February 16, 2018 Update

The Illinois General Assembly has adjourned for the week. The Illinois Senate will reconvene Tuesday, February 20th. The Illinois House is off next week and will return to session on Tuesday, February 27th. Today is the deadline to file substantive legislation for consideration in the 2018 legislative session. Both chambers will now turn to considering legislation at the committee level and begin reviewing the Governor’s proposed Fiscal Year 2019 budget at the agency level.
On Wednesday, Republican Governor Bruce Rauner delivered his fourth and final budget address of his first-term to a joint session of the Illinois General Assembly. The Governor reminded legislators that Illinois is poised for “readiness” but we must act to put a stop to the unsustainable growth in our pension and health care costs, halt and reverse the advance in taxes, and restore emphasis on investments in education, human services, public safety and infrastructure. The Governor also called for reforms to the state’s pension systems and employee group health expenses. The Governor did not propose a plan to address the state’s bill backlog.
By way of background, Illinois’ record breaking two-year budget stalemate ended last summer when the Democratically-controlled General Assembly, joined by a handful of Republican legislators, overrode the Governor’s veto of the Fiscal Year 2018 budget. Despite having a fully enacted budget and a revenue boost from an income tax increase, Illinois continues to feel the fiscal effects of the stalemate. The bill backlog with the Comptroller stands at $8.8 billion, which is down from a record $16 billion earlier in the fiscal year due mostly to a debt restructuring initiative. As a result of the stalemate, the state has accrued $1 billion in late payment interest fees and over $2.3 billion in unappropriated liabilities are still being held at the agency level and have not yet been transmitted to the Comptroller.
Despite having a fully enacted budget, Illinois’ fiscal troubles are far from over. Several pressures already exist for the development of the Fiscal Year 2019 budget. The Fiscal Year 2018 budget utilized several one-time revenue sources that are all set to expire on June 30, 2018. In total, $790 million in one-time revenue was used to fund the FY 18 budget including: $300 million in fund sweeps, $200 million in cuts to LGDF and Mass Transit Districts, $130 million in transfers out were stopped, and $160 million in personal property tax replacement fund appropriations. Furthermore, new spending pressures are now present. New FY 19 budget pressures include an increase of $350 million for the new school funding formula, an extra $500 million for pension payments and another $780 million for debt service on borrowing to pay down old bills.
Governor Rauner’s FY 19 budget proposes to spend $37.613 Billion General Funds ($78.3 Billion All Funds). The budget is predicated on $37.694 billion in revenues leaving a $351 million surplus. The revenue estimate represents a $1.181 Billion increase over FY 18. The revenue increase is attributed to growth in the state’s economy (personal income and sales tax), the Sale of the Thompson Center, additional federal match from paying down old bills, and interfund borrowing authority authorized in the FY 18 budget. The Governor also proposes $16.2 Billion in new and re-appropriated Capital projects. In addition, the Governor proposes $1.2 billion in supplemental FY 18 appropriations. The Governor suggests using a combination of reforms, budget cuts ($1.295 Billion), addressing the state’s liability for public employee health insurance, and pension costs for universities and teachers. The budget and supporting documents from the Governor’s Office of Management and Budget can be found here.
Pension and Healthcare Cost Shift Savings: The Governor’s proposed FY 19 budget includes cost shift of TRS, CTPF, and SURS pensions. The TRS and SURS cost shift will be implemented in 25% increments, over four years. This is projected to save the state $262 million and $101 million in FY 19. The CTPF cost shift is projected to save $282 million and will not be phased in. The SURS heath care subsidy ($105 million savings) and the retiree plans of TRIP and CIP ($134 million in savings) will be shifted to local employers.
The Governor proposes to appropriate an additional $205 million to the Board of Higher Education to help offset the pension and health care costs. There is no additional appropriation for K-12 to offset the added pension costs for local school districts.
Income Tax Reduction and Pension Reform: The Governor’s revenue estimate does not include a roll back in the state’s income tax. The Governor will be proposing legislation to roll back .25% of the income increase, which will result in a loss of $900 million in revenue. The roll back of the income tax will be tied to the full enactment of the consideration model of pension reform. Passage of pension reform is projected to save $900 million.
Education: With respect to K – 12 education, the Governor’s proposed FY 19 budget includes $8.3 billion in GRF for the State Board of Education. The budget adds an extra $350 million to fund the new education funding formula and an additional $10 million for early childhood education. State Universitiesare heldtoFYI8fundinglevels. However, theywillreceive$205milliontooffsetfirst year increased costs for the proposed health insurance and pensionreforms. Map grants are also held flat at FY 18 funding levels.
Medicaid: The Governor’s FY 19 budget projects .5% growth in Medicaid liabilities. The Governor’s proposed GRF spending for Medicaid in FY 19 increases by $262 million, which assumes the $442 million FY18supplement is approved. The proposed budget also includes a 4% rate cut to all Medicaid providers, including hospitals.
Capital Program: The capital program proposed in the FY19 budget includes $16.8 million in new and re-appropriated projects. Highlights of the capital program include $2.2 billion for the road program, $265 million for rail improvements, $100 million for higher education improvements, $30 million to repair the Coliseum and other fixes at the Illinois State Fairgrounds and $15 million in new funding for OSLAD.
Other Highlights:
  • The proposed budget includes $5.5million infundingforIllinoisStatePolicecadetclassprojected to add a total of 85 new troopers. There is also continued funding for two 2018 Illinois State Police cadet classes projected to add a total of 170 newtroopers.
  • Thereisnoproposalto implement the CRP program and the one-time Homemaker rate increase will be discontinued. The FY 19 budget proposed to shift 11,000 clients to managed care organizations.
Senate President John Cullerton called the Governor’s proposal deceptive and suggested it was an election year statement. Cullerton was, however, supportive of the pension cost shift and has been an advocate of pension reform for several years. House Democrat Leader Greg Harris thought the Governor’s tone was less antagonistic and suggested it could be seen as a sign that he hopes to collaborate with the Legislature on a budget this year. It is still too early to know if the legislature and the Governor can agree on a budget during this highly contested election year.
2018 Key Session Dates:
March 20: Primary Election
April 13: Committee Deadline, both chambers
April 27: Third Reading Deadline for bills in first chamber, both chambers
May 11: Senate Committee Deadline, House Bills
May 18: House Committee Deadline, Senate Bills
May 25: Third Reading Deadline for bills in second chamber, both chambers
May 31: Adjournment