State Budget Remains in Limbo: Fight for Crucial Antipoverty Programs Continues in New Fiscal Year

Illinois lawmakers wrapped up the scheduled Spring legislative session at the end of May without a new budget. To now pass a spending plan, 60 percent of legislators in both houses must agree, which means votes from both parties are needed. State lawmakers did not agree on a budget in June, because Democrats could not agree among themselves and Republicans have injected new issues to the debate. The bottom-line: Illinois entered the new fiscal year on July 1 without a complete budget in place.

Stop-gap prevents general shutdown, but hurts key programs

The General Assembly did manage to pass a one-month operating budget to avoid a major government shutdown.  Medicaid coverage and need-based cash assistance programs can continue operating without interruption, because of a court order obtained 11 years ago during the last budget impasse; the Shriver Center reminded state officials of this court order in June to assure continued assistance.

Still the July stop-gap budget contains only funds for “core” services—it includes only two-thirds of the money that would be in a regular budget; and, it includes no funding for new programs. In addition, severely damaged are crucial community services, which private agencies provide through contracts.  Such services include welfare-to-work, homeless prevention, substance abuse treatment, immigrant services, teen parent programs.  The stop-gap measure appropriates no money for these services, and state agencies cannot contract with providers without them.  Technically, the temporary budget does empower a state agency to transfer funds from other budget lines to cover contracts it deems important enough to fund in July, yet realistically, few contracts are expected.  Therefore, many social service providers have to find a way to “carry” the programs or shut them down indefinitely.

The stop-gap budget is only effective during July.  By the end of the month, everyone hopes that lawmakers will enact a regular full-year 2005 budget plan.  If lawmakers fail, they must consider another stop-gap measure for August.

Debate involves crucial priorities

The state budget contains issues of immense importance to low-income people.  Gov. Rod Blagojevich proposed increased spending for Medicaid (7 percent, compared to 13-14 percent inflation nationwide in private health insurance), FamilyCare (year two of a three year plan to fully implement the program), child care (annualizing a change that actually was enacted last year by unanimous votes in both chambers), early childhood education (also the second year of a prior commitment), basic state aid for local schools, and a number of other programs.  These are core priorities for the governor, most Democrats, and some Republicans. 

There also is a consensus among leadership that state government must cutback; for example a 3.5 or 4 percent across-the-board reduction for state agencies is one idea, another is to close certain state prisons or other facilities.  There appears, however, to be no consensus on the exact lineup of such austerity measures; for example, what programs shall be exempt from cuts, and what facilities to close?

Problem is revenue

With a revenue shortfall of over $2 billion, the most serious disagreement is over how to fund the final spending plan.  While lawmakers and the governor have floated many ideas on how to raise the money, there is still no agreement.

The governor, whom Senate Democrats generally support, has proposed a revenue plan that includes closing corporate tax loopholes, using special state funds that remain unspent, and borrowing.  House Democrats, most of whom generally support the governor’s spending plan, want to borrow less and close fewer corporate loopholes.

And since the governor strongly opposes a tax increase and has yet to propose alternatives, the current position of House Democrats is to oppose some or all spending, although there is no unified caucus position. The caucus, in fact, has continually provided core support for the governor’s spending initiatives. 

Although House Republicans appear willing to compromise, Senate Republicans will not support a revenue increase to cover a spending increase no matter the importance of a service or if it was clearly promised in the past. It looks as if Senate Republicans will insist on reducing spending to match existing revenue; they however have not stated which populations or services would be cut. 

Some lawmakers have injected huge and controversial non-monetary issues into the budget negotiations.  For example, one such bargaining chip would enact reforms to reduce medical malpractice premiums by limiting damage awards for injured patients.  Another would affect state-mandated health insurance provisions, which require Illinois policies to include coverage for breast and cervical cancer screens, mental health coverage, family planning services, and other care.  The proposal is still to require employers to offer policies that include all mandated services, but also to allow them to offer policies with either some or none of such services.

Health care dominoes

The budget dispute has snarled Medicaid, KidCare, and FamilyCare at many levels.  The state last year approved a plan to assess hospitals and circulate the proceeds through the Medicaid program to draw federal matching funds to maintain and increase health care statewide.  At stake is $500 million—money already assumed in this year’s budget.  The plan must get federal approval, and the federal officials require states to demonstrate clearly that they will use these funds to maintain or expand health care services.

The governor’s budget plan does so because it does not reduce eligibility guidelines for, or cut services under, current health programs, and it also contains a Medicaid increase to keep pace with inflation.  In addition, the FamilyCare expansion provides the necessary proof that Illinois is actually expanding care rather than using the hospital assessment plan to close budget holes. Thus, the governor’s health care budget not only funds important priorities, but also is essential to win approval for the hospital assessment plan.

Moreover, in its own right FamilyCare is an excellent leverage of federal funds. Federal funds cover 65 percent of the cost to expand FamilyCare. Furthermore, if Illinois does not use the federal money available for FamilyCare, the money returns to the federal government and other states will use it to insure their residents.

Maintain pressure

The governor’s spending plan hits the right priorities. It includes targeted expansion, holds the line on crucial services, and maximizes the draw-down of federal money. Now he and state lawmakers have to create a revenue plan to cover it.

These are not ordinary times. The Blagojevich administration began last year in the teeth of a historic state fiscal crisis, already a couple of years in progress.  Illinois has an antiquated and inadequate revenue system that is unable to fund crucial state services even in good times.  The recession has both exposed and deepened this flaw. Considerable reform of the income, sales and property tax system is necessary to avoid an annual budget crisis and to create a system more aligned with the modern economy.  Since such reform is unlikely in an election year, new and the expansion of old (gaming) revenue ideas are under consideration.

It is understandable that all the players in state government are struggling this year to find ways to shore up revenues so that excellent policy priorities, which most support and their constituents demand, can move forward.  Now is the time for our leaders to select adequate revenues from their menu of choices and then enact a spending plan that includes these priorities. After that, it is essential for responsible leader to address significant reform of the Illinois revenue system.