Illinois state comptroller Susana Mendoza, a Democrat, issued a video on YouTube that urges the people of the state to contact legislators and Republican Governor Bruce Rauner to demand a state budget by close of business on Friday, June 30. Mendoza said that a federal court may soon order that the state shift funds from its “core priorities to Managed Care Organizations or MCOs that provide healthcare to Medicaid recipients.”
While the state government has functioned on court-ordered payments, she said that required payments will surpass current state revenue by $185 million by August. She claimed that the impasse over a state budget between the governor and the Democrat-controlled legislature have led to a "series of disasters." Without a “comprehensive budget solution,” Mendoza said, "It's going to get much worse very quickly." Mendoza did not offer any specific cost-cutting solutions in her video.
Mendoza said that vendors providing services to MCOs are owed more than $3.1 billion. She said that a federal court has ordered her office to pay the vendors between $500 million to $1 billion more per month to allay debt. “Even without this devastating mandate from the court,” Mendoza said, “we forecast a devastating revenue shortfall of $185 million in August, that will prevent us from covering even our most basic core priorities.The numbers we project for this fall are even worse.”
“You might be wondering, where do all your tax dollars go? Well, here’s the problem. When the five percent income tax expired in 2015, yet no budget was passed to address that shortfall, or cuts implemented to reflect reduced revenue, a huge hole was blown in the state’s finances. As a result, over the last year alone, state expenditures outpaced revenues by an average of $600 million a month,” said Mendoza. She also warned that various social service agencies, domestic violence shelters, and mental health providers will close.
Mendoza warned that Illinois has never defaulted on debt service payments and thus has been able to borrow even more. A comprehensive budget solution, said Mendoza, must include a borrowing plan to reduce the backlog of bills owed, as well as finding new revenue and spending cuts. Having communicated her concerns to Illinois’ governor and legislators, Mendoza urged citizens to share their concerns with them as well.
The Illinois Policy Institute -- a free-market-oriented think tank -- has offered a plan that addresses areas where the state can make cost-savings. Drafted by Ted Dabrowski, Craig Lesner, John Klingner, Michael Lucci of the institute, that promises to balance the state budget without tax increases. It also calls for comprehensive property tax reform and pension reforms, while also addressing areas such as Medicaid and the reduction of administrative costs at taxpayer-supported universities and colleges. It also recommends engaging with the American Federation of State, County, and Municipal Employees to address such issues as free healthcare for retired public employees.
Here follows an introduction to the Illinois Policy Institute plan:
If there’s one message many Illinois politicians and civic groups want taxpayers to hear this budget season, it’s that there’s no fixing Illinois’ fiscal and economic mess without a multibillion-dollar tax hike.
Tax-hike proponents also want residents to believe the Illinois General Assembly has already passed all the structural reforms it can, and the only thing left to do now is to hike taxes by $7 billion to $9 billion – and that will fix everything.
But that narrative is false. The General Assembly has done nothing to stop Illinois’ downward spiral.
The Illinois Policy Institute’s 2018 Budget Solutions offers a plan that reverses the state’s failed course. The plan fills Illinois’ $7.1 billion budget hole, balances the state budget without tax hikes, provides tax relief to struggling homeowners through a comprehensive property tax reform package, and implements pension reforms that comply with the Illinois Constitution and will begin to end the pension crisis.
It also implements many of the spending and economic reforms Illinoisans instinctively know are needed to create more jobs, generate higher pay and provide a better living environment, including right-sizing state worker benefits, implementing savings for Medicaid and making higher education more affordable for students by reducing administrative costs.
The Institute’s plan is as follows:
A. ENACT COMPREHENSIVE PROPERTY TAX REFORM – $3.4 BILLION IN SAVINGS
Illinoisans are forced to pay the nation’s highest property taxes to prop up Illinois’ 7,000 units of local government – the most in the nation – and the bureaucracies that run them.
In some Illinois communities, residents pay 5 percent or more of the value of their home to property taxes. For many, that’s more than they pay toward their mortgage each year. In those places – such as in Chicago’s Southland area – homeowners will pay twice for their homes over a 20-year period: once to purchase their home and a second time in the equivalent amount of property taxes.
But property taxes aren’t the only thing fueling excessive local government spending. Billions more in state subsidies help drive local spending on employee perks and other expenses such as the seventh highest workers’ compensation costs in the nation. Many of these costs result from state mandates that only increase costs for taxpayers.
Illinois taxpayers deserve relief. That’s why Illinois needs comprehensive property tax reform that includes not just a five-year property tax freeze, but reforms to the state subsidies and mandates that increase local costs.
Step 1: 5-year property tax freeze
Freeze the property tax levy of every local government in Illinois for five years, including home rule and non-home rule local governments.
Base the annual increase in local government levies not on inflation, but on Illinoisans’ ability to pay higher taxes. After the five-year freeze, property tax levies will grow based on the annual change in Illinois’ statewide median household income, with a maximum of 2 percent and a minimum of zero.
Require a referendum when governments wish to raise other local taxes or fees. To pass, the referendum must be approved by two-thirds of local voters.
Step 2: Curb wasteful spending habits by eliminating local government subsidies
Billions in state subsidies allow local officials to funnel money where it’s most politically expedient – all without having to answer to local taxpayers. Those billions prop up unnecessary perks and expenses including salary spikes, pension sweeteners and workers’ compensation costs that would otherwise be unaffordable. Subsidies ripe for elimination include:
Revenue-sharing agreements that fuel excessive local spending, such as the Local Government Distributive Fund – for counties and cities with populations above 5,000 – and the Downstate Transit Fund. (Savings: $1.75 billion)
State pension subsidies that allow districts and universities to dole out higher pay, end-of-career salary hikes and pensionable perks. Going forward, local school districts and universities should be responsible for paying the annual (normal) cost of pensions. (Savings: higher education: $450 million; K-12: $970 million)
Special carve-outs in the state’s education funding formula that grant subsidies to a select few school districts affected by local property tax caps and special economic zones. (Savings: $250 million)
Step 3: Eliminate costly state mandates and give back spending control to local governments
Freezing property taxes and ending state subsidies won’t be enough to fix Illinoisans’ tax burdens. Local officials must be given greater control over their own budgets so they can reduce the burden on local taxpayers and reform how local government is delivered.
Reform costly state mandates imposed on local governments such as prevailing wage requirements and collective bargaining rules. Ease the process for government consolidation and other cost-saving measures. (Local government savings: $2 billion-$3 billion)
B. END ILLINOIS’ PENSION CRISIS THROUGH SELF-MANAGED PLANS – 2018 PENSION CONTRIBUTION $1.65 BILLION LESS THAN BASELINE
Illinois’ pension math simply doesn’t work. It doesn’t work for pensioners, who are worried about their collapsing retirement security. It doesn’t work for younger government workers, who are forced to pay into a pension system that may never pay them benefits. It doesn’t work for taxpayers, who pay more and more each year toward increasingly insolvent pension funds. And it doesn’t work for Illinois’ most vulnerable, who have seen vital services cut to make room for growing pension costs.
The status quo cannot continue. Illinois must follow the lead of the private sector and over a dozen other states, such as Michigan and Oklahoma, and move away from its broken defined-benefit pension system.
State worker retirements can be put on a path to financial security by passing a holistic retirement reform plan that complies with the Illinois Constitution and creates a new self managed plan for state workers.
The Institute’s comprehensive retirement reform plan:
Respects the decisions of the Illinois Supreme Court by making changes that do not diminish or impair pension benefits.
Enrolls all new workers in a new hybrid self-managed retirement plan, or SMP, based on the State Universities Retirement System’s own SMP. The hybrid plan contains two key elements: an SMP and an optional Social Security-like benefit.
Gives all current workers the option to enroll in the SMP. Retirees, and current workers who do not opt in, will be unaffected by the plan.
The plan will result in a number of valuable benefits for state workers, retirees and taxpayers, including:
Providing increasingly stable and predictable costs for the state budget going forward.
Significantly reducing the growth in accrued liabilities.
Ending Illinois’ reliance on its broken pension system by moving virtually every active worker into an SMP by 2047.
Eliminating the unfair Tier 2 benefit plan for new workers and allowing existing Tier 2 members to opt in to the new SMP.
Sending a strong message to investor and credit agency groups that Illinois is finally tackling its pension crisis.
Phases in the costs of any pension funds’ actuarial changes over a five-year period. This will reduce the required $800 million increase in state contributions by nearly $650 million in 2018.
Creates a new contribution schedule with a 2018 payment that is $1 billion less than baseline contributions. That will protect overburdened Illinoisans from tax hikes and allow the state to prioritize funding for social services.
To achieve the above benefits – including ending unfair Tier 2 pensions – the state must invest the equivalent of $7 billion to $18 billion in today’s dollars over the next 30 years.
This is the only pension plan that protects worker benefits under the Illinois Constitution, protects funding for social services, avoids harming Illinoisans with another tax hike, shifts normal costs to local governments to discourage benefit spiking, begins an end to the broken pension system, eliminates the unfair Tier 2 benefit structure, and provides real retirement security to state workers.
C. ALIGN AFSCME COSTS WITH WHAT TAXPAYERS CAN AFFORD – $1.1 BILLION IN SAVINGS
Illinois’ middle class and blue-collar workers are struggling amid one of the worst economic recoveries in the nation.
That pain will only get worse if the costs of state government continue to increase. Illinois taxpayers already have to pay for state workers’ generous benefits, including the highest salaries in the nation, heavily subsidized health care, free retiree health care for most workers and overly generous pension benefits.
If the state is able to implement its last, best contract offer to the American Federation of State, County and Municipal Employees, which represents 35,000 state workers, it will save taxpayers hundreds of millions in government overtime and health care costs, among other expenses.
In addition, the state can further reform the costs of employee compensation by reducing state payroll by $500 million, or a little more than 10 percent, in 2018.
Implement the state’s contract offer which, among other savings, reins in state workers’ excessive overtime benefits and enacts reasonable health care reform that still provides affordable, flexible and fair health care options for state workers. (Savings: $600 million)
Reduce 2018 state payroll by $500 million. (State savings: $500 million)
D. STREAMLINE MEDICAID SPENDING – $415 MILLION IN SAVINGS
For many Illinoisans, Medicaid means poor access to health care. Much of that failure can be blamed on a Medicaid enrollment that has ballooned to 3.2 million Illinoisans, crowding out resources for the very people Medicaid was intended to protect. That’s a sorry outcome for a state that spends 25 percent of its general fund budget on health care, largely on Medicaid. The state can pursue improvements that will lower the burden that Medicaid imposes on Illinoisans. Those reforms include:
Applying more frequent eligibility checks to ensure resources are spent only on those eligible for services. (State savings: $135 million)
Lowering drug costs so more Medicaid patients can get the medicine they need. (State savings: $70 million)
Leveraging volume purchases and competitive bidding to lower medical equipment costs. (State savings: $55 million)
Repealing ObamaCare’s Medicaid expansion to ensure patients who need the most help have quicker access to doctors. (State savings: $125 million)
Utilizing ambulatory surgical centers that specialize in outpatient procedures to reduce costs and shorten patient wait times. (State savings: $30 million)
E. HIGHER EDUCATION: PRIORITIZE STUDENTS OVER ADMINISTRATORS – $500 MILLION IN SAVINGS
Illinois’ college and university officials blame the state’s budget crisis for the mess in higher education.
But budget gridlock isn’t why Illinois’ higher education system is facing financial troubles. Instead, it’s the growing number of administrators and their ballooning costs that make college unaffordable for too many of Illinois’ students, especially those with limited means. Illinois spends more money on administrative and retirement costs than on university operations. In fact, more than 50 percent of Illinois’ $4.1 billion budget for state universities is spent on retirement costs.
Colleges and universities must enact reforms to operational spending, reduce the cost of salaries, and eliminate administrative bloat. If they don’t, the destructive cycle of hiking tuition while relying increasingly on state subsidies will continue, making higher education less and less affordable for Illinois’ students.
In the meantime, the state cannot continue to subsidize Illinois universities’ bloated administrations and benefits. The Institute’s plan would lower state appropriations to colleges and universities by the equivalent of a little more than 10 percent of projected payroll costs in 2018.
Reduce state appropriations to higher education by $500 million in 2018. (State savings: $500 million)