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When the week ended, the State of Illinois had a backlog of bills totaling $12.2 billion dollars. That amount represents a backlog in vouchers of 140,000.
The bill backlog problem is not new. Going back more than six years, the state had a backlog of nearly $7.9 billion at the end of 2010. In the following four years, there were fluctuations in the amount as the state worked to whittle down its bills.
However, as the chart below from Illinois Comptroller Susana Mendoza’s office shows, it has been a steady uphill climb since the budget impasse began (July 2015).
Just who is waiting for payment by the state? On the same day that the Governor presented his proposed budget to the legislature, his Office of Management and Budget (GOMB) also put out an update on outstanding bills. Using its own data and that from the Comptroller, the composition of outstanding bills was as follows at the end of January (when the bill backlog was just $10.9 billion):
As noted by GOMB, the totals “do not include all bills received by state agencies that have not been processed by the Comptroller due to lack of FY16 and FY17 appropriations”. In a number of cases, particularly regarding human services, the state signed contracts with providers for services during the fiscal year even though there was not an appropriation for the full year.
Each outstanding bill also accrues interest the longer it waits to be paid. For self-insured providers of the State Employees Group Insurance Program, the interest is 9% annually after 30 days of non-payment. Most other bills accrue interest at a rate of 12% annually after 90 days of non-payment. Comptroller Mendoza has noted that if the state budget situation does not change by the end of the fiscal year, the state could owe up to $700 million interest on a bill backlog that would approach $15 billion.
One proposal in the legislature is to borrow money to pay a portion of the bills and incur a lower interest rate. That’s still money needed each successive year over the life of the bonds for debt service. It’s also money that cannot be used for the provision of services in future years.
What Illinois needs is a balanced budget with sufficient revenue that allows it to provide the necessary services to its citizens and pay its bills.
With the hope of closing a budget gap of more than $7 billion, Governor Bruce Rauner has presented the legislature with a Fiscal Year 2018 budget totaling $37.3 billion. His proposed methods for closing the gap includes some additional revenue but also a set of legislative measures to reform pensions, procurement, state employee health care, and human services.
Absent any change in state law (as well as what the Governor terms as spending controls), he puts the costs of an FY18 maintenance budget at $39.7 billion. To arrive at the lower amount of the proposed budget, the Governor has built in cost savings from a range of items that includes:
- Offering a new level of pension benefits, Tier 3, to employees of the Teachers’ Retirement System (TRS), the State Employees Retirement System (SERS), and the State University Retirement System (SURS).
In 2010, the state created a lower level of pension benefits for those state and local employees who were hired after 2010. This was the “Tier 2” plan. Under the Governor’s proposal, new employees of TRS, SERS, and SURS could choose from either the Tier 2 or Tier 3 plan. For those not covered by social security, Tier 3 would consist of a hybrid of a defined-benefit plan and a defined-contribution plan. Employees covered by social security would have the option of enrolling in a defined-contribution plan (the new Tier 3 option) or the Tier 2 plan. However, local employers would need to pick up the complete pension costs for employees choosing either Tier 2 or Tier 3.
- Ending late-career salary spikes by local employers.
- Eliminating funding for health insurance for retirees of TRS or SURS as well as a health insurance/pension subsidy to the pension fund for Chicago public school teachers.
- Reducing state employee group health insurance benefits.
- Freezing state employee general and step salary increases for several years (for those in bargaining units) while implementing a merit bonus system for “high-performing workers”.
- Enacting a set of procurement reforms that include allowing Illinois to join other states in competitive bidding contracts.
- Selling the James R. Thompson Center in Chicago.
- Moving non-Medicaid covered seniors enrolled in the state’s Community Care Program (which provides support services to seniors allowing them to remain in their homes versus nursing homes) to a modified package of services (named the Community Reinvestment Program).
- Additional steps on how the state calculates actuarial assumptions for the pension systems and system contributions based on payrolls.
The Governor proposed some of these measures last year but the legislature did not adopt them.
Even if the state enacted these measures into law, the Governor’s budget still falls approximately $4.6 billion short of estimated revenues for FY18.
To close the gap, the Governor lists savings and revenue from a “grand bargain” that could include new revenue and potentially: a property tax freeze, changes in the workers’ compensation system, additional pension system changes, and further procurement reforms. Regarding pensions, Senate President John Cullerton has proposed a “consideration” model that would offer employees one of two choices of how future salary increases and cost-of-living adjustments are calculated for the employee’s future pension payments.
Absent any of the changes noted above, the Governor’s listed maintenance budget for FY18 is $7.2 billion higher than anticipated revenue.
The proposed FY18 budget includes additional funding for the state’s child care assistance program (moving the income eligibility level back up to 185% of the federal poverty level). It also includes additional funds for the state’s early intervention program and home services.
At the same time, the Illinois Department of Human Services’ budget contains the discontinuation of funding, or a reduction, for a number of programs.
PreK-12 funding includes an additional $50 million for early childhood education and full funding for the General State Aid Level (set at $6,119/student). The proposed budget also includes full funding for bilingual education and categorical reimbursement for regular/vocational transportation.
There is additional FY18 funding for the state’s Monetary Award Program (a proposed $401 million versus FY15 funding of $364 million), which provides college grants to low income students. Yet, the state hasn’t appropriated any funds for FY17 MAP grants.
State universities, for which state appropriation authority regarding general funds expired at the end of last year, will see a decrease of 10% from FY15 levels under the proposed budget.
Bill backlog and remainder of FY17
The budget indicates the level of outstanding bills for the state could reach $14.7 billion by June 30th of this year and notes the Governor’s willingness to work with the legislature to “sell bonds or take other actions to reduce the backlog of bills”. As to whether any appropriations bill for the remainder of FY17 might begin to address the bill backlog, the Governor’s budget director indicated at a Senate hearing the day after the Governor’s budget address that the Governor wanted to first establish the framework for an FY18 budget before taking up any supplemental measure for FY17.
After being downgraded twice in the last two years by the three major credit rating agencies (Fitch, S&P, and Moody’s), Illinois’ credit rating for all three now sits just two notches above non-investment grade. A lower credit rating generally translates to higher interest rates for any future issuances.
However, the even higher price is the impact the budget impasse is having on vital human services and the state’s higher education system. Universities have cut staff and programs. Human service providers have cut staff or shut their doors altogether. With the stopgap budget expired and no general revenue appropriations for the remainder of the fiscal year, a number of providers likely will not make it much longer unless the Governor and legislature approve a plan that provides adequate revenue to fund these essential services. Failure to arrive at a full-year budget for the last 20 months has already frayed the state’s human service safety net. Prolonged inaction by our elected officials will have a devastating impact on Illinois for years to come.
Statement from Voices for Illinois Children President Tasha Green Cruzat on Governor Rauner’s Proposed Budget
Governor Bruce Rauner today presented a proposed state budget for Fiscal Year 2018 that is built on a $7 billion gambit that includes cuts to human service programs.
While the budget contains increased funding for early childhood education, early intervention programs, and child care assistance, it also contains direct cuts to Department of Human Service grant programs including addiction prevention, after school youth programs, the emergency food program, the youth employment program, and teen parent services.
The Governor estimates these cuts along with changes to state employee health care benefits, the delivery of human services to adults age 60 and older, pension benefits, state procurement regulations, and the sale of the James R. Thompson Center in Chicago will reduce expenditures by $2.4 billion. The Governor proposed some of these measures last year.
The proposed budget also anticipates $4.6 billion in net revenue from a “compromise package” of legislation that could include spending cuts, a property tax freeze, workers’ compensation changes, additional pension and procurement changes, new revenue, and other measures. The Senate is currently attempting to work out a budget package.
If the compromise package and other proposals in the budget do not materialize, an auto-pilot “maintenance” budget (with some additional accounting measures built-in) would essentially cost the state $7.2 billion more than anticipated revenue for the fiscal year. This would only further endanger additional programs serving children and their families.
In the last nineteen months, our early childhood education providers have had to shut their doors in the faces of thousands of children. Our higher education system has been weakened because of the lack of tuition grants to low income students, programmatic cuts, and staff layoffs. Providers of mental health services, homeless youth services, addiction treatment and supportive housing have been forced to turn a blind eye to those most in need.
Is this the path the state will continue on? A path already paved with unpaid bills that sits at a staggering $11.9 billion as of today.
Illinois has operated for too long without a complete budget. I urge Governor Rauner and members of the General Assembly to do their jobs and present a balanced budget with sufficient revenue that puts Illinois children and families first.
Illinois residents should be ready to pay an additional $886 million in general funds in the next fiscal year (which starts July 1st) towards pensions for state employees, teachers, staff at state universities, judges, and legislators. That’s the total change from this fiscal year (FY17) after the state pension systems set their contribution amounts and the State Auditor (a firm hired by the Auditor General) reviewed them. The state contributions to the pension systems will total $8.9 billion in FY18 with approximately $7.9 billion coming out of the general revenue funds.
The state operates under a 1995 law requiring the pension systems to have assets at 90% of their projected liabilities in FY45. Currently, the state’s pension systems collectively only have assets for 37.6% of their liabilities.
When the state adopted the 1995 law, it back-loaded the payments with contributions dramatically increasing in FY12. The systems also adopted lower projected rates of returns on existing pension system assets in recent years. The result of the reduced rates is an increase in the unfunded liabilities of the systems and therefore a need to increase the required contribution amounts. Other revised demographic changes, such as mortality rates, have impacted the projected liability and estimated contribution amounts.
|Historical Change in Investment Rate Assumptions|
|System||Prior to FY 10||FY10||FY12||FY14||FY16|
|Note: The years associated with investment rate assumption changes reflect the actuarial valuation year and not the fiscal year in which the State contribution was calculated using the new rate.|
|Source: Commission on Government Forecasting and Accountability|
The total unfunded liability for the pension systems (to get to the required FY45 level) stands at just under $130 million dollars. To put the FY18 general revenue funds contribution amount of $7.9 billion into perspective, the total General Revenue Funds operating budget in FY15 (the last time there was a complete state budget) totaled just over $31 billion. So, the contribution represents more than 25% of the last complete state budget. The state could change the existing law and stretch out the time frame for meeting 90% of system liabilities. However, that likely would mean setting aside even more money for pension system contributions.
The increased pension payments only add more pressure to the state’s finances which are already stressed by the failure of lawmakers to pass a complete state budget and expenditures that exceed incoming revenue by billions of dollars (resulting in the state currently having a backlog of bills totaling more than $11 billion). The result has been cuts to vital human services and higher education institutions with more cuts likely absent any further action.
The only viable solution is for the state to bring in new revenue. Without new revenue, the state is looking at deeper and deeper cuts that will undermine Illinois’s economy and quality of life.
 Teachers’ Retirement System, State University Retirement System, State Employees Retirement System, General Assembly Retirement System, and Judicial Retirement System
Youth prevention and alternative to incarceration programs make communities safer, improve a youth’s chances for success, and save the state unnecessary incarceration costs. Unfortunately, as this Fiscal Policy Center report shows, the damage the ongoing budget crisis has done to two community-based prevention and rehabilitation programs for youth—Redeploy Illinois and Comprehensive Community-Based Youth Programs (CCBYS) is putting more youth at risk of incarceration.
Both Redeploy and CCBYS programs prevent or divert thousands of youth away from incarceration and the child welfare system. Yet, the “stopgap” budget adopted by the state earlier this year cut spending levels by about one-third from previous spending levels. All spending on Redeploy Illinois and CCBYS ceases beginning January 1, 2017 when the stopgap measure expires. Without new revenue, any continuation of Redeploy Illinois and CCBYS would only add to Illinois’ growing backlog of bills (currently at $10.4 billion).
When it is fully funded, Redeploy Illinois saves money and keeps children out of prison. Illinois counties participating in Redeploy Illinois have reduced the number of youths going to prison by 58 percent, or nearly 1,800 youth, saving the state an estimated $88 million in incarceration costs between 2005 and 2014.
Similarly, with a fully-funded CCBYS program, youth receive crisis intervention services designed to prevent entry to the child welfare and juvenile justice systems. In the last year, without funding, more than half of CCBYS providers have reduced services, with roughly 7,000 youth put on wait lists, not receiving the services they need, or needing to travel far from home to get help.
Illinois Must End the Budget Crisis and Target Investments for Low-income Parents of Color and their Children
With only three scheduled veto session days remaining and money from the state’s “stopgap” budget set to run out at the end of December, Illinois lawmakers need to act urgently to restore critical programs that strengthen young parents and their children. This week, Voices for Illinois Children released a new report highlighting the damage the ongoing budget crisis is having on the economic security of Illinois’ children and families and makes recommendations to raise the necessary revenue to balance the budget and fully restore programs that help communities thrive.
The first five years of life are the most important period of growth for a child, but persistent poverty can harm young children and set back their likelihood of success in school and in their adult life. With one in 10 Illinois children under six living in deep poverty (50 percent of the poverty level, or roughly $12,125 for a family of four) and four in ten living below twice the poverty rate ($48,500 for a family of four), the urgency of investing in programs that counter the negative effects of poverty are paramount.
The current “stopgap” budget fails to provide adequate funding for many important programs that support young parents to pursue their education and provide their children with high-quality childcare and programs that support their well-being. As a result, several programs, including the Monetary Award Program which provides grants for low-income college students, Adult Basic Education and Literacy programs, and home visiting programs that support child well-being will not have any funding available at the start of 2017.
To fully support young parents in Illinois and create opportunities for their children and families, Illinois must:
• Restore eligibility for the Child Care Assistance Program to 185 percent of the poverty level and to parents pursuing a college degree full time.
• Restore state investments in higher education and MAP grants.
• Target funding to areas that improve educational outcomes for low-income parents of color.
• Restore Safe from the Start funding and increase investments in children’s mental health.
Voices for Illinois Children is joining the Responsible Budget Coalition‘s #OneInAMillionIL campaign to shine a light on the human costs of our state’s ongoing budget crisis.
Illinois has gone without a real budget for 1 year and 3 months, longer than any state in the nation. As a result, Illinoisans’ access to early childhood, afterschool, and higher education is being threatened and the state’s pile of unpaid bills is expected to reach $10 billion by the end of the year.
The Governor and General Assembly have got to do better. Illinois needs a balanced budget and adequate revenue to help get our state back on track.
What can you do to help?
- Share our video on social media using #OneInAMillionIL and tag us on Facebook & Twitter.
- Record your own 1 minute video on how the state budget crisis has impacted you and your family or community. Share it on social media using #OneInAMillionIL.
- Sign up for our emails to receive the latest policy updates and advocacy opportunities.
Last week’s new Census data show that in Illinois and across the country, income and health insurance coverage increased while poverty went down between 2014 and 2015. Although this is positive news overall, Illinois’ poverty rates remain higher and incomes lower than before the Great Recession, and African Americans and Latinos continue to have lower incomes and have a harder time making ends meet than whites.
The success of Illinois depends on our state’s commitment to create jobs that pay workers enough to make ends meet, provide quality childcare for young children so parents can work, and the ability for all Illinoisans to afford to see a doctor and stay healthy—all of these things build economic security and thriving communities.
Below are key highlights of the report that show that although there’s much to celebrate in terms of increasing incomes and declining poverty, we must do more to address the continuing gaps for people of color in Illinois.
Highlights from the 2015 American Community Survey data release include:
- The Illinois poverty rate was 13.6 percent in 2015 down from 14.4 percent in 2014. The federal poverty level for a family of four in 2015 was less than $24,250.
- Even with slight improvements in the rate, there were more than 7 million Illinoisans living in poverty, an increase of more than 207,000 people in poverty since 2007.
- Median household income rose from $57,475 in 2014 to $59,588 in 2015, a 3.7 percent increase.
- While the number and percentage of Illinoisans living in deep poverty—below 50 percent of the federal poverty level— dropped between 2014 and 2015, there were still more than 784,000 Illinoisans (6.2%) living under such dire circumstances. In 2015, a family of four living below 50 percent of the federal poverty level lived on an income of less than $12,125 in 2015.
- Illinois was among eight states with an increase in income inequality – the gap between the rich and everyone else – between 2014 and 2015.
Children Most Likely to be Poor
- Nearly 559,000 children still lived in poverty in 2015 despite a slight improvement in the child poverty rate from 20.2 percent in 2014 to 19.1 percent in 2015.
- Children of color have higher poverty rates compared to white children. African American children are four times more likely to be poor than white children (39.0% vs. 10.0%).
- Latino children are nearly three times more likely to be poor compared to white children (27.2%).
- More than 246,000 (8.4%) of Illinois children were living in deep poverty in 2015. Although this is down slightly from 9 percent in 2014, the rate and number of children living in deep poverty is higher than before the recession.
Slower Improvements in Poverty and Income for African American and Latino households
Although poverty went down and income went up in Illinois between 2014 and 2015, the gains were not as strong for people of color, including African Americans and Latinos. And household incomes for people of color in Illinois are still well below pre-recession levels. Overall, African American household income is half that of white household income.
- Median Household Income: African American and Latino households continued to earn considerably less than white and Asian households. African American median household income was $33,950 in 2015. It was $49,122 for Latino households, $66,237 for white households, and $80,076 for Asian households. African American and Latino household income increases were much lower than the state average.
- After adjusting for inflation, African American household incomes declined by $4,894 or 12.6 percent from 2007, while Latino household incomes declined by $5,015 or 9.3 percent. Overall, Illinois incomes were down $2,283 or 3.7 percent in 2015 compared to 2007, showing that African Americans and Latinos were disproportionately harmed by the Great Recession.
- Race and Poverty: African Americans are three times more likely to be poor compared to whites, with a poverty rate of 28.2 percent compared to just 8.7 percent for whites. Latinos are more than twice as likely to be poor compared to whites. The Latino poverty rate was 19.4 percent.
Low Educational Attainment Closely Tied to Poverty
Educational attainment continues to be an important factor in whether a person is living in poverty. Illinoisans without out a high school degree were twice as likely (23.4%) to live in poverty compared to just 10.1 percent of Illinoisans’ with some college and 4.1 percent of college graduates.
One in Six Illinoisans Struggle with Low Incomes
Many Illinoisans living above the federal poverty level are still struggling. Economic security, defined as the ability to afford basic needs, save for a rainy day, and plan for the future, is out of reach for many Illinoisans. Estimates of what it takes to be financially secure are usually at least twice the poverty line or 200 percent of the federal poverty level—$23,540 annual income for one person or $48,500 for a family of four. In 2015, one in six (16.7%) Illinoisans made less than this.
As the Fiscal Policy Center report, Invest in Youth — Not Prisons, makes clear, Illinois would help young people and save money by directing state resources toward community-based programs instead of incarcerating young offenders.
Each year Illinois spends heavily to incarcerate youth who come into conflict with the law. But young people who are placed in prison often don’t do well and end up re-offending after they’re released. Fortunately, we can change the course for thousands of Illinois youth by investing in communities, schools, and their future, instead of continuing to pour millions of taxpayer dollars into an ineffective, punitive system.
Although Illinois has been moving in the right direction by reducing the use of youth incarceration, the state has continued to fund a costly juvenile justice system at the expense of public safety, draining resources needed for important investments in prevention and rehabilitation services.
It costs 29 times more money to incarcerate one youth at Illinois Youth Centers (IYC)—youth prisons operated by the Illinois Department of Juvenile Justice (IDJJ)—than it does to divert one youth to a community-based alternative program. In fiscal year 2016, the average cost to incarcerate one youth was about $172,000 annually, compared to an average of just $6,000 per youth through Redeploy Illinois.
Redeploy Illinois—a community-based alternative to incarceration— and many of the programs intended to improve public safety and help rehabilitate youth have gone without funding, leaving more young people at risk of entering the juvenile justice system which hurts families and drives up state costs.
Even with the passage of the “stopgap” budget at the end of June, uncertainty remains for many programs that have scaled back while others have closed altogether.
Illinois can do better to improve the lives of young people and keep our neighborhoods safe by investing in alternative programs in communities that need it the most. Black youth are incarcerated at far higher rates in Illinois than white youth. And the disparities have grown despite reduced incarceration in Illinois. Although black youth represent 17 percent of Illinois’ youth population (ages 12-17), in 2015 they made up 69 percent of youth incarcerated at youth prisons across the state, up from 56 percent in 2006. White youth make up 54 percent of the Illinois youth population (ages 12-17), but only 19 percent of all youth incarcerated, down from a third in 2006.
These disparities show that Illinois needs to do more to make sure community-based programs benefit all justice-involved youth, regardless of their race or ethnicity. Illinois must make sure community-based alternative approaches reach black and Hispanic youth, especially in areas of concentrated poverty where scarce resources exist. Investment in these communities along with a sustained effort to promote cultural and linguistic competency in programming are the first steps to promote success for youth of color.
If Illinois moved away from spending on large prisons that are harmful and ineffective, the state’s juvenile justice system could be transformed—giving youth a better chance of leading productive lives and helping communities to thrive. Here are the steps that need to be taken for that to happen:
- Invest in community-based responses to juvenile delinquency, not prisons.
- Fully support and expand Redeploy Illinois.
- Create a state youth investment fund so money saved from reducing incarceration goes toward community-based approaches.
- Support and improve educational and employment opportunities for youth who are disconnected from both school and work.
For more information about the high cost of incarceration and FPC’s recommendations for improving the lives of Illinois’ youth, please see our report.
When Illinois temporarily increased its state personal income tax rate in 2011, an interesting thing happened. The number of households making more than $500,000 went up.
Yet, don’t we keep hearing that when faced with higher taxes wealthy people flee a state?
Yes, but it seems it doesn’t actually happen.
Illinois Department of Revenue data shows that in tax year 2010 the number of Illinois taxpayers with an adjusted gross income of more than $500,000 was 39,437. In tax year 2014 (after the income tax rate went up to 5 percent from 3 percent), the number of filers in that bracket stood at 54,827. That’s a 39 percent increase.
The reality, across the nation, is that when faced with higher taxes millionaires are more likely than non-millionaires to stay. It’s a conclusion borne out in a recent study that looked at almost 70 million tax records of households across the U.S. from 1999 to 2011.
Among the most interesting findings is that some millionaires leave their homes to go to Florida, which has no income tax, but movement to other non-income tax states such as Texas is far less frequent. This suggests there may be non-tax reasons for moving to Florida. (Perhaps, it’s the weather?)
There are several reasons why millionaires appear less likely to move than people with lower income. First, nearly all millionaires are married (90% versus 58% of the general population). In general, single people are twice as likely to move as married people. Second, business owners tend to move less than non-business owners because their sales and profits are often tied to a particular local or regional customer base, and there are almost six times as many business owners among millionaires as in the general population.
So it really wasn’t as surprising as people might have thought when the Minneapolis Star Tribune published a recent article with the headline, “There’s no evidence that ultra-rich are fleeing Minnesota.” The newspaper found that the number of income tax returns with income over $1 million grew by 15.3 percent after a 2013 income tax increase.
In a 2014 paper, Michael Mazerov at the Center on Budget and Policy Priorities noted that of seven other economic studies published on state taxes and migration since 2000, six concluded taxes do not drive interstate moves.
Moreover, tax cuts might well foster departures to other states. As Mazerov notes, if deep cuts result in “significant deterioration in education, public safety, parks, roads, and other critical services and infrastructure, these states will render themselves less — not more desirable places to live and raise a family.”
An important lesson that Illinois can take from the latest study and Minnesota’s experience is that Illinois has substantial room to raise tax rates without risking that more than a negligible number of high-income households will pack their bags. The top 1% of taxpayers in Illinois — those making $500,000 or more a year — pay only 4.6 percent of their income in state and local taxes; in Minnesota, the top 1 percent pays 7.5 percent in state and local taxes.
Furthermore, while Illinois has been cutting a range of critical services after the 25-percent income tax cut in 2015 and the related failure to enact a state budget, Minnesota has gone in the opposite direction, raising taxes to increase public investment in schools, transportation and other areas that help communities thrive.