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A First Look at the Governor’s Proposed Fiscal Year 2019 Budget

Written by John Gordon and Mitch Lifson

Overview

Governor Bruce Rauner’s proposed Fiscal Year 2019 (FY19) budget meets the constitutional requirement of expenditures not exceeding anticipated revenues on paper. However, getting there depends on a number of measures the legislature may not agree to approve.  Absent such action, the budget could be out of balance by more than $1 billion.

The Revenues

The FY19 budget calls for $37.6 billion in expenditures in General Revenue Funds (GRF) on anticipated revenues of nearly $38 billion dollars leaving a projected surplus of $351 million. However, that is dependent on several factors including pension reform and pension cost shifts, reduced health benefits for state employees, and the sale of the James R. Thompson Center in Chicago. (In addition to listed state-generated general revenues and certain federal funds, the Governor lists $600 million in interfund borrowing and reallocations.)

FY19 General Fund Revenues
Source: Proposed Illinois State Budget for Fiscal Year 2019

Proposed pension changes

The state of Illinois currently pays the employer pension contributions for participants in the Teachers’ Retirement System (TRS) and the State Universities Retirement System (SURS). However, the Governor argues that since it is the local school districts, community colleges and public universities doing the hiring, they should pick up the full employer contributions. His budget proposes beginning a four-year shift in this direction. The cost for the measure, which he terms a “realignment, would be $363 million in FY19. Under the new school funding formula, the state was going to pick-up the normal pension contributions for Chicago public school teachers.  That also would not occur under this proposal, resulting in a savings of $228 million.

In his budget address, the Governor stated that statutory changes allowing units of local government to dissolve or consolidate and more flexibility in contracting, bidding, and sharing services would help school districts cope with increased costs. He is also again seeking worker’s compensation reform. Absent any of the pension cost sharing measures, the current certified contribution to the state pension systems for FY19 is $7.8 billion in GRF.

The Governor also calls for adoption of a pension “consideration plan” for TRS, SURS, and the State Employees’ Retirement System, which he claims would save the state $900 million annually. Under one version of this plan, an employee is offered the choice of keeping compounded annual cost of living increases to his or her future pension with the understanding that the employee’s future salary increases will not be calculated in the pension formula or the employee agrees to take a lower cost of living increase on future pension benefits with future salary increases factored into his or her pension.

Health care savings

As part of the cost shifting, the Governor proposes state universities pick up $105 million in group health insurance costs now paid for by the state.  He is also looking at reducing the health care coverage provided to state employees.  Saying taxpayers “shouldn’t have to pay for government health insurance policies that are richer than ones they can afford for themselves” he proposes a reduction of $470 million dollars.

Two other proposals by the Governor would generate approximately $280 million in savings: eliminating health care support for retired teachers ($129 million) and reducing Medicaid rates for providers, but not on community health centers or on prescriptions, by 4% ($150 million).

James R. Thompson Center

As was the case last year, the Governor’s budget calls for selling the James R. Thompson Center in Chicago.  His office estimates the sale would net $240 million.

Outstanding bills and proposed income tax reduction

The budget estimates Illinois will end FY18 with a bill backlog of $7.5 billion.  The Governor proposes using the projected FY19 surplus of $351 million to pay outstanding bills. If the legislature enacts his proposed cost-shifting and reform measures, he suggests there will be enough savings to allow a quarter-point rollback of the state’s individual income tax rate (now at 4.95%). Aside from the anticipated long-term economic growth from the changes proposed in the budget, the document does not provide a long-term plan or timeline for paying down the remaining backlog of bills.

K-12 Education

In his budget, the Governor appropriates approximately $8.3 billion in GRF to the Illinois State Board of Education (ISBE). This includes:

  • $6.8 billion in evidence-based funding as part of the new school funding law,
  • $873 million in funding for mandated categoricals, and
  • $454.2 million for early childhood education (which represents an increase of $10.5 million in GRF).

The Governor’s budget eliminates the After School Program, Advanced Placement, and School Support Services for Lowest Performing Schools line items.

The main aspect of the K-12 education budget that observers were looking for was whether or not the Governor would meet the minimum funding level of $350 million for Evidence-Based Funding. On paper, Governor Rauner met this goal. However as noted above, the Governor also proposes to start shifting pension costs to local school districts.  Consequently, unless the legislature enacts his proposed reforms (which has not occurred to date) and those measures produce the cost savings he anticipates  or unless school districts raise local taxes, the districts will need to spend more of their local financial resources on pensions.

Yet while districts review the prospects for FY18, they are still waiting on the $350 million in new dollars that were appropriated in the FY 18 budget. State Superintendent Tony Smith stated in a committee hearing recently that the new dollars will be released to the schools beginning in April. However, he added that he needs the General Assembly to pass approximately 20 “technical fixes” to the law that he says are necessary to distribute the new dollars as the legislation intended.

Higher Education

The Governor increases funding to the Illinois Board of Higher Education (IBHE) by approximately $217 million. $205 million of this money is to help universities deal with the proposed pension cost shifts. In his FY19 budget, the Governor holds funding to the state’s universities at the FY 18 level, which was a 10% cut from the FY15 level, the last year universities were fully funded before the two-year budget impasse.

The FY 19 appropriations for the state’s universities are as follows:

  • Chicago State University- $34,604,400
  • Eastern Illinois University- $38,686,100
  • Governors State University-$21,656,000
  • Illinois State University- $65,004,000
  • Northeastern Illinois University- $33,209,000
  • Northern Illinois University-$82,019,500
  • Southern Illinois University- $181,182,800
  • University of Illinois-$588,811,600
  • Western Illinois University-$46,310,700.

These are all at approximately the same levels received in the FY18 budget.

The Illinois Community College Board (ICCB), which serves as the state’s funding mechanism for community colleges, sees a $5.5 million decrease in the Governor’s proposed FY 19 budget from its FY 18 appropriation level.

Funding for the Monetary Award Program (MAP) is also held at the FY 18 level ($401,341,900), which was a 10% increase from its FY15 level.

Human Services

The overall budget for the Illinois Department of Human Services is $6.3 billion ($3.7 in General Revenue Funds).

Source:  Illinois Department of Human Services budget presentation 2/14/18

The budget appropriates $380.7 million in GRF for child care services. That is $96 million less than was appropriated last year. (Appropriations from all funds for child care assistance total $1.13 billion compared to $1.22 billion in FY18.) According to the Department Human Services this would fully fund care for individuals at 185% of the poverty level seeking such assistance. DHS says there is less demand for the assistance. Critics argue there is less demand because of changes in eligibility guidelines the last several years.

The budget contains GRF grant reductions for addiction prevention and mental health grants for children and adolescence (along with funding for mental health programs related to state operated facilities and transitions).  According to DHS, some of these reductions are the result of determining clients are Medicaid eligible and, therefore, the costs can be picked-by the Department of Healthcare and Family Services (which runs the state’s Medicaid programs). DHS also claims a reduction in individuals utilizing mental health services. (Possibly, in the case of mental health services, because of coverage under the Affordable Care Act.)

The budget contains GRF line-item reductions for several other programs including after school youth programs, autism services, Best Buddies (which, in part, serves people with intellectual and developmental disabilities), epilepsy services, and the youth employment program. However, the Early Intervention Grant Program has an increase in the budget of $3 million. Redeploy Illinois (a program of grants to counties for community services to help reduce juvenile detention) is funded at $4.9 million, which is down from the FY18 appropriation of $8.9 million. The Governor’s Office of Management and Budget cut $4 million from the FY18 appropriation last fall as part of its deficit reduction measures.

Department of Children and Family Services

The Department of Children and Family Services (DCFS) budget request for FY19 totals approximately $1.2 billion and represents an increase of 0.9% over FY18.

The agency budget calls for hiring 32 new staff positions for intact family services.  This is the result of its intention to move 10% of high-risk cases now handled by private agencies back into the Department.

The DCFS budget also calls for a shift in funding from foster care to adoption and guardianship services. The Agency states in its budget briefing book, “No child should grow up in foster care…The preferred path is reunification with the family” or, if necessary, putting the child on a path to a “permanent guardianship or adoption.” The budget contains a $3 million reduction in the DCFS Children’s Services Fund (a special state fund versus a general fund) for foster care services and a $13.5 million increase for adoption and guardianship services.

Next Step

As noted at the outset, without the proposed cost saving measures, the Governor is spending money in the budget that may not exist. In addition, needs such as reinvestment in our state universities to at least FY15 levels remain. It is important that our elected officials pass a complete budget for FY19. Because of lingering uncertainties on funding and timely payment of state bills, many human service providers remain reluctant to rehire staff or restart programs cut during the two-year budget impasse. If left without a budget again, further cuts and unmet needs could be in Illinois’ future. The Illinois Senate begins holding appropriation hearings next week.

A Statement from Voices on the Florida School Shooting

Today, our hearts are shattered by the horrific school shooting in Parkland, Florida, that has left 17 adults and children dead and 20 fighting to heal after their injuries. No parent should have to send their child to school and worry for even a moment that they will not come home. After the 18th school shooting this year, it is far, far past time to enact tougher gun laws that protect our children — our most precious resource — from senseless violence. The families of the victims need our prayers and deserve our actions. Voices For Illinois Children stands with all families across the country in demanding safety for our children.

Tasha Green Cruzat
President, Voices for Illinois Children

 

Tasha Green Cruzat comments on Groundhog Day and Illinois Government

It’s Groundhog Day and, therefore, the time is ripe to ask if Illinois is about to experience the same negligent budget stalemate that did immeasurable damage to our state for two years, with ramifications to be felt for years to come. The vital services and protection our children and families depend on were held hostage in a political game and their rights were too easily sacrificed as collateral damage. It is not enough to say that this cannot happen again – we must work tirelessly to ensure that our most vulnerable neighbors have a fair chance at happy and healthy lives.

Today, our children still suffer from a system that fails to fully meet their families’ needs. Although we’ve seen great recovery in some sectors of the state since the economic recession, not all communities have experienced recovery at the same rate, particularly our communities of color. Illinois does have a new school aid formula to reduce inequities but now the state has to properly fund it to make it work. Yet, that alone does not address the needs of Illinois children and their families. The state must meet those challenges as well – whether it is in regard to health care, economic opportunities, or community supports. A state unwilling to do so not only reflects our values but likely means the next Groundhog Day won’t be much different.

Tasha Green Cruzat
President, Voices for Illinois Children

K-12 Education Primer for 2018

Written by John Gordon

2017 proved to be a year of significant consequence for education policy in Illinois. A new funding formula came into law after years of starts and set-backs.

The foundation of the new funding formula is the Evidence-Based Model (EBM). The main components of the EBM are:

  • A unique adequacy target calculated for each individual school district.
  • A calculation on how much a local school district can contribute towards its adequacy target.
  • Inclusion of previous state resources into a district’s local capacity.
  • A distribution method (Tier System) that allocates new state funding towards districts that are furthest away from their adequacy target.

The bill calls for a substantial increase in state funding towards the new funding model, to the tune of $350 million a year for the next ten years (totaling 3.5 billion). This injection of state funding is needed to help close the gap between how much school districts rely on local taxes to fund schools compared to state funding (local taxes make up 2/3 of school districts revenue).

Governor Rauner signed the new EBM of school funding into law August 31st, 2017 after it passed both chambers of the General Assembly on a bipartisan basis. An additional $350 million was appropriated by the General Assembly when it passed a full year budget for the first time in two years.

But complications have arisen since the EBM became law. For starters, the new money appropriated for the EBM remains unspent, as the State Board of Education needs time to properly figure out how to distribute the new funds. School districts have received their “hold-harmless” funding, which is the same level of state funding they received last year, but many were expecting to see at least some of the new money this year and have had to dip into cash reserves or borrow money to make up for the unexpected shortfall.

Another problem arose when the Governor issued an amendatory veto of Senate Bill 444, which is a bill designed to help fix errors in the school funding bill. The Governor changed the bill to allow more private schools to be eligible to participate in the Invest in All Kids Program, which was created in the funding reform bill and allows for tax credits to be given to individuals and businesses who donate to scholarship granting organizations (who give low-income students scholarships to private schools).

The Governor’s veto language would make it much easier for schools to qualify to receive these scholarship students without having to pass inspections from the State Board of Education. As of now, the General Assembly must vote on whether to accept the Governor’s changes (which takes a simple majority vote), override his changes (which takes a 3/5 majority), or do nothing and the bill dies. If nothing is done or the General Assembly rejects the changes but cannot override them, it will further delay the Board’s ability to distribute the new funding that is currently sitting in the state’s bank account.

The big issue for K-12 education for this upcoming legislative session, before the Governor’s amendatory veto, was whether or not the General Assembly would allocate another $350 million for the next school year. This remains the major issue to watch, but now the veto changes the game a bit, in that schools may not see any new funding this year of action is not taken by the General Assembly. This would be a major setback after a substantial accomplishment.

Illinois’ school children are on the precipice of a new era in which their zip code is no longer a major factor in their quality of education. To handicap that process when it is just getting started would be a significant abdication of the state’s constitutional requirement to provide K-12 education to all Illinois students regardless of income, ethnicity, or location.

Tax Reform Provisions for Private K-12 Education: Unintended Consequences?

by John Gordon

While the final language is not yet out, members of the conference committee on federal tax legislation have reportedly reached an agreement on the outlines of a compromise bill. Going into the conference committee, one area of agreement in the House and Senate proposals was a measure that takes direct aim at public education: subsidizing private school tuition for wealthy families.

Both the House and Senate bills included provisions that would expand the 529 college saving account plan, which allows parents to save money and withdraw that money for higher education expenses (tax-free) to also cover up to $10,000 of tuition at private and parochial schools. (Language in the Senate bill also covers home schooling expenses.) The provision is a federal subsidy for private and parochial school tuition.

As it currently stands, 529 plans are used by largely upper-income households (median income of $142,400) and by making the proposed changes, it will only increase the growing inequality in educational attainment between high-income families and low and middle-income families. The planned expansion of this tax break is welcomed by school choice advocates, who argue that public schools are unable to properly educate students and should be more market-oriented. However, this planned expansion would be largely unavailable to low and middle-income families.

In reality, this plan does not really expand school choice options to anyone. It actually undercuts the savings benefits of the plan if they are used for private and parochial K-12 tuition. Pulling out the money sooner both lessens the tax benefit of the plan and leaves less money available in the plan for college. If you are a wealthy family, this is not much of a problem. But if you are a middle class or low-income family, it would be very unwise to use this money before college. The only real beneficiaries of this expansion would be people who are high-income and wish to have the government subsidize their kids private school tuition.

Withdrawing funds from the savings plans sooner rather than later could also have implications on the investment strategies employed by states and fund managers. Such changes could impact the eventual rates of return for all participants in 529 programs.

Along with capping the deduction for local property taxes and/or state and local income and sales taxes at $10,000, the 529 measures could set back public funding for education. Combined with the trillion dollar plus increase to the federal deficit the tax bill could bring, it’s another demonstration of why our members of Congress need to vote down this bill.

Tasha Green Cruzat Commentary: Turn down the Senate tax bill

At the end of the day, the federal tax reform debate comes down to a simple fact: Everyday working families will likely end up paying more for health care, housing, and college, so U.S. businesses can get a large tax cut. At least, those that actually pay taxes.

Combined with other tax relief measures in the bill, the Senate tax reform plan would increase the deficit by $1.4 trillion over the next ten years. Businesses would dramatically benefit from this bill which begs the questions, who will pay for all of this?

  • Perhaps it will be one of the 1.5 million Illinois children whose health insurance is covered by Medicaid or the Children’s Health Insurance Program.
  • Perhaps it will be one of the more than 40,000 Illinois children served by Head Start.
  • Perhaps it will be taken from the nearly $2 billion in federal funding received by Illinois in 2016 for housing assistance.
  • Perhaps it will be one of the nearly 300,000 Illinois students who receive a federal Pell grant for college.

In addition, the Senate bill repeals the federal deduction for state and local taxes. This measure, along with potentially severe cuts in federal funds that flow to Illinois, would only compound the serious financial condition our state still faces.

Tax decreaseCongress has three choices for dealing with any increased federal debt. It could offset the amounts in federal spending cuts, it could let sequestration—which automatically enacts federal spending cuts to reduce the deficit—kick-in, or it could amend the sequestration law and just increase the federal debt. Increasing the debt by $1.4 trillion likely puts a host of critical domestic spending programs at risk including Medicaid, child care, and low-income housing assistance. While the sequestration law may protect some programs, there will still be a great deal of pain.

Looking for a way to reduce the deficit increase, the Senate amended its bill by adding a measure to repeal the provision of the Affordable Care Act requiring most people to secure health insurance or pay a penalty.

How does that reduce the deficit? Fewer people seeking health care would mean the federal government pays out fewer subsidies. The Congressional Budget Office estimates that under this provision the number of Americans without health insurance would increase by 13 million. If you choose to continue purchasing insurance for your family, you could see your health care premium increase by 10 percent. This could effectively put health insurance out of reach for some people. Yet, if those individuals get sick and go to emergency rooms, you could still pay for their care when the hospital passes along the uninsured costs to everyone else.

The tax reform proponents use the long-held, and long-discredited, belief that tax cuts for the richest Americans will lead to a positive financial trickle-down effect for working and middle-class Americans. It probably will only make life worse for them. While some middle-class families will get some initial tax relief with the measures contained in the bill, it won’t last long. While the corporate tax cut would be permanent, those benefiting middle-class families would decrease in value and ultimately disappear at the end of 2025.

Working and middle-class families cannot be asked to bear the burden for financial relief to the most well-off businesses and individuals. Tax reform should focus on helping American families improve their standard of living and access to economic opportunities, not squeezing valuable social service programs that benefit them.

Tasha Green Cruzat
President, Voices for Illinois Children

 

 

Looking at the Fragile State of Public Higher Education in Illinois

Attaining a college degree has never been more important for economic success than it is in the 21st century. The public university system is also the epicenter of the nation’s research apparatus, paving the way for the advancements that have affected every aspect of modern life. Yet, in spite of the essential nature of a thriving higher education system, Illinois is falling behind and jeopardizing the state’s ability to be a thriving economic epicenter for the United States and the entire world.

It is difficult to fully grasp the damage done to the higher education system in Illinois due to the recent, two-year long budget impasse. For the two years, Fiscal Year 2016 (FY 16) and Fiscal Year 2017 (FY 17), the state did not have a full budget.  During this time, all but one of the nine public universities experienced a decline of over 20% in their state funding from FY 15 levels. Three universities (University of Illinois, Northern Illinois University, and Southern Illinois University) and the community college system saw a decrease of over 35%. This required universities and community colleges to take steps in order to save money, such as layoffs, mandating furlough days for remaining staff, and shuttering whole programs.

  FY16-17 Ave. % change from FY 15         FY 18 % change from FY 15
Chicago State University $29,805,700 -18.0% $32,697,400 -10.0%
Eastern Illinois University $30,507,100 -29.0% $38,678,100 -10.0%
Governors State University $18,409,050 -23.5% $21,656,000 -10.0%
Illinois State University $55,258,850 -23.5% $65,004,000 -10.0%
Northeastern Illinois University $28,230,300 -23.5% $33,209,000 -10.0%
Northern Illinois University $58,747,950 -35.5% $81,983,500 -10.0%
Southern Illinois University $128,554,550 -35.6% $180,912,800 -9.3%
University of Illinois $415,221,800 -35.8% $583,005,900 -9.9%
Western Illinois University $37,377,400 -27.3% $46,300,700 -10.0%
Community Colleges $176,316,400 -36.0% $248,030,500 -10.0%

 

It comes as no surprise that during this time, most universities experienced a noticeable decline in enrollment. Between 2015-2017, only Illinois State University and two of the U of I campuses (Urbana-Champaign and Chicago) saw enrollment increases. The most drastic enrollment declines occurred at Chicago State University, Eastern Illinois University, Southern Illinois University, and Western Illinois University.1

enrollment

Chart source: Illinois Board of Higher Education (IBHE)

While the last two years have been a trying time for the state’s higher education system, the problems that face our public universities and community colleges stretch back much farther. Beginning in 2002, Illinois has steadily decreased its investment in the public university system. As shown in the graph below, in the year 2000, state funds used to make up approximately 72% of the revenue received by universities, as opposed to 28% from university income funds (mostly tuition and fees). By 2015, state income funds made up just 39% of revenue, while university income funds made up 61% of universities revenue.2

State General FundsChart source:  IBHE

Community colleges have also seen a decrease in state funding since the year 2002. This drop is not as severe as the drop seen in university funding.  Community colleges also receive local property tax revenue. In 2000, state funds made up 28% of community colleges annual revenue, with local property taxes accounting for 55% and student tuition and fees making up 27%. In 2015, state funds accounted for 15% of their revenue, with property taxes accounting for 59% and student tuition and fees accounting for 44%.3

Trends in Educational Revenue

Chart source:  IBHE

With the plummet in state funding in 2016-2017, along with the 10% cut in funding in the FY 18 budget, this troubling trend continues despite the growing demand for college graduates in the economy.

Illinois also faces a problem when it comes to who is going to and completing college. Low-income and minority students, while seeing an increase in the last decade in terms of enrollment, are still lagging behind their non-low-income and white counterparts. Cost is a major factor behind these disparities.  Families with median incomes typically need to set aside 25% of their income to pay for a four-year college education; that number is 63% for low-income families.4

2-4 Institutions

Percentage of Family Income Needed to Pay for Full-Time Enrollment at Public Institutions, 2014

Chart source:  IBHE

This is made even more problematic when considered alongside the fact that the Monetary Award Program (MAP) is not keeping up with these rising costs. In the beginning of the 21st century, the maximum MAP award could pay for almost all the tuition and fees of a low-income student. This is not even close to being the case now.5
Figure 2Chart source:  IBHE

Competition rates are another area of concern, especially with minority students. Black and Latino college students in Illinois are much less likely to complete their degrees than their white counterparts.6

Figure 5

Illinois Graduation Rate Within 150% of Normal Time; By Level of Institution and Race/Ethnicity. 2015

Chart source:  IBHE

Overall, the current state of higher education in Illinois needs serious improvement. It can be reasonably inferred that the root cause of the problems in the state stem from the dramatic decrease in public investment. If adequately funding our universities and community colleges does not become a serious priority, then it is unlikely that we will see an improvement in any of these enrollment and completion numbers.  This in turn will hobble our ability to produce an educated workforce that will sustain Illinois as the economic powerhouse of the Midwest. We owe it to present and future college students in Illinois, particularly those from disadvantaged backgrounds, to do better.

 

1.  IBHE Data Points
2. IBHE Fiscal Year 2017 Higher Education Budget Recommendations: Operations, Grants, and Capital Improvements
3. IBHE Fiscal Year 2017 Higher Education Budget Recommendations: Operations, Grants, and Capital Improvements
4. Midwestern Higher Education Compact 2016
5. Illinois Student Assistance Commission
6. National Center for Education Statistics