Spring 2012 Legislative News
Terry Steczo and Maureen Mulhall
With only weeks to go in the spring 2012 session of the 97th General Assembly, the remaining weeks will be focused on the budget and developing a means of addressing the $8+billion in unpaid bills. Recently, Representative Jim Sacia from Pecatonica devoted his weekly column to a description of the budget for non-budgeteers. The following is his description of the challenges facing the legislature.
The Illinois Budget - This is an effort to simplify a very complex problem involving billions of dollars. Our annual budget this next fiscal year is approximately $58 billion - of that amount you, the taxpayers, are expected to send us $33 billion 719 million in tax dollars. The difference between those two numbers is money we receive as reimbursement from the federal government and some other sources. It is predominately motor fuel tax that is specifically designated for such things as roads and bridges. It is tax money that you pay each time you pull up to the pump and put gas in your car. It is not part of what we call GRF or General Revenue Fund.
Of the $33,719,000,000 GRF that you will send us, here is the breakdown of how it will be spent. First and foremost is non discretionary spending. These are obligations that must be made.
Number 1 - Our pension obligation is $5.1 billion (this is the state's portion of the pension expense not including the employee contributions).
Number 2 is statutory transfer out money equaling $2.1 billion. This is money that we have collected and we owe a percentage back to local governments such as sales tax revenues.
Number 3 is our group insurance obligation totaling $1.2 billion. This is the state's portion of the state workers' insurance programs not including the employee contributions.
Number 4 is our debt services or our obligation for money we have borrowed, both principle and interest, totaling approximately $2.2 billion.
Number 5 is Medicaid. You the taxpayer are on the hook for $6 billion 638 million. (Our total Medicaid obligation this year is approximately $15 billion including federal reimbursements). Yes, you are right – tax payers are on the hook for all of it.
The above five "must be made” expenditures total approximately $17.2 billion. There is another $219 million in non discretionary expenditures bringing the total to $17.419 billion.
If you do the math that leaves $16,300,000,000 for the five appropriations committees to divide which is close to $1 billion less than available funds last year.
If your eyes haven't yet glazed over here is how it allocates out. Elementary and Secondary Education Appropriations receive 39.8 % of funding totaling $6 billion 491 million, a cut of $363 million. Higher Education receives 12.1% totaling $1.978 billion, a cut of $110 million. General Services receives 7.1% or $1 billion 165 million dollars, a cut of 65 million. Human Services appropriations (Medicaid removed) receives 31.2% of funding totaling $5 billion 87 million, a cut of 284 million dollars. Public Safety appropriations receives 9.7% of funding or $1 billion 576 million, a cut of $88 million.
There will not be a happy agency in Illinois government but this is where the rubber meets the road.
One surprise in the allocation resolution for FY 2013 was the inclusion of Medicaid ($6.6 billion) to the fixed cost list. The $6.6 billion represents the funding level recommended by the Governor … including his proposed $2.7 billion cut. The allocation resolution states that if the legislature can't find the $2.7 billion to cut, then funding for other areas will be cut to reach the needed level, which guarantees that many unpopular decisions loom.
A second surprise was the acknowledgment that the state needs to pay down some of the $8 billion in unpaid bills that have been mounting. In a Senate Appropriations Committee hearing, Department of Healthcare and Family Services Director Julie Hamos warned members that if the Medicaid cuts are not made the billing payment cycle next fiscal year would balloon to 300 days. In response, not only has the legislature indicated that the Medicaid cuts are a "must” but they have also allocated resources to bring down the level of unpaid bills. The allocation resolution provides $300 million to reduce the non-Medicaid bill backlog. It also directs $500 million for the Medicaid backlog, which becomes $1 billion with federal matching funds added, making the total directed to old bills $1.3 billion.
A Hodgepodge of New Revenue Ideas
Budget cutting isn't the only option to address the budget challenges. In his budget message, Governor Quinn mentioned closing the corporate tax loophole on offshore oil drilling as one source of possible new state revenue. Illinois would gain approximately $75 million is this change were enacted. There has also been discussion of eliminating or reducing the retailer's sales tax discount which costs $100 million annually. The retailer's discount was originally intended to provide retailers with a stipend for the paperwork necessary to track sales taxes and send the funds to the state. In the electronic age that paperwork is now minimal so there is a move afoot to make a change.
During the last few weeks advocacy groups who fear that their constituencies will bear the brunt of the budget axe have created a menu of other possible tax/revenue sources that could lessen the pressure for severe cuts. Some actually might be possible while other stand little chance.
Both the offshore loophole closure and retailer's discount have a legitimate shot at being enacted. Increasing the cigarette tax ($300 million gain) has about a 50/50 chance, as does a reinstating of fund sweeps ($300 million). Utilizing revenue from the road fund for the Secretary of State and State Police ($250 million) has a 40% chance as does reducing statutory transfer by 9% ($200 million).
New revenue advocates have also placed broadening the state sales tax to include selected consumer services on their list. Illinois has a very narrow sales tax base, as compared to a number of other states. Broadening that base slightly could result in new revenues of $550 million or more. But it's been discussed many times before and makes logical sense. In the face of redistricting elections, tea party protests, no tax pledges, and hysteria by those service providers not impacted that it's the "camel's nose under the tent,” it has zero chance.
At the end of March, a pension bill (HB 4513) introduced on behalf of the Metropolitan Water Reclamation District of Greater Chicago (MWRD) raised a lot of eyebrows. The legislation increases employee and employer contributions to reach a funded ratio level of 90% by 2050. In doing so the bill requires that current employees increase pension contributions over three years and also increases employer contributions. The MWRD says that this change is needed so that their pension fund doesn't implode. But what House Bill 4513 also does is apparently contravene the tenets of the Illinois Constitution's provision relating to pensions being a contract that cannot be modified and could be a harbinger for more of the same as the session progresses.
In House floor debate on budget allocations Minority Leader Tom Cross stressed the need for pension reform to take place this year. He indicated that absent any action the General Assembly can look forward to another $1 billion in additional budget obligations for FY 2014, the same amount that the legislature will have to find this year to satisfy increased actuarial requirements. Because the state has already adopted a two-tier pension system, treating newly hired and older employees differently, any reform proposals will focus specifically on those who were employed prior to the enactment of the previous reforms … and how protective of the pension relationship the constitutional requirement actually is.
The General Assembly also passed a pension bill that impacts their more senior members. In 1994 the legislature adopted a two-tier system that restricted pension benefits for those entering the legislature after August 22, 1994. Legislators serving prior to that date have the benefit of taking a position that's covered by a reciprocal pension system and use that salary as their pension base, a very beneficial perk that has placed a heavy burden on the General Assembly Retirement System. The House unanimously passed HB 3969 that will charge the reciprocal system rather than the General Assembly Retirement System for the cost of the higher payout. This bill impacts only a few dozen legislators but is an attempt by the General Assembly that they're trying to get their respective house in order as well. Plus, it provides a good possible vehicle bill that can be used for whatever other comprehensive pension reforms they may be contemplating … and may be a sign that the General Assembly may be poised to find out exactly how far they can go to try to get pension obligations under control.
Bills of Interest
HB 5319 – Rep. Winters/Sen. Koehler - Amends the Sanitary District Act of 1917. Authorizes the board of trustees of a sanitary district to enter into an agreement to sell, convey, or disburse treated wastewater with any public or private entity located within or outside of the boundaries of the sanitary district. Further provides that any use of treated wastewater by any public or private entity shall be subject to the orders of the Pollution Control Board. (Current Status: Passed House; Senate Committee on Assignments)
HB 5642 – Rep. Tryon/Sen. Frerichs - Amends the Environmental Protection Act. Establishes NPDES permit fees for Concentrated Animal Feeding Operations (CAFOs). (Current Status: Passed House; Senate Committee on Assignments)
SB 3280 – Sen. Frerichs - Provides that the Director of Natural Resources shall adopt rules that require, prior to hydraulic fracturing, the owner or operator to perform a suitable mechanical integrity test of the casing or of the casing-tubing annulus or other mechanical integrity test methods using procedures that are established by administrative rule. Provides that each owner or operator that begins extracting natural gas from shale shall report to the Department specified information within 30 days after the completion of all stages of the hydraulic fracturing stimulation. Requires that the owner or operator shall post the chemical disclosure information on certain specified websites. Provides that the owner or operator shall provide information to the Director as to the amounts, handling, and, if necessary, disposal at an identified appropriate disposal facility, or reuse of the well stimulation fluid load recovered during flow back, swabbing, or recovery from production facility vessels. Provides that the storage of the well stimulation fluid load shall be protective of an underground source of drinking water by the use of either tanks or lined pits. Provides that nothing in the provision shall be construed to require or allow disclosure of trade secrets or commercial information that is exempt from inspection or copying when provided to the Department together with a claim made pursuant to the Freedom of Information Act that such information is proprietary, privileged, or confidential and that disclosure may cause competitive harm to the person or business. Provides that the provision only applies to the extraction of natural gas from shale. (Current Status: Senate – 3rd Reading) – Deadline extended to April 26
SB 3573 – Sen. Haine/Rep. Phelps- Provides an alternative procedure that a large public utility may choose in establishing the ratemaking rate base of water or sewer utility that the large public utility is acquiring. Defines "large public utility" and "water or sewer utility". Provides that the Commission's order that approves the large public utility's acquisition of the water or sewer utility shall include the Commission's decision establishing (1) the ratemaking rate base of the water or sewer utility and (2) the district or tariff group with which the water or sewer utility will be combined for ratemaking purposes. Sets forth provisions concerning definitions, appraisers and their duties, ratemaking rate base, and rate cases. (Current Status: Passed Senate; House Rules Committee)