What’s In Illinois’ New Budget, What’s Not And What’s Next?
After a two-year political war, Illinois lawmakers finally approved a state budget on Thursday, but the package leaves some big issues unresolved.
The new budget will provide some stability and predictability for state agencies, universities and entities that do business with the state. But damage from the impasse could be felt for years in some other sectors.
Here’s a partial look at what’s in the budget, what’s not and what’s next.
WHAT’S IN THE BUDGET?
Cuts and taxes
The budget approved by lawmakers immediately raises the personal income tax rate from 3.75 percent to 4.95 percent, retroactive to July 1, 2017, and the corporate income tax from 5.25 percent to 7 percent. The tax hikes are expected to bring in about $5 billion in additional revenue to the state. The budget also imposes $3 billion in cuts across state government, including a 10 percent reduction in spending for public universities, which have been among the hardest hit by the two-year budget impasse.
Chicago pension overhaul
Buried in the state budget package was a plan to change the way Chicago funds two of its foundering pension funds for about 34,000 city laborers and municipal workers. Previous pension plans were met with a legal battle or a veto by the governor. Now, the city says its four pension funds are finally on a path toward solvency. With the new payment schedule, the city contributions will increase every year for the next five years. New city workers will have to pay an 11.5 percent contribution, and the city will kick in more money with revenue from a tax on water and sewage usage and an increase in the 911 surcharge. The goal is to get the pensions 90 percent funded by 2058. But the city will reassess the contributions in six years, which means cuts and new revenue are still on the table for the future — a possibility that worries Gov. Rauner.
Road construction ahead
The new budget includes $10 billion for road construction, according to a spokeswoman for the Illinois Department of Transportation. That means IDOT construction projects that were halted by a “stop work” order that started July 1 have resumed. IDOT estimates the work stoppage cost $20 million to implement and another $2 million-a-day to maintain and secure work sites. Most work is expected to resume next week, though the Michael Sturino, president of the Illinois Road and Transportation Builders Alliance, said many subcontractors have moved on to privately-funded jobs.
WHAT’S NOT IN THE BUDGET?
A plan to eliminate the $14.7 billion bill backlog
Illinois has accumulated nearly $15 billion in unpaid bills because the state was spending more than it brought in during the impasse. The state owes money to social service organizations, health care providers to low-income patients and more. The budget that passed calls for borrowing to address part of that backlog — but not all of it. It allows for borrowing up to $6 billion through general obligation bonds and $1.2 billion from other state government funds that would have to be repaid within two years.
In a statement, Comptroller Susana Mendoza, whose job is to disburse state money, said the first cash out the door will be to those payments that have the highest interest rates.
A clean way to fund K-12 schools
The new state budget provides a big increase in funding for K-12 education — a bump of 9.6 percent. (Funding from state coffers for Illinois’ two million students will be $8.2 billion, an increase of $717 million over this year.)
But there’s a big catch.
The spending package stipulates that the money can only be doled out to schools using an “evidence-based” funding formula — something Illinois does not currently have. There are competing Republican and Democratic versions of new funding formulas. The Democratic version, Senate Bill 1, passed both chambers of the General Assembly in May. Supporters called it historic, but Rauner has promised to veto the bill, saying it’s a bailout for Chicago Public Schools. A Republican funding formula — which also tries to get more money to poorer school districts but is less generous toward Chicago — was introduced in June and has never been voted on.
Expect a political fight between the governor and legislative Democrats over school funding in the very near future, as schools normally start receiving state aid in early August.
How does Illinois eliminate its mountain of unpaid bills?
Unknown. Democratic Senate President John Cullerton told reporters in Chicago this week that even with a budget there will have to be more negotiations on addressing the bill backlog.
“You have to go back and continue to negotiate on either revenue or further cuts,” he said Thursday, before the budget became law.
Will the state crawl out of its bond ratings hole?
Not any time soon. Illinois has suffered ratings downgrades since the impasse began more than two years ago, according to the comptroller’s office. And one bond rating agency, Moody’s, warned this week that it was considering another downgrade for Illinois — to junk status — even if Illinois got a budget.
Moody’s analyst Edward Hampton said he’ll be watching to see how much revenue the income tax hike will actually produce.
“The state’s economy and tax collections have lagged when you compare it to other states in the region,” he said.
The bond market has already adjusted prices for Illinois bonds, signalling that the state could see lower interest rates next time it borrows money, said Matt Fabian, a partner with Municipal Market Analytics. That trend started as soon as the Senate overrode Rauner’s budget veto over the holiday weekend.
However, he thinks an upgrade from ratings agencies is unlikely without movement on a bigger issue: The state’s unfunded pension obligations, which the state recently pegged at $130 billion.
How long will it take human service groups to recover?
For human service agencies in Illinois, having a state budget means they can finally structure programs and staffing for the new fiscal year with more certainty about their funding. But there are calls for transparency in how, and when, the state government will pay past-due bills for services that some agencies rendered as many as 18 months ago.
“Many of our providers are owed millions of dollars still,” said Judith Gethner, Executive Director of Illinois Partners for Human Service, a statewide coalition of over 800 human service providers. “It is not going to be just one check to be able to make everybody right.”
But Gethner said the biggest crisis has been the loss of professionals working in fields that require higher levels of education and specialized licensing. Many organizations, offering services from early childhood development to elderly home care, were forced to cut staff during the impasse. She said those people have gone on to take higher-paying jobs in the private sector, or may have left Illinois altogether.
“I would argue it’s going to take us years to be able to ramp back up,” said Gethner.
WBEZ reporters Susie An, Tony Arnold, Greta Johnsen, Linda Lutton, Dan Weissmann and Odette Yousef contributed to this report.