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Balance the Budget Without New Revenue? Nearly Impossible

Imagine, if you will, these three things happening:

  • Lawmakers and Governor Rauner fail to raise revenue for fiscal year 2017, which begins July 1.
  • They keep their promise not to cut (or even increase) support for PreK-12 education.
  • All other discretionary spending in the budget is completely eliminated.

Now here’s the question: If these three things happened would Illinois close the $7.1 billion hole it finds itself in today?

The answer: No way.

So this little exercise isn’t meant as a policy prescription. Rather, it’s an illustration that without revenue, it is virtually impossible to balance the budget without increasing debt or severely cutting education.

As the chart above shows, after last year’s 25-percent income tax cuts, state revenues are expected to be a little over $31.9 billion in the next fiscal year, according to the Commission on Government Forecasting and Accountability. Meanwhile, the Governor’s Office of Management and Budget (GOMB) estimates a general funds budget that funds services at the level of the fiscal year that ended June 30, 2015 and meets other state obligations would cost just under $39 billion.

That big gap is about $7.1 billion. Without revenue, that’s how much Illinois would have to cut to balance the next budget. Even then the state would make no progress paying down its huge backlog of unpaid bills, which is expected to reach nearly $10 billion by the end of next month, according to Illinois Comptroller Leslie Munger.

Cutting $7.1 billion from the budget wouldn’t be easy, even if it were desirable (which it isn’t).  For one thing, it couldn’t be done in an across-the-board manner. That’s because roughly $27 billion (70%) of the budget can broadly be categorized as “mandatory” spending. This includes: debt service, pension contributions, transfers made according to existing state law (largely to local governments and transit systems), Medicaid costs, and spending relating to consent decrees and court orders. It’s difficult (or impossible) to cut these areas.

The remaining $11.6 billion of the general funds budget can broadly be considered “discretionary” — it doesn’t have to be spent under law.  (For more details on how we calculated what is “discretionary,” click here.) This is not to say that these parts of the budget are unimportant. Far from it. This is spending on PreK-12 education, higher education, and a significant portion of human services, including areas such as homeless prevention, substance abuse and mental health treatment, and domestic violence.

Revenue Shortfall and Flat PreK-12 Budget Mean Impossible to Balance Budget

If lawmakers and Governor Rauner maintain (or even increase) funding for PreK-12 education, the total amount of remaining discretionary areas of the budget is less than the total revenue gap. In other words, even if the state eliminated entire sections of the state budget, it would still not balance the next state budget. Without billions of dollars in new revenue, it will be nearly impossible for the state to stop digging itself an ever-deeper financial hole. There is no getting around this.

Contracts Without Appropriation: DHS Owes More Than $350 Million to Service Providers

Illinois owes 800 service providers more than $350 million under contracts the state issued but lacks the appropriations authority to pay, according to Department of Human Services data obtained by the Fiscal Policy Center. The state issued these contracts even though Governor Rauner vetoed spending bills that would have allowed the state to make good on these contracts. Without payment for the services they have provided, many organizations are struggling to survive.

In an attempt to get desperately needed emergency funding to human service programs after more than 10 months without a state budget, the General Assembly last week approved by overwhelming margins a bill for more than $700 million in funding to social services. The nearly $250 million designated for DHS programs would allow the state to pay a sizable portion of the what the state owes under these contracts. Governor Rauner has not yet said whether he will sign this bill.

Pay Now Illinois, a coalition of 64 Illinois-based human and social service agencies and companies, is suing Governor Rauner and agency heads seeking payment of more than $100 million for services provided in FY16. The lawsuit seeks to begin immediate payments of the most overdue bills. The coalition notes that the lawsuit is the “only possible basis of preventing an even more serious cutback of services” and that once “these services and programs are cut or eliminated, it will be difficult to resume them.”

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Bipartisan Measure Provides Lifeline to Human Service Providers

The General Assembly passed by overwhelming bipartisan votes a $714 million bill (Senate Bill 2038) to fund human services for fiscal year 2016. The measure is essential to providing immediate relief to providers across the state struggling to stay open more than ten months into the fiscal year.

However, it does not remove the need for a full budget for both FY 2016 and FY 2017 (which begins July 1) that requires billions of dollars in new revenue to maintain critical services and investments in the state’s future. SB 2038 follows the General Assembly’s approval three weeks ago of $600 million in emergency funding to state universities, community colleges, and the Illinois Student Assistance Commission for Monetary Award Program grants.

Among the items in SB 2038 are $248 million for the Department of Human Services and $243 million for the Department on Aging (with the majority of funding for the Community Care Program). It also contains funding for other agencies including the Department of Public Health and the Illinois Housing Development Authority. A spreadsheet of the line items in SB 2038 can be found here or below.

Approximately 65% of the money in SB 2038 comes from the Advancement for Human Services Fund. This fund receives 1/30th of net income tax receipts from individuals, trusts and estates. The remaining funds include specialized funds for the designated purposes such as the Drug Treatment Fund, Department of Human Services Community Services Fund, and the Illinois Affordable Housing Trust Fund.

The funds do not cover any services or programs currently provided and funded under a court order. Along with a state order covering employee salaries, numerous court orders and consent decrees cover a variety of services (including Medicaid) for the fiscal year.

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It’s Time to Close Kewanee ‘Youth Center’

Kewanee Youth CenterVoices President Tasha Green Cruzat support Governor Rauner’s plan to close the Illinois Youth Center at Kewanee in a Chicago Tribune op-ed with Hoy McConnell, executive director of Business and Professional People for the Public Interest. The Kewanee “youth center,” Cruzat and McConnell point out, is a misnomer. While “youth center” brings to mind “images of carefree youths engaged in games, sports and enriching educational activities,” the facility at “Kewanee is a prison — a prison for youths.”

The Kewanee youth prison, which is located 150 miles southwest of Chicago, fails to meet the needs of youth. As a result, many youth “will leave Kewanee in worse condition than when they entered and be more likely to reoffend.”

The facility is also very costly to operate. Built to incarcerate about 350 youth, Kewanee now only imprisons about 60 youth. Cruzat and McConnell call for the savings of closing the Kewanee youth prison to be used to support community based services for youth that are much more effective and cost far less.

To read the full op-ed, visit Chicago Tribune’s website.

Fair Tax Bill Introduced

On Friday, Representative Lou Lang introduced a fair tax rate structure (House Bill 689), which would provide over 99% of income taxpayers with a tax cut while raising $1.9 billion to prevent more harmful budget cuts. The fact sheet below shows the tax change for different families structures at various income levels.

Currently, Illinois is one of only a handful of states that has a constitutionally mandated flat income tax rate, which contributes to Illinois having one of the most unfair tax systems in the country — with low-income households paying a much larger share of their income in state and local taxes than high-income households.

For Rep. Lang’s structure to take effect, the General Assembly would first also need to put a constitutional amendment on November’s ballot, which would then need to be passed by voters. By joining the 34 other states that have a fair tax, Illinois can improve tax fairness and raise revenue to support critical services, all while cutting taxes for the vast majority of Illinois taxpayers.

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Budget Crisis Update: Damage Continues to Grow

 ***TAKE ACTION*** Tell your lawmaker and the governor to end this budget crisis.

Today, the Fiscal Policy Center released an update to our September report outlining the devastating human impact the budget impasse continues to have on children, families and communities. The updated report provides a closer look at some of the pain the ongoing budget stand-off is causing in 60 service areas across the state, particularly for seniors, children and underserved families.

Illinois is now in its ninth month without a budget for the current fiscal year. Without an overall budget to govern appropriations for programs and services, court orders and federal pass through funding combined with piecemeal legislation have created a complicated web of spending authority that leaves out funding for critical programs serving people in every corner the of state.

That means that programs serving low-income children, seniors, and those with disabilities across the state have been forced to shut down. The failure of our elected officials to enact a state budget continues to dismantle the foundations of Illinois’ health and human service system, resulting in long-term damage to our state that will take years to repair.

Below are just a few other examples of the foreseeable and preventable results of not having a fully-funded budget.

  • HIV/AIDS Prevention and Treatment Services: The Pediatric AIDS Chicago Prevention Initiative, a program that works with medical providers statewide to ensure that pregnant women who are HIV-positive deliver HIV-negative babies, will close its doors in October of 2016 unless funding is restored. The program saves the state about $35 million each year, and without it, there will be babies who could have been born HIV-negative that will be born HIV-positive.
  • The Autism Project of Illinois: Nearly 1,800 families across the state have either lost services or are at risk of losing critical autism services after TAP closed its doors on September 30, 2015. Previously, TAP was a national leader in providing services and supports to children with autism spectrum disorder (ASD). One in 68 children has been identified as having ASD by the Centers for Disease Control.
  • Home-delivered Meals for Seniors: Roughly 3,200 seniors have lost home-delivered meal services statewide. In DuPage County, the DuPage Senior Citizens Council has cut program staff by 55% and has closed its community dining program. In Rockford, 250 meal slots have been eliminated, bringing the number of seniors on the wait list for meals to 400. The provider, Lifescape Community Services, reports serving 17,000 fewer meals in the first quarter of 2016 compared to the first quarter of 2015.
  • Sexual Assault Services and Prevention: All 29 agencies serving survivors of sexual assault have instituted furloughs and left staff vacancies unfilled. Agencies across the state have instituted waitlists for counseling services. One center reports 65 survivors are on a waiting list for critical trauma-centered sexual assault counseling services in Chicago alone.
  • Substance Abuse and Prevention Programs: Approximately 47,000 individuals across the state have been denied services or have had reduced service delivery, and most providers have a waiting list of 3 months or longer. That leaves many adults with substance abuse disorders at risk of entering the criminal justice system-a much more costly outcome for the state.
  • Centers for Independent Living: In FY14, Centers for Independent Living (CIL) served 95 of Illinois’ 102 counties, equipping people with disabilities with resources, supports, and skills to live independently. CILs across the state, including Chicago, Swansea, Joliet, and Alton, have instituted furloughs and layoffs, jeopardizing the roughly 63,430 direct services and information and referrals that were provided in FY14.
  • Support Services for Seniors: Home Care and Adult Day Care have been especially hard hit. Lutheran Social Services of Illinois closed 7 home care and adult day care centers, eliminating services for 2,355 seniors in Canton, Chicago, DeKalb, Freeport, Moline, Peoria and Rockford. LSSI also cut case management and adult protective services programs for 2,713 seniors in Sterling, IL. The lack of state investment in home care services leaves more than 25,000 seniors at risk of losing services across Cook andLake Counties.

Whether Illinois completely dismantles key service delivery systems is completely in the hands of Governor Rauner and the General Assembly. To prevent further damage to children, families, and communities, lawmakers and the governor need to take responsibility for funding our state’s priorities by restoring the revenue we need so that we can begin to repair the damage and put the people of Illinois first.

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FY17 Budget Proposal: No Balanced Budget in Sight

On Wednesday, Governor Rauner proposed a state budget for Fiscal Year 2017 (FY17) that, while it increases funding for early childhood education and public schools, cuts higher education and fails to restore a number of human services such as the Teen REACH afterschool program and autism services that have been eliminated due to the lack of a fully enacted budget for the current fiscal year.

According to the Governor, the FY17 “maintenance” budget (which largely reflects FY15 service levels) would total nearly $39 billion but be supported by only $32.8 billion in revenue due to last year’s income tax cuts. To reduce this huge revenue gap, the Governor proposes an initial round of spending cuts of approximately $2.6 billion.

With a roughly $3.5 billion deficit remaining, he then presented lawmakers with two options:

  • approve elements of his “turnaround agenda” that would be part of a $3.5 billion budget package of new revenue and additional cuts; or
  • cut the budget by an additional $3.5 billion.

Under the latter option, the Governor said that, if the General Assembly failed to agree with him on cuts, he wants new authority to make budget cuts, change provider rates set in law (e.g. Medicaid reimbursement rates), and modify statutory transfers out of the general funds (e.g. cutting distributions to local governments and local public transit systems).

FY17 Budget Scenarios Chart

As shown above, the FY17 budget builds in general funds cuts that include a set of pension-related changes ($748 million), changes to employee group health insurance ($445 million), and changes to the procurement system ($319 million). The Governor also includes as revenue $200 million from the anticipated sale of the James R. Thompson Center in Chicago. Many of these measures require either changes to state law or contracts with state employee unions and may not be possible to realize. The document also indicates that the state may seek to only repay $15 million of $454 million borrowed from other state funds at the end of FY15.

Cuts to Human Services

The Governor proposes general funds spending cuts of $300 million in health and human services when compared to the maintenance budget. This estimate reflects both programmatic cuts and savings the Governor says he anticipates from better coordination of services between state agencies, increased utilization of federal funds, and greater emphasis on less expensive community care over institutional care.

As one example, the Department on Aging is seeking to shift non-Medicaid eligible seniors from the Community Care Program (which provides support services to seniors allowing them to remain in their homes versus nursing homes) with a Community Reinvestment Program. The Department says it expects to save $198 million with the change, which it claims will give it more flexibility in providing a modified package of services to individuals.

The proposed budget restores funding for child care assistance to families with incomes of up to 185% of the poverty level. However, non-court mandated human services that were proposed for cuts in the FY16 budget (for which the state provided no contracts in FY16) for the most part remain omitted in the proposed FY17 budget. The Department of Human Services budget does contain what is termed a “placeholder” for $25 million in human service grants.  During a budget briefing, administration personnel indicated negotiations between the executive and legislative branch would determine what services these grants would cover.

Two important home visiting programs, Health Families Illinois and Parents Too Soon, both have proposed small 2.3% increases in funding. Early Intervention sees a substantial proposed increase of nearly $7 million. Redeploy Illinois, which helps decrease youth incarceration by providing community based alternatives, and Comprehensive Community Based Services for Youth (CCBYS), which helps children avoid involvement with the juvenile justice and child welfare systems, both also have proposed 2.3% increases. Neither is currently receiving funding.

PreK-12 Education Increased; Higher Ed Cut

For public universities, general funds support would be cut by approximately 20% from FY15 levels, but additional money is provided for “performance funding,” bringing the overall reduction to 16%. Funding for the Monetary Award Program (MAP), which provides grants to low-income students to help them afford college, remains level (compared to FY15) at $364 million. Currently, nothing in higher education is funded.

The Governor proposes an additional $75 million for investments in early childhood education and an additional $55 million in general state aid to support public schools. However, unless there is new revenue, cuts to other service areas would be needed in order to pay for these increases. The Governor proposes a 2.3% increase to bilingual education.

Bill Backlog Continues to Grow; Proposal Shows No FY17 Decrease

The state started the fiscal year with $4.4 billion in bills. Comptroller Leslie Munger has indicated, absent any further action by the Governor and legislature, the backlog could grow to $10 billion by the end of the fiscal year. The budget book simply notes that the Governor is willing to work with the legislature to reduce the backlog and that several options, including financing, should be explored. The Governor’s budget does not anticipate running a general funds surplus in FY17, which would be required to reduce the backlog.

Current Fiscal Year Still Lacks Budget

In addition to the FY17 budget, there still remains the urgent matter of having no current FY16 budget nearly nine months into the budget year. Every day that lawmakers and Governor Rauner fail to carry out their duty to enact a state budget means that Illinois is dismantling core service areas and investments in its future.

Unfortunately for Illinois, a likely scenario is one not laid out in the Governor’s budget book: inaction. In this scenario, Illinois continues to add to the backlog of unpaid bills and falls further into debt while children, families, communities, and our state’s economy suffer the short and long-term consequences of not investing in them.

Our elected officials must come together to enact budgets for FY16 and FY17 that raise the necessary revenue to meet the needs of Illinois children, families, and communities.

Posted to Blog, Budget, Budget Cuts

Governor Fails to Put Children and Families First in Budget Address

In response to Governor Rauner’s budget address today, Voices’ Director of Policy and Advocacy Emily Miller released the following statement:

“Voices for Illinois Children rejects the premise that we must choose between educating our children and investing in the social service infrastructure that helps families and communities thrive.

“The Governor rightly identified the importance of public investment in education by announcing his vision to increase funding, but he failed to propose new revenue necessary to make that vision a reality.

“Without significant new revenue, increasing education spending to record high levels means slashing public investments like job training, healthcare, public safety, homeless prevention, and countless other services that give children and families the tools they need to pull themselves out of poverty.

“Instead of choosing to pit our most vulnerable against each other, the Governor and lawmakers should choose to raise the revenue we need to invest in the priorities we all share.”

College Price Tag Growing in Illinois

With the lack of a state budget this year and no funding for tuition assistance grants through the state’s Monetary Award Program (MAP), Illinois lawmakers are putting more students and the state economy at risk of falling behind. Without the promise of financial aid and more affordable tuition, many low-income Illinoisans will not be able to pursue college, a pre-requisite for obtaining a family-supporting career and moving into the middle class.

Even before the current budget impasse, Illinois was not making the needed investments to keep college within reach for aspiring college students. Last week, the Center on Budget and Policy Priorities released data showing that as of 2014, Illinois’ investments in postsecondary education were still lagging 4 percent behind pre-recession levels. This decline in state investments shifts costs onto students and families in the form of higher tuition. Overall, in-state tuition at Illinois’ four-year public universities is up more than $2,300 since 2008.

These higher costs mean many low- and moderate-income students must rely on working full or part-time to pay for tuition and fees. While some work can be beneficial during school, too much work can delay completion and leave students at greater risk of dropping out. And those students choosing to take out loans to pay for college often leave school with large amounts of debt when they enter the job market. In Illinois, one in ten student loan borrowers default on their loan within three years of leaving school.

In the not too distant past, Illinois stood out among many states for its commitment to supporting low-income students to attend college because of MAP grants. But ongoing tuition hikes, coupled with the lack of funding for MAP grants, sends the wrong message to Illinois’ current and aspiring college students about the state’s commitment to postsecondary education.

With more jobs of the future requiring postsecondary education, it is more important than ever for Illinois to invest in the future workers of the state through postsecondary education and skills training.

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Governor Rauner Needs to Make Budget Agreement Top Priority

Emily Miller, Voices’ policy and advocacy director, released the following statement in response to Governor Rauner’s 2016 State of the State Address:

A full seven months after the start of the fiscal year, Illinois leaders have failed to carry out their most basic responsibility — enact a balanced budget that funds vital state services and invests in our state. Less than a week after the largest social service provider in the state announced closures of 30 programs that left 4,700 Illinoisians without services, and with additional program closures from other providers virtually certain, Governor Rauner failed to prioritize reaching a budget agreement that would lead to lasting fiscal stability.

Instead of making a budget agreement with lawmakers his number one priority, the governor described an ambitious plan to restructure pieces of state government, and did not even mention the state budget until the final two minutes of his speech. Some of the policy items the governor mentioned have the potential to positively impact our state. Unfortunately, long-term structural reforms will not have the desired positive impact if we continue to disinvest in the families and communities and destroy the state-funded structures that provide public services due to the lack of a fully funded state budget.

The governor clearly has an ambitious agenda for his second year. Illinois’ future would be better served if he turned his immediate attention to finding a solution to the most pressing issue facing us: the lack of a state budget.

Text of the governor’s speech can be found here.

Posted to Blog, Budget, Budget Cuts