, as unpaid bills pile up and ObamaCare puts additional pressure on the system.81-82 Meanwhile, many state retirees contribute little or nothing to their health insurance premiums. In the states largest retiree health program, the State Employee Group Insurance Program, retirees only contribute an average of 9 percent toward their premiums. Thats significantly less than in other states, which require state retirees to pay six times that amount.83 In the private sector, the vast majority of retirees are not offered coverage at all,84 and the few that are must pay the majority of their insurance costs.85
Generous coverage for retired state employees is competing with resources for the steadily eroding services that Illinois poor receive under Medicaid.
39
budget solutions
2013
Graphic 25. Taxpayers shoulder larger burden in Illinois than in other states
State (employer) share of retiree health insurance costs, by program
There is a solution. Illinois can properly align state retiree benefits with those in other states by taking into account a retirees years of service, age at retirement and ability to pay.
Source: Illinois Policy Institute calculations.
Finally, to make matters worse, the states health coverage policies provide incentives for state workers to retire early, significantly driving up costs and length of retiree health insurance. By not acting on reforms, state politicians will make a clear choice. They will favor providing Cadillac coverage for little or no charge to well-off state retirees, while the poorest and most vulnerable residents must search desperately for a doctor willing to see them.86-87 The states prioritization of retired government workers over the poor and disadvantaged has already hurt many. As the cost of providing these generous benefits continues to climb, even more needy people will be pushed aside. Fortunately, there is a solution. Illinois can properly align state retiree benefits with those in other states by taking into account a retirees years of service, age at retirement and ability to pay. Illinois can also discourage early retirement by capping subsidies for future retirees, ensuring that those who choose to retire several years early are not given special rewards.
Our solution
There is no single magic bullet for containing skyrocketing retiree health care costs. Instead, the state will need multiple reforms that, together, ensure that the cost of providing these benefits does not crowd out other state spending. These reforms include: Increasing retiree contributions toward premiums. Other states require retirees to pay a much higher portion of their premiums than Illinois does. By aligning retiree contributions to the average contributions retirees make in other states, Illinois could save more than $40 billion over the course of the next 30 years.88 These savings also would reduce the states current unfunded liability of $45 billion by approximately $18 billion, or 40 percent. Beginning in fiscal year 2013, the state should determine premium subsidies on a sliding scale according to a combination of a retirees ability to pay, years of service and retirement age. This would reward employees for lifelong service, discourage early retirement and protect low-income retirees. This would reduce the states contribution to 51 percent, down from 91 percent.89 If adopted in all three
40
budget solutions
2013
insurance programs, this strategy would save the state nearly $425 million in fiscal year 2013 alone.90 Graphic 26. Reform savings in fiscal year 2013
State government retiree health care costs with and without reform (dollars in millions)
Health care system

SEGIP TRIP CIP Total
Fiscal year 2012

$766.93 $110.03 $13.99 $890.95
Budget Solutions 2013

$417.33 $40.19 $8.07 $465.60
Savings
$349.60 $69.84 $5.92 $425.35
Source: COGFA and Illinois Policy Institute calculations
Capping retiree subsidies. Many government workers retire before reaching retirement age. The state should not reward them for choosing to retire early. Beginning in fiscal year 2013, the state should cap subsidies for all new retirees at the same level the state pays for Medicare-eligible retirees in the same benefit points and income brackets. Because early retirees are the most expensive to cover, this proposal would save the state several billion dollars over the next few decades. Ending retiree subsidies. Private sector employees are rarely offered retiree health insurance. When they are offered coverage at all, many have to pay the full cost of their premiums. Because the state has already increased the full benefit retirement age to 67 for newly hired employees, it should also end retiree subsidies for new hires. These new employees will be Medicareeligible by the time they are able to collect their full benefits, making the states supplemental coverage largely unnecessary and even further out of sync with the private sector.
If lawmakers care about ensuring that they can provide health care for the most vulnerable Illinoisans, they must commit to reforming this system now.
Why this works

Without reform, Illinois taxpayers will spend more than $100 billion over the next 30 years, largely from general revenues, to provide health insurance to state retirees who are already receiving generous pensions. Lawmakers will sink billions of dollars into providing Cadillac coverage for well-off retirees instead of protecting the most vulnerable. Even with these reforms, retired state workers will have benefits that are virtually unheard-of in the private sector. The vast majority of private sector retirees are not offered retiree health insurance at all. When they are offered coverage, they generally pay all or most of the cost of their premiums. There is a consensus that retiree health benefits are not protected by the state constitution.91-93 Lawmakers can change these benefits to ensure the state can provide assistance to residents who really need help. If lawmakers care about ensuring that they can provide health care for the most vulnerable Illinoisans, they must commit to reforming this system now.
41
budget solutions
2013
reAlignment with reAlity Reform human services

The problem
Illinois offers human services programs through a number of government agencies, including the Department on Aging, Department of Children and Family Services, Department of Healthcare and Family Services and the Department of Human Services. As Illinois takes the difficult, but necessary, path out of its current fiscal crisis, all departments will need to share in budget sacrifices. But theres an opportunity to improve services with a smaller budget through prioritization, efficiency and technologybased solutions.
The state gives grants to numerous nonprofit organizations. Unfortunately, significant performance metrics are not available for the public to gauge how well money is being allocated or spent.
In fiscal year 2012, Illinois appropriated $6.9 billion toward human services departments. But Illinois current model for delivering human services is broken. One problem is a lack of accountability and transparency. The state gives grants to numerous nonprofit organizations. Unfortunately, significant performance metrics are not available for the public to gauge how well money is being allocated or spent. While performance measures may be more difficult to apply to human services compared to other areas, they are no less important. Without a sense of how effective programs or vendors are, it is impossible to make responsible decisions, and opportunities for waste abound. Another problem is Illinois backlog of unpaid bills. When the state overpromises to these nonprofits and then fails to pay them on time or in a predictable fashion, it can significantly disrupt their operations. Over the last few years, state payments to vendors such as human services providers have been both untimely and inconsistent. In a 2009 survey of nonprofits across the country, Illinois had the highest percent of nonprofits reporting late payment from the government (see Graphic 27).94 In Illinois, 72 percent of nonprofits received late payments compared to the national average of 41 percent. Graphic 27. Percent of nonprofit organizations with late payment from the government, Illinois and surrounding states
Source: Urban Institute, National Survey of Nonprofit Government Contracting and Grants, 2010
42
Realignment with reality: Reform human services
budget solutions
2013
Since, problems with late payments have continued. In April 2010, the Illinois Comptrollers Office had a recorded message on their phone system informing callers of the following:95
Vouchers are normally paid in a timely manner. However, due to budget restraints, payments are currently being processed within approximately 140 to 145 business days from the time they are received from the authorizing agency. Generally, vouchers are paid on a first come first serve basis, with the exception of school aid and other statutory demands.
Thats seven months of waiting for vendors and service providers. These late payments have caused nonprofit organizations to take out loans, lay off workers and even shut down their operations.96 Even with an influx of revenue from the January 2011 income tax hike the largest in Illinois history Illinois is still not able to pay its bills on time. As recently as January 2012, the state was still paying vendors up to 4.5 months late, with the Illinois Comptroller predicting that the backlog will experience little improvement in the near future.97 By making promises to spend money beyond the states means, the state is doing a great disservice to nonprofits in Illinois. Increases in government spending on human services can also have a negative effect on private charity. Researchers at the University of Linz in Austria found that an increase in governmental spending on social benefits by 1 percentage point of GDP decreases an individuals likelihood of volunteering for religious, sports, arts, or any other kind of organization by about 2 percentage points.98 Consider a typical family in Illinois with the median Illinois household income of $50,761.99 The latest data available finds that Illinoisans give approximately 1.85 percent of their adjusted gross income to charity.100 In this case, that would be $939. But in 2011, Gov. Quinn and the Illinois General Assembly imposed a record income tax increase costing this family $895.101 What will they cut from their family budget when they need to pay $895 more in taxes? Food? Housing? Health care? Perhaps charitable giving. While skeptics may say the state needs to increase taxes in order to provide a higher level of funding for nonprofits, its important to keep in mind that revenue must first come out of the pockets of taxpayers.
Do We Need Big Government?

Increasingly, government is seen as the source of prosperity and the solution to all problems. Government creates jobs. Government providesmedicalcare, food, shelter, even an income. Government regulates our morals and defines our virtues. Every good idea becomes a call for a new government program. Civil society, including business and private charity, is relegated to the sidelines, treated with suspicion at best, and often outright hostility.
Our solution
Illinois cannot afford the level of human services it is currently promising. It cannot meet its commitments, and it is clearly overextended. In addition, human services in Illinois need greater transparency and accountability. There must be a clear understanding of the results and effectiveness of human services funding. Budget Solutions 2013 reduces human services funding by $500 million. At the same time, Budget Solutions 2013 increases transparency, efficiency and accountability, ensuring that those in need will have access to the core services they require.
At alitaep udition repernatum, omni aliquatur, But, at some point, one has to ask: Has our national character aborit tem become so degraded that farmers cannot farm, businesses cannot velectibus innovate, doctors cannot treat you, and charities cannot expe care for those in need without some sort of governmentprehenit And intervention? ario at what point do we simply cease to iusda sitis be a society of free individuals and instead become littledendaes more than wards of the state? et eium Perhaps this is why, according to a ressit rat Gallup poll taken earlier this month, ullendusae 64 percent of Americans believe that
big government is a bigger threat to the future of this country than big business (26 percent) or big labor (8 percent). -Michael Tanner Do We Need Big Government? National Review, Dec. 14, 2011
A surefire way to find savings is by increasing efficiencies and prioritizing spending. For example, consolidating the many human service departments into fewer departments could lower administrative, management, facilities management and technological costs. Illinois has four different departments handling human
43
budget solutions
2013
services; surrounding states generally have half as many, with just one or two departments providing these services.102 Consolidation of departments could also improve information sharing and simplify beneficiaries experience, as individuals could have their various human services managed through a centralized system. Gov. Quinns Taxpayer Action Board previously estimated that consolidation of human services could result in savings of $155 million to $400 million annually within five to 10 years of implementation.103 In addition to consolidation, human service departments need to prioritize their programming based on programs that are both most necessary and most effective. Currently, many of the programs offered by human service departments in Illinois can be and already are, in many areas organized by civil society. Volunteer-based activities and support groups can be organized outside of government, should a demand for such services exist. Further, some programs offer duplicative employment services to those offered by other government agencies and private organizations.
By improving efficiency and prioritizing spending, the state can still provide critical services to the most needy and leave other projects to civil society.
Although private nonprofit organizations support worthwhile causes, the state cannot afford to fund all of these programs. State government should no longer pick winners and losers over a spectrum of causes many of which are already generously funded by private associations. For example, in fiscal year 2012, state grants to nonprofit organizations include: $99,372 to St. Louis Area Food Bank Inc.,104 which had a fund balance of nearly $12 million at the end of September 2010.105 More than $2 million to Easter Seals Metropolitan Chicago Inc.,106 which had a fund balance of $18 million at the end of August 2010.107 $500,000 to the American Lung Association of the Upper Midwest,108 which had a fund balance of $19.9 million at the end of fiscal year 2011.109 In fact, there are many private sector charities that function without any government funding at all. Charity Navigator lists nearly 1,000 nonprofits offering regional services in the United States with at least a three- or four-star rating none of which receive government funding. The state should focus on core human services and allow civil society to handle other worthwhile charitable causes.
Why this works

The status quo is not working in Illinois human services, and nonprofit organizations cannot continue to operate smoothly when they are uncertain of when or whether the state will pay them. Illinois must stop overpromising on commitments it cannot keep. The lack of transparency and accountability in human services makes it difficult to judge the performance of the programs and vendors in those areas. By improving efficiency and prioritizing spending, the state can still provide critical services to the most needy and leave other projects to civil society. The Institute encourages the use of a process similar to Competitive Grant Funding in order to ensure that the most necessary and effective programs are continued and the decision process is transparent and accountable for those who foot the bills Illinois taxpayers.
44
budget solutions
2013
reAlignment with reAlity Rightsize state employee pay

The problem
Compensation for government workers is out of line with the private sector. For Illinois to move forward, workers and lawmakers must make difficult choices and share in sacrifice. Politicians and state employees can no longer put their interests ahead of the taxpayers theyre supposed to serve. According to the Bureau of Labor Statistics, state and local government workers across the nation are paid 45 percent more per hour than private sector employees.110 Much of the difference in compensation between the public and private sector stems from employer-paid benefits such as generous health care plans, pensions and paid sick leave all of which are largely unavailable to workers in the private sector. In Illinois, state employee compensation is 23 percent higher than the average for private sector workers, mainly due to employer-paid benefits.111 After adjusting for inflation, state government wages and salaries increased 12.6 percent between 1993 and 2008. In comparison, private sector employee wages decreased 1.6 percent over the same time period.112 Graphic 28. Average annual statewide and state government salary comparison by job title, 2010
Job Title
Architects Electricians Licensed Practical Nurses Cartographers and Photogrammetrists Registered Nurses Painters Plumbers and Steamfitters Archivists Pharmacy Technicians Arbitrators Auto Mechanics Medical and Clinical Lab Technicians Switchboard Operators Barbers Secretaries and Administrative Assistants Physical Therapy Aides Rehabilitation Counselors Janitors Cashiers Cooks
According to the Bureau of Labor Statistics, state and local government workers across the nation are paid 45 percent more per hour than private sector employees.
Overall State Average

$76,270 $68,430 $41,080 $54,930 $66,660 $51,140 $66,200 $56,830 $29,500 $84,460 $38,690 $40,700 $25,880 $47,100 $32,140 $24,850 $37,800 $26,060 $20,250 $23,970
Illinois State Government Average

$84,004 $75,610 $45,500 $61,866 $76,510 $59,949 $78,226 $67,414 $37,517 $112,024 $57,894 $60,998 $39,346 $72,359 $52,734 $41,721 $64,484 $45,284 $35,936 $43,990
Disparity
+10.1% +10.5% +10.8% +12.6% +14.8% +17.2% +18.2% +18.6% +27.2% +32.6% +49.6% +49.9% +52.0% +53.6% +64.1% +67.9% +70.6% +73.8% +77.5% +83.5%
Source: Illinois Comptrollers Office, the Bureau of Labor Statistics and Illinois Policy Institute calculations
46
Realignment with reality: Rightsize state employee pay
budget solutions
2013
Another way to measure the value of employee compensation is through voluntary turnover rates. When employees do not consider themselves well-compensated, they will seek out better opportunities. In this way, voluntary turnover rates can reveal how much workers value their jobs. In Illinois, the voluntary employee turnover rate at the state level is approximately one-quarter the private sector rate.113 Such a low turnover rate is another indicator that compensation for state government workers is too high. What makes those jobs valuable? Job security is one reason, but the non-merit pay raise system is another. Between January 2011 and February 2012, state employees represented by AFSCME were scheduled to receive five pay raises, which would have amounted to an 8.5 percent pay increase in 13 months (see Graphic 29).114 After the General Assembly did not appropriate funding for the raises, Gov. Quinn cancelled the raises from July 1, 2011 onward in 14 state agencies.115 AFSCME objected and has sued the state to have the raises reinstated.116 Graphic 29. Revised AFSCME pay raise schedule
Date
January 1, 2011 June 1, 2011 July 1, 2011 January 1, 2012 February 1, 2012
Pay raise
1% 2% 2% 1.25% 2%
Sample new salary (base salary of $100,000)

$101,000 $103,020 $105,080 $106,394 $108,522
Source: State Journal-Register
Unsurprisingly, higher levels of unionization have been linked to higher levels of compensation. Studies have found unionization to be a factor that increases the government compensation disparity.117 A recent Goldwater Institute report on collective bargaining included a statistical analysis of total compensation across all 50 states. Goldwaters analysis indicated that for each 10 percentage point increase in state and local government sector unionization, the average total compensation of each government worker increases by $1,367.118 In Illinois, about 96 percent of state employees belong to unions.119 The level of unionization has become so high that many state government leaders worry about the implications of a nearly completely unionized workforce. State House Majority Leader Barbara Flynn Currie (D-Chicago) sponsored legislation that would curb the types of state management jobs eligible for union membership. In an interview with the Associated Press, she said120:
Between January 2011 and February 2012, state employees represented by AFSCME were scheduled to receive five pay raises, which would have amounted to an 8.5 percent pay increase in 13 months.
It is the intention to say that there ought to be people who have clear management responsibilities. You cant run a ship of state when you dont have anybody whos doing the running. I mean Im a strong supporter of unions but there is something wrong with this picture when virtually everybody is a member of the union. No ones in charge here.
Public sector unions operate in an entirely different reality than private sector unions. While private sector unions continuously have to deal with the financial bottom line of the companies they deal with (or risk losing their job security entirely), government unions can much more easily pass higher labor costs onto taxpayers. This is because the government monopoly in certain
47
budget solutions
2013
services such as police, fire, regulatory, sanitary and sewer services, of which there may not be available or legal private sector equivalents. This monopoly limits the options taxpayers have when faced with inefficient or expensive government service. There is also a fundamental conflict of interest between public employers and unions that doesnt exist in the private sector: public sector unions can play a role in electing their employers through the political process. Union members generally have more to gain than taxpayers have to lose, so they can wield greater influence at the ballot box. This type of pressure can create a situation in which taxpayers are left unrepresented at the bargaining table.
Our solution
State employee compensation is out of balance with the private sector. During difficult economic times when many taxpayers have seen their incomes decline, it does not make sense for public sector workers to be awarded multiple raises in a year. 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. Graphic 30. Historical personnel and fringe benefit costs in Illinois
Total state personal services and fringe benefits
Fiscal year 2010
Illinois cannot afford to pay bloated wages and benefits to state government employees. Residents across the state have tightened their belts through this economic downturn; government workers must do the same.
General Funds cost

$5.2 billion
Source: Illinois Budget Books
Reforms are necessary to avoid similar situations in the future. This can be accomplished in multiple ways. As just one example, merit raises and step increases for state employees could be contingent on state economic or fiscal factors, such as the unemployment rate or the backlog of unpaid bills. Should employees be getting raises while hospitals must wait six months to be paid, or while one in 10 Illinois workers cant find a job?
Why this works

Illinois cannot afford to pay bloated wages and benefits to state government employees. Residents across the state have tightened their belts through this economic downturn; government workers must do the same. While many state employees do vital work, research suggests that their compensation is out of sync with market rates. Giving state employees raises while state vendors such as hospitals and schools receive payments months late is unacceptable. Taxpayers cannot continue to bear the burden of wages and benefits that are not in line with the states fiscal realities. The state needs to be a better steward of taxpayer dollars and start putting taxpayers first.
48
budget solutions
2013
reAlignment with reAlity Reform cost of living adjustments

Potential savings: $120 million - $150 million
The problem
Illinois has one of the worst-funded pension systems in the nation. Comprehensive pension reform, including adjustments to future benefits for current employees, is critical. But while lawmakers work toward substantive pension reform, there is another step than can be taken to bring Illinois broken retirement funds in line with the states budget realities: reforming automatic cost-of-living adjustments, or COLAs, for state retirees. State retirees in Illinois Tier 1 pension system that is, government workers hired prior to Jan. 1, 2011 are awarded 3 percent COLAs, compounded annually, regardless of whether or not the actual cost of living goes up. This ratchets up pension costs significantly. State pension costs also have risen because COLA levels have increased over time. By increasing COLAs, elected officials earn immediate political goodwill from unionized state workers but they also burden taxpayers with the long-term costs. Take the Teachers Retirement System, TRS, as an example: the TRS adopted an annual 1.5 percent COLA increase in 1969. In 1971, it was increased to 2 percent; by 1978 it rose again, to 3 percent.121 Today, retired teachers receive annual, compound 3 percent COLAs. To understand the impact of COLAs, consider the following example. Suppose a professor from a state university retired between July 1, 2009 and June 30, 2010, and had taught for at least 30 years of service. If the professor received the average starting pension, he would be paid $68,208 in his first year of retirement.122 But thanks to COLAs, after just 10 years this pension would balloon to nearly $89,000 annually. After 20 years, the pension will shoot up 75 percent from the original pension to approximately $120,000 (see Graphic 31). Graphic 31. Impact of 3 percent compounding COLA over a 20-year retirement
Government workers hired prior to Jan. 1, 2011 are awarded 3 percent cost-of-living adjustments, compounded annually, regardless of whether or not the actual cost of living goes up. This ratchets up pension costs significantly.
Source: State Universities Retirement System Comprehensive Annual Financial Report 2010 and Illinois Policy Institute calculations
50
Realignment with reality: Reform cost of living adjustments
budget solutions
2013
Our solution
Reforming COLAs will begin the process of returning equity and fairness to the relationship between government workers and taxpayers. Additionally, reform makes the pension system more sustainable, protecting government retirees from the danger of pension funds running dry. Northwestern University professor Joshua Rauh and University of Rochester professor Robert Novy-Marx found that by simply lowering COLAs by 1 percentage point, a states total pension liabilities would decrease by between 9 and 11 percent.123 For Illinois, which has a total liability of more than $120 billion, this translates to approximately $10 billion in savings for Illinois government money that could instead be spent on education or human services, or returned to taxpayers. Currently, Tier 1 COLAs are compounded annually. This means that each year, a state retirees pension benefit increases by 3 percent. That contrasts with a simple COLA method, where a retirees pension increases each year by a fixed amount the COLA rate of the original pension amount (see Graphic 32). Changing the COLA calculation from a compounded to a simple interest calculation would decrease the states total pension liability by approximately 4 to 5 percent. These changes would affect normal costs in approximately the same ratio as the total liability. In fiscal year 2013, Illinois normal cost for pensions will be approximately $1.7 billion. This figure could be reduced by the reform proposed in the Local pension accountability chapter of Budget Solutions, which delegates the responsibility of paying teachers normal costs to local school districts. Taking that into account, the states normal cost would drop to approximately $942 million. Shifting COLA levels to 2 percent, down from 3 percent, would save the state approximately $85 million to $104 million in fiscal year 2013 alone. Ending annual COLA compounding would save the state an additional $38 to $47 million in fiscal year 2013. This means that in fiscal year 2013 alone, decreasing the COLA to 2 percent simple interest from the current 3 percent compounded would save taxpayers $120 million to $150 million. Graphic 32. Savings incurred by switching to 2% simple COLA from a 3% compounding COLA
Reforming COLAs will begin the process of returning equity and fairness to the relationship between government workers and taxpayers.
Source: State Universities Retirement System Comprehensive Annual Financial Report 2010 and Illinois Policy Institute calculations Realignment with reality: Reform cost of living adjustments
51
budget solutions
2013
Legislators have already acknowledged the problems associated with COLAs. As part of a package of reforms passed in 2010, they capped the pension increases at the lesser of 3 percent or one-half of the consumer price index for new employees.124 Yet these reforms do nothing to fix the current problems in the system since they only apply to employees hired after Jan. 1, 2011.
Why it works
Across the country, states are reconciling themselves to the insupportable nature of the current COLA model, which gives government employees guaranteed annual increases compounded for the entirety of retirements. Colorado, Rhode Island, Minnesota, New Hampshire and South Dakota all have made changes to COLAs for government workers, a number of which included changes to future benefits awarded to current retirees. Even union leaders in some states have begun to realize that COLAs need to be reformed to protect future pension benefits for government employees. In Minnesota, the head of the St. Paul chapter of AFSCME accepted COLA reductions, saying that unions need to make sure they dont kill the goose that lays that golden egg.125 Taxpayers can no longer afford to fund an unsustainable golden egg pension system for government retirees. Reducing the COLA for state employees and retirees in Illinois is a crucial aspect of securing our pension systems while protecting taxpayers. This reform will immediately decrease Illinois unfunded liabilities while putting Illinois pension system on the path toward long-term sustainability.
Across the country, states are reconciling themselves to the insupportable nature of the current COLA model, which gives government employees guaranteed annual increases compounded for the entirety of retirements.
52
Realignment with reality: Reform cost of living adjustments
budget solutions
2013
Conclusion:
Illinois can be one of the many states that solves its budget problems through fiscal restraint
States across the nation have dealt with budget shortfalls in recent years, and some have fared better than others. Illinois is in a fiscal crisis, and its attempt to solve its problems through higher taxes has failed. The state is in worse fiscal shape than before the tax hike and its business climate has become more hostile. Other states have taken different approaches and have been met with success. For instance, 10 states are considering repealing or reducing their income taxes in the next several years in order to attract people and investment.126 Here are some examples of how other states have closed budget gaps and reduced liabilities without tax increases. Wisconsin Wisconsin took bold moves to close an expected $2.9 billion dollar deficit in 2012-2013.127 Gov. Scott Walker addressed this budget shortfall head-on by introducing the Wisconsin Budget Repair Bill.128 This bill increased employee pension and health insurance contributions, gave state and local government more flexibility when negotiating employee contracts and made other changes, all of which saved state and local governments millions of dollars in 2011.129 Florida In Florida, Gov. Rick Scott is working to reduce the burden on taxpayers by proposing a budget that is billions of dollars smaller than the previous years.130 This follows his decision in fiscal year 2012 to implement an accountability budgeting test program. This program gave three agencies more discretion in their spending decisions in exchange for higher levels of accountability.131 Future funding for these agencies will be based on their ability to meet clear and unmistakable goals. Rhode Island Rhode Island had one of the worst-funded pension systems in the country, but its Democratcontrolled legislature implemented pension reforms which will save the state around $3 billion.132 The state closed the defined benefit plan that covers most state and local employees and transferred members into a hybrid plan that increases employee contributions. The reform also suspended COLA increases until the system is 80 percent funded and increased retirement age for employees not currently eligible for retirement.133 Indiana Gov. Mitch Daniels has turned Indiana around during his time in office. When Daniels was elected in 2004, the state had seven successive years of budget deficits. Four years later, the $700 million operating deficit was gone, and Indiana had $1.3 billion in rainy-day reserves. State spending grew only 1 percent per year, and rising revenues produced a surplus. Debt was reduced 40 percent, and the state earned its first AAA bond rating.134 Indiana achieved this by freezing salaries, renegotiating contracts, leaving vacant positions unfilled, centralizing HR and accounting services and other reforms. The state made another bold move to improve its economic climate recently when Indiana became the first right-to-work state in the Rust Belt.135
Illinois is in a fiscal crisis and its attempt to solve its problems through higher taxes has failed. The state is in worse fiscal shape than before the tax hike and its business climate has become more hostile. Other states have taken different approaches and have been met with success.
54
Conclusion
budget solutions
2013
Missouri Since 2008, Missouris governor, Jay Nixon, has reduced state spending by $1.6 billion and has proposed a budget that closes a $500 million gap without any tax increases because, as he put it, Missouri families cant afford a tax increase. Period.136 The state is considering strengthening its current expenditure limit as well.137 New Hampshire In 2011, New Hampshire was able to close its deficit by reducing spending considerably, cutting enough so that it was even able to reduce excise taxes. New Hampshire accomplished this in part by freezing government employee wages, enacting pension reforms that included increasing employee contributions, increasing the retirement age for new hires and other changes.140 The Legislature also passed a right-to-work bill, though it was vetoed by the governor.141 Georgia Georgia is introducing a limited trial of zero-based budgeting, which requires agencies to justify all funding every year not just increases from the previous year. Gov. Nathan Deal believes that through zero-based budgeting, we will bring a new level of accountability to state government and verify that taxpayer dollars are being spent to meet the priorities of Georgians!142
Georgia is introducing a limited trial of zero-based budgeting, which requires agencies to justify all funding every year not just increases from the previous year.
Conclusion
55
Appendix: Financials ........................ 58 Endnotes............................................... 63
budget solutions
2013
budget solutions
2013
Appendix: Financials
Illinois General Funds Budget (dollars in millions)
2012 Revenues Total Spending Operating expenditures Additional expenditures Surplus/(Deficit) Pay bill backlog Net Surplus/Deficit 33,221 33,612 25,138 8,474 (391) 0 (391) FY2013 Governor 33,940 33,766 24,816 8,950 174 0 174 2013 Alternative 32,884 29,443 23,013 6,430 3,441 (3,441) 0 2014 Alternative 29,072 28,608 21,718 6,890 464 (464) 0
Budget Solutions 2013 repeals the entire January 2011 income tax hike effective Jan. 1, 2013. The repeal returns the personal income tax rate to 3 percent and the corporate income tax rate to 4.8 percent. Repealing the tax hike returns approximately $3 billion to taxpayers in fiscal year 2013 and an additional $3 billion in fiscal year 2014. Under the Budget Solutions plan, revenues for fiscal year 2013 reflect the lower tax revenues from the tax repeal as well as higher federal revenues from Medicaid. See Revenues and Medicaid sections below. Total spending is reduced to $29.4 billion in fiscal year 2013, from $33.6 billion in fiscal year 2012. This represents a decrease of approximately $4.2 billion, or 12.4 percent. Reductions are the result of reforms highlighted in this document. Note that fiscal year 2012 spending does not include the approximately $2 billion in additional Medicaid liabilities incurred during that year and that have been passed on to fiscal year 2013. When the additional liabilities are taken into account, total spending is reduced by approximately $6.2 billion in fiscal year 2013. Fiscal year 2014 reflects a further drop in spending of approximately $800 million. Under Budget Solutions 2013, the state would have a surplus of approximately $3.4 billion in fiscal year 2013 and a surplus of $464 million in fiscal year 2014. Any surplus is used to pay down unpaid bills and unaddressed obligations.
58
budget solutions
2013
Revenues (dollars in millions)

2013 Alternative 2014 Alternative (Reduction)/ Increase 2013 Alternative vs. 2012 (Reduction)/ Increase 2014 Alternative vs. 2013 Alternative
2012
State Sources Individual income tax Corporate income tax Sales tax All other state sources Federal sources Transfers In Total revenues 15,062 2,354 7,145 3,026 3,805 1,829 33,221 12,218 2,149 7,335 3,047 6,334 1,800 32,884 9,475 1,864 7,385 3,019 5,468 1,862 29,072 (2,844) (205) 190 21 2,529 (29) (337) (2,744) (286) 50 (28) (866) 62 (3,811)
Compared to fiscal year 2012, fiscal year 2013 has an 18.9 percent reduction in individual income tax revenue and an 8.7 percent reduction in corporate income tax revenue as a result of the repeal of the tax hike in January 2013. The remaining impact of the tax repeal takes place in fiscal year 2014. Budget Solutions uses the governors base revenue projections to determine its individual and corporate income projections. Federal resources are increased by $866 million in fiscal year 2013 as a result of federal matching from paying down nearly $2 billion in unpaid Medicaid bills from fiscal year 2012. Additional federal resources are based on the states expected increased liabilities in Medicaid in fiscal year 2013 and the conversion of the federal match into a federal block grant. (See Medicaid section below).
59
budget solutions
2013
Operating expenditures (dollars in millions)

2013 Alternative 2014 Alternative (Reduction)/ Increase 2013 Alternative vs. 2012 (1,100) 846 (500) (131) (425) (66) (29) (520) (200) (2,125) (Reduction)/ Increase 2014 Alternative vs. 2013 Alternative (385) (300) (400) (50) (160) 0 0 0 0 (1,295)
2012
Education Medicaid Human Services Public Safety Government services Economic development Quality of life Collective bargaining reforms Competitive grants Total appropriations
8,843 6,634 5,460 1,531 2,513 92 65 0 0 25,138
7,743 7,480 4,960 1,400 2,088 26 36 (520) (200) 23,013
7,358 7,180 4,560 1,350 1,928 26 36 (520) (200) 21,718
Budget Solutions 2013 reduces appropriations in fiscal year 2013 by 8.5 percent, to $23 billion from $25.1 billion in fiscal year 2012. Appropriations fall an additional $1.3 billion in 2014, to $21.7 billion, as the result of 4 to 8 percent reductions in key programmatic spending. The most significant reductions from fiscal year 2012 include: o Education appropriations are reduced by 12.4 percent, or $1.1 billion, as the result of amending the General State Aid for Education formula to end subsidies/carve outs for select school districts. o Human Services appropriations are reduced by 9.2 percent as the result of a reduction in programs by $500 million. o Employee compensation reforms and the introduction of competitive grants will save an additional $720 million a year. o Government Services appropriations are reduced by 16.9 percent as the result of a reduction of state employee retirement benefits by $425 million. o Medicaid shows an $846 million increase in fiscal year 2013 vs. fiscal year 2012. However, fiscal year 2012 spending does not include approximately $2 billion in Medicaid liabilities that were incurred in fiscal year 2012 but have gone unpaid. When the additional Medicaid liabilities are taken into account, total Medicaid spending is cut by approximately $1.2 billion in fiscal year 2013.
60
budget solutions
2013
Medicaid (dollars in millions)

2012 Appropriations Federal funds State funds Total General Revenue funds 3,320 3,320 6,634 2012 Liabilities 4,290 4,290 8,580 2013 Alternative 4,850 2,630 7,480 (Reduction)/ Increase vs. 2012 Appropriations 1,530 (690) 840 (Reduction)/ Increase vs. 2012 Liabilities 560 (1,660) (1,100)
In fiscal year 2012, Medicaid general fund appropriations totaled approximately $6.6 billion, with half of that funding coming from federal funds. The $6.6 billion total, however, does not accurately reflect the actual Medicaid liabilities Illinois will incur during fiscal year 2012. The states actual liabilities will be nearly $8.6 billion in fiscal year 2012, making that amount the spending base for comparison in fiscal year 2013. Without the reforms proposed in Budget Solutions, fiscal year 2013 Medicaid liabilities are expected to total approximately $9.7 billion. The federal government is expected provide Illinois half of that amount, or $4.85 billion, under its 50 percent federal medical assistance program, or FMAP. As part of its reforms, Budget Solutions 2013 requests a block grant from the federal government in the amount of the expected $4.85 billion FMAP. A global waiver that allows Illinois to implement the Medicaid reforms proposed in this document should accompany the federal block grant. Illinois would request approval to convert from a fee-for-service Medicaid model into one where individuals are provided financial support to purchase personal insurance. Budget Solutions, then, incorporates the federal revenue corresponding to the block grant, as well as an additional $866 million as the result of paying down fiscal year 2012 bills. In addition, because Budget Solutions pays all Medicaid costs in the fiscal year in which they are incurred, total General Revenue Fund Medicaid appropriations for fiscal year 2013 increase in comparison to fiscal year 2012 appropriations. The chart above shows how Budget Solutions 2013 would save the state approximately $1.7 billion in state liabilities from fiscal year 2012. Compared to fiscal year 2012 state general funds appropriations to Medicaid, Budget Solutions will save approximately $700 million.
61
budget solutions
2013
Additional expenditures (dollars in millions)

2013 Governor 2013 Alternative 2014 Alternative (Reduction)/ Increase 2013 Alternative vs. 2012 404 35 (53) (1,919) (32) (479) (2,044) (Reduction)/ Increase 2013 Alternative vs. 2013 Governor 0 (920) 0 (1,600) 0 0 (2,520)
2012
Unspent Appropriations Pension Contributions Pension Obligation Bonds Transfers Out Capital Obligation Bonds Interfund Borrowing Repayments Total Additional Expenditures
(904) 4,135 1,605 2,461 551 626 8,474
(500) 5,090 1,552 2,142 519 147 8,950
(500) 4,170 1,552 542 519 147 6,430
(500) 4,673 1,655 542 520 0 6,890
Total additional expenditures are reduced by $2 billion in fiscal year 2013 compared to fiscal year 2012. This is a result of the following: o In conjunction with a repeal of the January 2011 tax hike, transfers out of the General Revenue Fund are reduced by $1.6 billion. The largest single item is the $1.1 billion local government distributive fund. o An increase of $1 billion in state pension contributions is mostly offset by the transfer of normal costs for teacher retirements to local school districts, totaling $800 million, and a reduction in cost of living adjustments for retirees in the state retirement systems, totaling $120 million.
62
Endnotes
1. Governors Office of Management and Budget, 2012 Economic and Fiscal Policy Report, 3 January 2012, http://www.state.il.us/budget/2012%20 Economic%20and%20Fiscal%20Policy%20Report.pdf. Institute for Truth in Accounting, The Financial State of States, July 2010, http://www.truthinaccounting.org/state-of-states/. U.S. Census Bureau, Government Finance Data, http://www.census.gov/ govs/ and Illinois Policy Institute calculations using the CPI to adjust for inflation. Amanda Griffin-Johnson, Blagojevich vs. Illinois taxpayers: How the fiscal legacy of Blago is alive and well, Illinois Policy Institute, 5 December 2011, http://illinoispolicy.org/news/article.asp?ArticleSource=4553. Ted Dabrowski, General State Aid for Education: Time for an Overhaul, Taxpayers Federation of Illinois, 2010. Illinois Policy Institute communications with the Illinois State Board of Education, January 2012. Illinois Policy Institute communications with the Illinois State Board of Education, January 2012. Illinois Department of Revenue, Statewide TIF History, 2 February 2012. Illinois State Board of Education, ISBE 2010 Annual Report, January 2011, http://www.isbe.net/reports/annual10/toc.htm. 20. Authors calculations based upon Title XIX and Title XXI enrollment data provided to the Institute by the Department of Healthcare and Family Services. 21. U.S. Department of Health and Human Services, Medicaid Statistical Information System (MSIS) State Summary Datamart, http://msis.cms.hhs.gov/. 22. U.S. Census Bureau, Illinois QuickFacts, http://quickfacts.census.gov/qfd/ states/17000.html. 23. U.S. Census Bureau, Current Population Surveys Annual Social and Economic Supplement Years 2003-2011. 24. Stephen Zuckerman et al., Trends in Medicaid physician fees, 2003-2008, Health Affairs, 2009, http://content.healthaffairs.org/content/28/3/w510. 25. Stephen Zuckerman et al., Trends in Medicaid physician fees, 2003-2008, Health Affairs, 2009, http://content.healthaffairs.org/content/28/3/w510. 26. Avalere Health, TrendWatch Chartbook 2010: Aggregate Hospital Paymentto-cost Ratios for Private Payers, Medicare and Medicaid, 1989 2009, American Hospital Association, 2010, http://www.aha.org/trendwatch/ chartbook/2011/table4-4.pdf. 27. Pat Quinn, Fiscal year 2012 budget briefing presentation, Office of Management and Budget, 2011, http://www.state.il.us/budget/FY2012/FY12_ Budget_Briefing_Presentation.pdf. 28. Peter J. Cunningham and Ann S. OMalley, Do reimbursement delays discourage Medicaid participation by physicians? Health Affairs, 2009, http:// content.healthaffairs.org/content/28/1/w17. 29. Jonathan Ingram, Medicaid Fail: Why cutting appropriations doesnt control costs, Illinois Policy Institute, 8 November 2011, http://illinoispolicy.org/ uploads/files/MedicaidFAIL.pdf. 30. Mallory Meyer et al., Budget summary: fiscal year 2012, Commission on Government Forecasting and Accountability, 2011, http://www.ilga.gov/commission/cgfa2006/Upload/FY2012BudgetSummary.pdf. 31. Joanna Bisgaier and Karin V. Rhodes, Auditing access to specialty care for children with public insurance, New England Journal of Medicine, 2011, http:// www.nejm.org/doi/full/10.1056/NEJMsa1013285. 32. Joanna Bisgaier and Karin V. Rhodes, Auditing access to specialty care for children with public insurance, New England Journal of Medicine, 2011, http:// www.nejm.org/doi/full/10.1056/NEJMsa1013285. 33. Katherine Iritani, Most physicians serve covered children but have difficulty referring them for specialty care, Government Accountability Office, 2011, http://www.gao.gov/new.items/d11624.pdf. 34. Only 45 percent of primary care physicians are accepting most or all new Medicaid patients. See, e.g., Center for Studying Health System Change, Health tracking physician survey, 2008, Inter-university Consortium for Political and Social Research, 2010, http://www.icpsr.umich.edu/icpsrweb/ICPSR/studies/27202. 35. Brent R. Asplin et al., Insurance status and access to urgent ambulatory care follow-up appointments, Journal of the American Medical Association, 2005, http://jama.ama-assn.org/content/294/10/1248. 36. Approximately 77 percent of primary care physicians accept at least some uninsured patients who are unable to pay for services, while 46 percent accept all or most of them. See, e.g., Center for Studying Health System Change, Community tracking study physician survey, 2004-2005, Inter-university Consortium for Political and Social Research, 2008, http://www.icpsr.umich.edu/icpsrweb/ ICPSR/studies/4584.
2. 3.
4.
5. 6. 7. 8. 9.
10. Teachers Retirement System, Comprehensive Annual Financial Report for Fiscal Year Ending June 30, 2011, http://trs.illinois.gov/subsections/pubs/ cafr/fy11/fy11cafr.pdf. 11. Ted Dabrowski and Michael Wille, Teachers Pensions: Whos Really Paying? Illinois Policy Institute, 13 October 2011, http://illinoispolicy.org/news/ article.asp?ArticleSource=4457. 12. Ted Dabrowski and Michael Wille, Teachers Pensions: Whos Really Paying? Illinois Policy Institute, 13 October 2011, http://illinoispolicy.org/news/ article.asp?ArticleSource=4457. 13. Ben Velderman, Illinois school board plays hardball with teachers union, saves district from financial ruin, EAG Communications, 13 December 2011, http://www.publicschoolspending.com/wp-content/uploads/2010/11/EAGFOCUS-Illinois-district-uses-new-law-to-curb-excessive-benefits-12-13-11.pdf. 14. Chris Wetterich, Cullerton: Pension changes likely to mean frugal teacher contracts, The State Journal-Register, 6 February 2012, http://www.sj-r.com/ top-stories/x392614361/Cullerton-Pension-changes-likely-to-mean-frugalteacher-contracts?zc_p=0. 15. New York State Teachers Retirement System, Employer Contribution Rate, http://www.nystrs.org/main/employers/contribution-rate.htm. 16. Calpensions, School pensions: an argument for not bargaining? 3 October 2011, http://calpensions.com/2011/10/03/school-pensions-an-argumentfor-not-bargaining/. 17. The Taxpayers Federation of Illinois, State government A major funder of local governments, November/December 2011, http://www.iltaxwatch.org/ pages/show/tax_facts. 18. The Civic Federation, Legislatively Required Transfers: Another Use of State General Operating Funds, 7 April 2011, http://www.civicfed.org/print/iifs/ blog/legislatively-required-transfers-another-use-state-general-operating-funds. 19. Assistant Secretary for Planning and Evaluation, Federal percentages and federal medical assistance percentages, FY 1961 - FY 2011, Department of Health and Human Services, 2011, http://aspe.hhs.gov/health/fmapearly. htm.
63
37. Joanna Bisgaier and Karin V. Rhodes, Auditing access to specialty care for children with public insurance, New England Journal of Medicine, 2011, http:// www.nejm.org/doi/full/10.1056/NEJMsa1013285. 38. Joanna Bisgaier and Karin V. Rhodes, Auditing access to specialty care for children with public insurance, New England Journal of Medicine, 2011, http:// www.nejm.org/doi/full/10.1056/NEJMsa1013285. 39. Joanna Bisgaier and Karin V. Rhodes, Auditing access to specialty care for children with public insurance, New England Journal of Medicine, 2011, http:// www.nejm.org/doi/full/10.1056/NEJMsa1013285. 40. Amy B. Bernstein et al., Health, United States, 2010: With special feature on death and dying, National Center for Health Statistics, 2011, http://www. cdc.gov/nchs/data/hus/hus10.pdf. 41. Ellen J. Weber et al., Does lack of a usual source of care or health insurance increase the likelihood of an emergency department visit? Results of a national population-based study, Annals of Emergency Medicine, 2005, http://www. annemergmed.com/article/S0196-0644(04)01168-0/. 42. Ning Tang et al., Trends and characteristics of US emergency department visits, 1997-2007, Journal of the American Medical Association, 2010, http:// jama.ama-assn.org/content/304/6/664. 43. For ease of reading, this report uses preventable conditions in place of ambulatory care sensitive conditions, which are conditions that generally should not require hospitalization if treated in a timely fashion with adequate primary care and managed properly on an outpatient basis. 44. Joel S. Weissman et al., Rates of avoidable hospitalization by insurance status in Massachusetts and Maryland, Journal of the American Medical Association, 1992, http://jama.ama-assn.org/content/268/17/2388. 45. Eduardo LaCalle and Elaine Rabin, Frequent users of emergency departments: The myths, the data, and the policy implications, Annals of Emergency Medicine, 2010, http://www.annemergmed.com/article/S01960644(10)00105-8. 46. Michael A. Gaglia, Jr. et al., Effect of insurance type on adverse cardiac events after percutaneous coronary intervention, American Journal of Cardiology, 2011, http://www.ajconline.org/article/S0002-9149(10)02234-4. 47. Damien J. LaPar et al., Primary payer status affects mortality for major surgical operations, Annals of Surgery, 2010, http://journals.lww.com/annalsofsurgery/fulltext/2010/09000/Primary_Payer_Status_Affects_Mortality_for_Major.16.aspx. 48. Damien J. LaPar et al., Primary payer status affects mortality for major surgical operations, Annals of Surgery, 2010, http://journals.lww.com/annalsofsurgery/fulltext/2010/09000/Primary_Payer_Status_Affects_Mortality_for_Major.16.aspx. 49. Rachel Rapaport Kelz et al., Morbidity and mortality of colorectal carcinoma surgery differs by insurance status, Cancer, 2004, http://onlinelibrary.wiley. com/doi/10.1002/cncr.20624/full. 50. John D. Birkmeyer et al., Hospital volume and surgical mortality in the United States, New England Journal of Medicine, 2002, http://www.nejm.org/doi/ full/10.1056/NEJMsa012337. 51. Jerome H. Liu et al., Disparities in the utilization of high-volume hospitals for complex surgery, Journal of the American Medical Association, 2006, http:// jama.ama-assn.org/content/296/16/1973.full. 52. Richard G. Roetzheim et al., Effects of health insurance and race on early detection of cancer, Journal of the National Cancer Institute, 1999, http:// jnci.oxfordjournals.org/content/91/16/1409.full. 53. Michael T. Halpern et al., Association of insurance status and ethnicity with cancer stage at diagnosis for 12 cancer sites: A retrospective analysis, Lancet Oncology, 2008, http://www.thelancet.com/journals/lanonc/article/ PIIS1470-2045(08)70032-9.
54. Michael T. Halpern et al., Insurance status and stage of cancer at diagnosis among women with breast cancer, Cancer, 2007, http://onlinelibrary.wiley. com/doi/10.1002/cncr.22786/abstract. 55. Center for Rural Health, Health professional shortage areas maps, Illinois Department of Public Health, 2009, http://www.idph.state.il.us/about/rural_health/HPSA_maps.pdf. 56. Feinberg School of Medicine, Illinois new physician workforce study, Northwestern University, 2010, http://www.ihatoday.org/uploadDocs/1/phyworkforcestudy.pdf. 57. Jonathan Ingram, Overloaded: One in three Illinoisans on Medicaid by 2019? Illinois Policy Institute, 20 October 2011, http://illinoispolicy.org/uploads/ files/overloaded10-20.pdf. 58. Jagadeesh Gokhale, The new health care laws effect on state Medicaid spending: A study of the five most populous states, Cato Institute, 2011, http://www. cato.org/pubs/wtpapers/StateMedicaidSpendingWP.pdf. 59. Henry J. Aaron and Robert D. Reischauer, The Medicare reform debate: What is the next step? Health Affairs, 1995, http://content.healthaffairs. org/content/14/4/8.abstract. 60. Low-income participants in Medicare Part D are eligible for low income subsidies that are adjusted on a sliding scale, certain low-income children receive premium assistance through state CHIP programs and ObamaCare implements new tax credits and subsidies for middle-class Americans buying private health insurance through the Exchanges. 61. Authors calculations based upon projected $281 billion in federal outlays for Medicaid in 2013 and authors analysis of Census Bureau data for state-bystate share of people in poverty. For example, in 2011, Illinois was home to 3.94 percent of all people below 100 percent of the federal poverty level and 4.28 percent of all people below 200 percent of the federal poverty level. If distributed by share of people below 100 percent of the federal poverty level, Illinois would receive a block grant of $11.1 billion. If distributed by share of people below 200 percent of the federal poverty level, Illinois would receive a block grant of $12 billion. See, e.g., Census Bureau, Current Population Surveys Annual Social and Economic Supplement, 2011. 62. Illinois General Assembly, Public Act 097-0070, State of Illinois, 30 June 2011, http://ilga.gov/legislation/publicacts/97/PDF/097-0070.pdf. 63. Authors calculations based upon 2009 GASB No. 43 and No. 45 reporting of total members by status for SEGIP, TRIP and CIP. 64. Authors calculations based upon 2009 GASB No. 43 and No. 45 reporting of total members by status for SEGIP, TRIP and CIP. 65. Authors calculations based upon 2009 GASB No. 43 and No. 45 actuarial valuations for SEGIP, TRIP and CIP for fiscal years 2012 through 2041. 66. This is substantially below the historical average of 7.1 percent per year. 67. Authors calculations based upon 2009 GASB No. 43 and No. 45 actuarial valuations for SEGIP, TRIP and CIP for fiscal years 2012 through 2041. 68. The total cost to taxpayers represents the total employer cost: total liabilities less retiree contributions. While a portion of these costs are paid by payroll deductions from active employees in TRIP and CIP, these deductions are often picked up by local school districts and community colleges. 69. Authors calculations based upon 2009 GASB No. 43 and No. 45 actuarial valuations for SEGIP, TRIP and CIP. 70. GASB No. 43 and No. 45 actuarial valuations were required for fiscal year 2011, but have not been completed as of the date of this publication. 71. Only six states have lower Medicaid reimbursement fees. For primary physicians, these fees are only 57 percent of the already-low Medicare reimbursement fees. See, e.g., Stephen Zuckerman et al., Trends in Medicaid physician fees, 20032008, Health Affairs, 2009, http://content.healthaffairs.org/content/28/3/w510.full.html.
64
72. The states long payment delays and low reimbursement rates discourage doctors from accepting Medicaid patients. See, e.g., Peter J. Cunningham and Ann S. OMalley, Do reimbursement delays discourage Medicaid participation by physicians? Health Affairs, 2008, http://content.healthaffairs.org/content/28/1/w17.full.html. 73. Medicaid patients are six times more likely than privately insured patients to be denied an appointment with a specialist. When they can get an appointment, they must wait weeks or months longer before seeing a doctor. See, e.g., Joanna Bisgaier and Karin V. Rhodes, Auditing access to specialty care for children with public insurance, New England Journal of Medicine, 2011, http://www.nejm.org/ doi/full/10.1056/NEJMsa1013285. 74. Medicaid patients are more likely than the uninsured to be denied an appointment for urgent follow-up care, even at safety net clinics. See, e.g., Brent R. Asplin et al., Insurance status and access to urgent ambulatory care follow-up appointments, Journal of the American Medical Association, 2005, http:// jama.ama-assn.org/content/294/10/1248. 75. Medicaid patients, on average, use emergency rooms twice as often privately insured and uninsured patients. See, e.g., National Center for Health Statistics, Health, United States, 2010: With special feature on death and dying, Centers for Disease Control and Prevention, 2011, http://www.cdc.gov/nchs/ data/hus/hus10.pdf. 76. Between 1997 and 2007, per-capita emergency room use increased for Medicaid patients and decreased for uninsured and privately insured patients. Emergency room use for preventable conditions was much higher for Medicaid patients than privately insured and uninsured patients. See, e.g., Ning Tang et al., Trends and characteristics of US emergency department visits, 1997-2007, Journal of the American Medical Association, 2010, http://jama.ama-assn.org/content/304/6/664. 77. Medicaid patients are six times more likely than privately insured patients to be denied an appointment with a specialist. When they can get an appointment, they must wait weeks or months longer before seeing a doctor. See, e.g., Joanna Bisgaier and Karin V. Rhodes, Auditing access to specialty care for children with public insurance, New England Journal of Medicine, 2011, http://www.nejm.org/ doi/full/10.1056/NEJMsa1013285. 78. Medicaid patients are more likely than the uninsured to be denied an appointment for urgent follow-up care, even at safety net clinics. See, e.g., Brent R. Asplin et al., Insurance status and access to urgent ambulatory care follow-up appointments, Journal of the American Medical Association, 2005, http:// jama.ama-assn.org/content/294/10/1248. 79. Medicaid patients, on average, use emergency rooms twice as often privately insured and uninsured patients. See, e.g., National Center for Health Statistics, Health, United States, 2010: With special feature on death and dying, Centers for Disease Control and Prevention, 2011, http://www.cdc.gov/nchs/ data/hus/hus10.pdf. 80. Between 1997 and 2007, per-capita emergency room use increased for Medicaid patients and decreased for uninsured and privately insured patients. Emergency room use for preventable conditions was much higher for Medicaid patients than privately insured and uninsured patients. See, e.g., Ning Tang et al., Trends and characteristics of US emergency department visits, 1997-2007, Journal of the American Medical Association, 2010, http://jama.ama-assn.org/content/304/6/664. 81. Illinois will need to appropriate $3.1 billion more in fiscal year 2013 than in 2012 just to keep a record 6-month backlog and $2.4 billion in unpaid bills. Without reform or additional appropriations, the states Medicaid program will be nearly $5 billion in debt to hospitals and doctors. See, e.g., Jonathan Ingram, Medicaid FAIL: Why cutting appropriations doesnt control costs, Illinois Policy Institute, 8 November 2011, http://illinoispolicy.org/uploads/files/ MedicaidFAIL.pdf.
82. Illinois can expect to pay an additional $1.4 billion from state funds on Medicaid the first year that ObamaCares massive expansion of Medicaid kicks in. See, e.g., Jonathan Ingram, Overloaded: One in three Illinoisans on Medicaid by 2019? Illinois Policy Institute, 20 October 2011, http://illinoispolicy.org/ uploads/files/overloaded10-20.pdf. 83. Mercer Health and Benefits LLC, Retiree Healthcare Contributions, Commission on Government Forecasting and Accountability, May 2011, http:// www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareContributions.pdf. 84. Approximately 80 percent of the labor force work for employers with fewer than 500 employees. Only 4 percent of these employers offer coverage. Approximately 20 percent of the labor force work for large employers. Only 25 percent of these employers offer coverage. See, e.g., Mercer Health and Benefits LLC, Retiree Healthcare Contributions, Commission on Government Forecasting and Accountability, May 2011, http://www.ilga.gov/commission/cgfa2006/ Upload/2011-MAY-17MercerRetireeHealthcareContributions.pdf. 85. The average retiree contribution rate for large employers is 54 percent. See, e.g., Mercer Health and Benefits LLC, Retiree Healthcare Contributions, Commission on Government Forecasting and Accountability, May 2011, http:// www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareContributions.pdf. 86. In general, state-provided health insurance benefits for employees and retirees is far more generous than the benefits provided in the private sector. See, e.g., Josh Barro, Cadillac coverage: The high cost of public employee health benefits, Manhattan Institute, July 2011, http://www.manhattan-institute.org/pdf/ cr_65.pdf. 87. Approximately 80 percent of the labor force work for employers with fewer than 500 employees. These small employers rarely offer retiree coverage at all. Approximately 20 percent of the labor force work for large employers. Only 25 percent of those large employers offer coverage. When coverage is offered, retirees must pay more than half of the cost of their premiums. See, e.g., Mercer Health and Benefits LLC, Retiree Healthcare Contributions, Commission on Government Forecasting and Accountability, May 2011, http://www.ilga.gov/ commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareContributions.pdf. 88. Authors calculations based upon 2009 GASB No. 43 and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for fiscal years 2012 through 2041, historical trends in revenue component shares for fiscal years 2002 through 2011, and benchmarked retiree contributions. Figures assume a current retiree contribution trend of 9.1 percent for SEGIP, 40.9 percent for TRIP and 38.4 percent for CIP. Figures also assume a benchmarked retiree contribution of 54 percent. 89. Mercer Health and Benefits LLC, Retiree Healthcare Contributions, Commission on Government Forecasting and Accountability, May 2011, http:// www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareContributions.pdf. 90. Authors calculations based upon 2009 GASB No. 43 and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for fiscal years 2012 through 2041, historical trends in revenue component shares for fiscal years 2002 through 2011, and benchmarked retiree contributions. Figures assume a current retiree contribution trend of 9.1 percent for SEGIP, 40.9 percent for TRIP and 38.4 percent for CIP. Figures also assume a benchmarked retiree contribution of 45 percent. 91. Illinois law specifically states that TRIP benefits are not protected under the pension clause of the state constitution. See, e.g., 5 ILCS 375/6.5(h) (2012). 92. Illinois law specifically states that CIP benefits are not protected under the pension clause of the state constitution. See, e.g., 5 ILCS 375/6.9(h) (2012). 93. Retiree health insurance is unprotected by the New York Constitutions pension clause, which was the model for the Illinois Constitutions pension clause. See, e.g., Lippman vs. Board of Education of the Sewanhaka Central High School District, 66 N.Y. 2d 313 (1985).
65
94. Elizabeth T. Boris, Erwin de Leon, Katie L. Roeger and Milena Nikolova, National Study of Nonprofit-Government Contracting, Urban Institute, September 2010, http://www.urban.org/uploadedpdf/412227-NationalStudy-of-Nonprofit-Government.pdf. 95. Amanda Griffin-Johnson, State Pays BillsWithin 7 Months, Illinois Policy Institute, 13 April 2010, http://www.illinoispolicy.org/blog/blog. asp?ArticleSource=2432. 96. Daniel Vock, In Illinois, late payments fray the safety net, Stateline News, 19 October 2010, http://stateline.org/live/details/story?contentId=521562. 97. The Associated Press, Topinka: States backlog now at $8.5 billion, January 2012, http://wjbc.com/topinka-states-backlog-now-at-8-5-billion/. 98. The Daily Stat, Volunteerism Drops as Governments Raise Social Spending, December 29 2011, http://web.hbr.org/email/archive/dailystat. php?date=122911. 99. U.S. Census Bureau, Median Household Income by State Single-Year Estimates, http://www.census.gov/hhes/www/income/data/statemedian/. 100. Laura Zumdahl, Less than two percent of individuals income in Illinois goes to nonprofits, Donors Forum, http://blog.donorsforum.org/2011/10/lessthan-two-percent-of-individuals-income-in-illinois-goes-to-nonprofits-key-findingsabout-indivi.html. 101. Illinois Policy Institute, Tax Hike Calculator, http://illinoispolicy.org/ calculatorprocess.asp?income=50%2C761andfamily=3andbutton=Calculate. Note: Assumes a household size of 3 based on the Illinois average household size of 2.6 rounded up. 102. Taxpayer Action Board, Report of the Taxpayer Action Board, June 2009, http://www2.illinois.gov/budget/documents/tabreport.pdf. 103. Taxpayer Action Board, Report of the Taxpayer Action Board, June 2009, http://www2.illinois.gov/budget/documents/tabreport.pdf. 104. Illinois Transparency and Accountability Portal, Payments to a Vendor for a Category Detail, http://accountability.illinois.gov/Expenditures/Vendor/ Contracts.aspx?Year=2012andAgency=0andVendor=d7d6ae5d-a384-4a0bab1b-ba295734cb88andCategory=4400andDetail=4480. 105. Guide Star, 2010 Form 990 for St. Louis Area Food Bank Inc., http:// www.guidestar.org/FinDocuments//2010/431/253/2010-43125310206fc81cf-9.pdf. 106. Illinois Transparency and Accountability Portal, Payments to a Vendor for a Category Detail, http://accountability.illinois.gov/Expenditures/Vendor/ Contracts.aspx?Year=2012andAgency=0andVendor=bbead05d-df99-436aa773-9004545369b9andCategory=4900andDetail=4480. 107. Guide Star, 2010 Form 990 for St. Louis Area Food Bank Inc., http:// www.guidestar.org/FinDocuments//2010/362/169/2010-362169153070da462-9.pdf. 108. Illinois Transparency and Accountability Portal, Payments to a Vendor for a Category Detail, http://accountability.illinois.gov/Expenditures/Vendor/ Contracts.aspx?Year=2012andCategory=4400andDetail=4480andVendor =c23fcec6-eb3c-4ef5-893e-b68a23859cbc. 109. Guide Star, 2011 Form 990 for American Lung Association of the Upper Midwest, http://www.guidestar.org/FinDocuments//2011/204/392/2011204392201-07b31e8e-9.pdf. 110. Chris Edwards, Public Sector Unions and the Rising Costs of Employee Compensation, The Cato Institute, Winter 2010, http://www.cato.org/pubs/ journal/cj30n1/cj30n1-5.pdf. 111. Wendell Cox, Out of Sync: Government and Private Employee Compensation in Illinois, Illinois Policy Institute, 23 August 2011, http://illinoispolicy.org/ news/article.asp?ArticleSource=4288.
112. Wendell Cox, Out of Sync: Government and Private Employee Compensation in Illinois, Illinois Policy Institute, 23 August 2011, http://illinoispolicy.org/ news/article.asp?ArticleSource=4288. 113. Wendell Cox, Out of Sync: Government and Private Employee Compensation in Illinois, Illinois Policy Institute, 23 August 2011, http://illinoispolicy.org/ news/article.asp?ArticleSource=4288. 114. Chris Wetterich, AFSCME agrees to deter half of July 1 raises due state workers, The State Journal-Resister, 9 December 2010, http://www.sj-r.com/ top-stories/x2012970534/AFSCME-agrees-to-defer-half-of-July-1-raisesdue-state-workers?zc_p=1. 115. Doug Finke, Quinn cancels $75 million in state employee pay raises, Peoria Journal-Star, 1 July 2011, http://www.pjstar.com/news/x1672977558/ Quinn-tries-to-skip-75-million-in-raises. 116. Doug Finke, AFSCME sues to enforce state employee raises, State JournalRegister, 8 July 2011, http://www.sj-r.com/top-stories/x311102323/Quinnhappy-to-have-arbitrator-hear-canceled-raise-case. 117. Nick Dranias, Save Taxpayers Tens of Billions of Dollars: End Government-Sector Collective Bargaining, Goldwater Institute, 24 January 2012, http://goldwaterinstitute.org/article/save-taxpayers-tens-billions-dollars-endgovernment-sector-collective-bargaining. 118. Nick Dranias, Save Taxpayers Tens of Billions of Dollars: End Government-Sector Collective Bargaining, Goldwater Institute, 24 January 2012, http://goldwaterinstitute.org/article/save-taxpayers-tens-billions-dollars-endgovernment-sector-collective-bargaining. 119. Holly Dillemuth, Labor unions balk at bargaining bill, Illinois Times, 24 March 2011, http://www.illinoistimes.com/Springfield/article-8469-laborunions-balk-at.html. 120. Holly Dillemuth, Labor unions balk at bargaining bill, Illinois Times, 24 March 2011, http://www.illinoistimes.com/Springfield/article-8469-laborunions-balk-at.html. 121. Teachers Retirement System, Evolution of the TRS Benefit Structure, June 2011 http://trs.illinois.gov/subsections/general/history.pdf. 122. Kristina Rasmussen, Fact Finder: Average $30,000 pension? Illinois Policy Institute, 14 November 2011, http://www.illinoispolicy.org/news/article. asp?ArticleSource=4523. 123. Robert Novy-Marx and Joshua D. Rauh, Policy options for state pension systems and their impact on plan liabilities, Cambridge University Press, April 2011. 124. State Employees Retirement System, Tier 2 retirement Annuity (Pension), http://www.state.il.us/srs/Tier2/RSretireben_sers2.htm. 125. Jeannette Neumann, State Workers, Long Resistant, Accept Cuts in Pension Benefits, The Wall Street Journal, 29 June 2010. 126. The Wall Street Journal, The Heartland Tax Rebellion, 7 February 2012, http://online.wsj.com/article/SB10001424052970203889904577200872 159113492.html?mod=WSJ_Opinion_AboveLEFTTop. 127. Jeff Mayers, Wisconsin Governor Aims to Curb State Worker Unions, Reuters, 11 February 2011, http://www.reuters.com/article/2011/02/11/ us-wisconsin-budget-unions-idUSTRE71A7FP20110211. 128. Green Bay Press Gazette, Read Summary of Gov. Scott Walkers Budget Repair Bill, 16 February 2011, http://www.greenbaypressgazette.com/article/20110216/GPG0101/110216041/Read-summary-Gov-Scott-Walkers-budget-repair-bill. 129. Liv Finne, Governor Walker of Wisconsin Tackles Collective Bargaining Reform, Washington Policy Center, 20 February 2011, http://www.washingtonpolicy.org/blog/post/governor-walker-wisconsin-tackles-collective-bargainingreform-0.
66
130. Steve Bousquet, Scott Calls for More Education Spending, Less on Medicaid, Miami Herald, 07 December 2011, http://www.miamiherald. com/2011/12/07/2534974/scott-calls-for-1-billion-boost.html. 131. State of Florida, LetsGetToWork - Accountability Budgeting, 2 February 2012, http://letsgettowork.state.fl.us/Highlights/Step1/Step1Accountability. aspx. 132. Michael McDonald, Gina Raimondo Math Convinces Rhode Island of Americas Prospects With Debt, Bloomberg, 9 January 2012, http://www.bloomberg.com/news/2012-01-10/gina-raimondo-math-convinces-rhode-island-ofamerica-s-prospects-with-debt.html. 133. Rhode Island General Assembly, Retirement Security Act: Executive Summary, State of Rhode Island, October 2011, http://www.pensionreformri. com/resources/ReportwithGRSAppendix.pdf. 134. Mitchell Elias Daniels, Keeping the Republic: Saving America by Trusting Americans, New York: Sentinel, 2011. 135. Indianapolis Star, Gov. Daniels Signs Right-to-work Bill, 1 February 2012, http://www.thestarpress.com/article/20120201/NEWS06/120201013/ UPDATED-Gov-Daniels-signs-right-work-bill. 136. Jay Nixon, State of the State, Missouri Governors Office, 17 January 2012, http://governor.mo.gov/newsroom/2012/Gov_Nixon_delivers_2012_ State_of_the_State_address. 137. Virginia Young, Missouri House to Consider State Spending Cap, St. Louis Today, 16 January 2012, http://www.stltoday.com/news/local/govt-andpolitics/missouri-house-to-consider-state-spending-cap/article_3c15b424-5ef051bd-8d0f-7ec5c17a21a0.html. 138. Vivian Yee, N.H. Lawmakers Target Higher Education, Reduce Cigarette Levies, Boston Globe, 23 June 2011, http://articles.boston.com/2011-0623/news/29695385_1_higher-education-state-budget-rainy-day-funds. 139. Fosters Daily Democrat, NH Gov Orders Wage Freeze for Nonunion Workers, 26 September 2011, http://www.fosters.com/apps/pbcs.dll/ article?AID=/20110926/GJNEWS_01/110929621/-1/fosnews. 140. New Hampshire Center for Public Policy Studies, New Hampshires Pension Reform: Tallying the Bottom Line, July 2011, http://www.nhpolicy.org/reports/policynote_july2011_pensionreform.pdf. 141. Associated Press, Series of Bills Targets NH Public Workers Unions, 29 January 2012, http://www.cbsnews.com/8301-505245_162-57367965/ series-of-bills-targets-nh-public-workers-unions. 142. Office of the Governor, Gov. Deals State of the State Address: Charting the Course to Prosperity, State of Georgia, 10 January 2012, http://gov.georgia. gov/00/press/detail/0,2668,165937316_180136643_180385525,00. html.
67
budget solutions
2013
For more information about whats in this report, visit www.IllinoisPolicy.org

Budget Solutions 2013: Innovation For Illinois

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Budget Solutions 2013: Innovation For Illinois

Uploaded by

Copyright:

Available Formats

budget solutions

(click a section name to be taken directly there)

Vision, Mission and Approach of the Illinois Policy Institute

Cover photo: Illinois Policy Institute

Accountability all-around ($3.5 billion in savings)

Sensible spending ($1.9 billion in savings)

Realignment with reality ($1.6 billion in savings)

Budget Solutions 2013 - Savings in billions

Click here to return to the table of contents.

Reform pension cost of living adjustments Total

An effective balanced budget requirement and an honest spending limit

An effective balanced budget requirement and an honest spending limit

Graphic 1. State operational spending in nominal dollars

Source: U.S. Census Bureau and Illinois Policy Institute calculations

Source: U.S. Census Bureau and Illinois Policy Institute

An effective balanced budget requirement and an honest spending limit

Statutory spending cap

Difference between spending cap and total revenue

Source: Illinois Comptrollers Office

An effective balanced budget requirement and an honest spending limit

Why this works

Click here to return to the table of contents.

An effective balanced budget requirement and an honest spending limit

AccountAbility All-Around Transform school funding

Source: Illinois State Board of Education

Why this works

Click here to return to the table of contents.

Accountability all-around: Transform school funding

(Page intentionally left blank)

AccountAbility All-Around Local pension accountability

Source: TRS Comprehensive Annual Financial Report 201110

Normal costs in the future

Click here to return to the table of contents.

AccountAbility All-Around End non-transparent state funding to local governments

Accountability all-around: End non-transparent state funding to local governments

Source: Taxpayers Federation of Illinois

Accountability all-around: End non-transparent state funding to local governments

Graphic 8. Illinois transfers out of general funds (in millions)

Source: Taxpayers Federation of Illinois

Accountability all-around: End non-transparent state funding to local governments

Why this works

Click here to return to the table of contents.

Accountability all-around: End non-transparent state funding to local governments

(Page intentionally left blank)

SenSible Spending Overhaul Medicaid

In Illinois, Medicaid is failing the states most vulnerable populations.

Source: Illinois Policy Institute calculations

Sensible spending: Overhaul Medicaid

Source: Medicaid Statistical Information System

Source: U.S. Census Bureau Sensible spending: Overhaul Medicaid

Source: U.S. Census Bureau

Source: Zuckerman et al.

Sensible spending: Overhaul Medicaid

Source: Bisgaier and Rhodes, New England Journal of Medicine

Sensible spending: Overhaul Medicaid

Graphic 15. Medicaid patients wait longer to receive care

Source: Bisgaier and Rhodes, New England Journal of Medicine

Source: Tang et al.

Sensible spending: Overhaul Medicaid

Source: Gaglia et al.

Sensible spending: Overhaul Medicaid

Health Savings Accounts