Government Affairs Report
March 12 , 2010
Governor’s Proposed Budget: Borrow, Cut, Tax; Job Creation Emphasized but Not Enough
In what amounted to little more than twenty minutes, Governor Quinn officially unveiled his budget plan for FY 2011 on Wednesday; a plan that was of little surprise to most, relying heavily on borrowing and cuts to education, healthcare and human services, and public safety.
The governor first outlined his general approach to the state’s budget with the launch of a public website on February 24, suggesting that the road to fiscal recovery depended on borrowing, cutting, new revenues, federal assistance, and job growth. The governor’s proposed budget for FY 2011 strays very little from that original message, proposing a $32 billion state budget that depends on nearly $5 billion in borrowed money and more than $2 billion in cuts.
Although Quinn’s proposed budget does not account for any tax increase, the governor suggested that the only way to avoid deep cuts to education would be to increase the state’s personal and corporate income tax by 1%. Education is slated to loose over $1 billion in funding, namely due to the loss of temporary federal stimulus funds on July 1st. According to the governor’s office, a 1% increase in the state’s income tax will generate an additional $3 billion. All four caucuses, however, have rejected the possibility of a tax increase this session.
One of the bright spots of the governor’s messaging on Wednesday was his emphasis on job creation; a message that has been for the most part disappointingly absent from the governor’s rhetoric since he assumed office last January. Quinn’s emphasis on job creation as “priority one,” however, was tempered by a noticeable absence of many new ideas on what his administration plans to do to spur economic growth and generate new jobs.
Quinn’s proposed job creation tax credit for small businesses offers some relief, but the impact of that relief is muted by other factors that drive up the cost of doing business, such as workers’ compensation reform and inefficient state regulatory practices; factors that were not addressed by the governor on Wednesday.
The General Assembly has targeted a May 7 adjournment date, which gives them a little over a month to hammer out a budget plan that attempts to tackle a $13 billion budget deficit.
For a complete summary of Governor Quinn’s proposed budget for FY 2011, please click here. To view the Governmental Affairs Video of the Week Interview with Senate President Cullerton and his reaction to Governor Quinn’s proposed budget, please click here.
Pension, Medicaid Reforms Resurface
In his FY 2010 budget address, Governor Quinn aggressively championed the need to reform the state’s pension system, calling for implementation of a two-tiered system that reduces benefits and increases contributions for new state employees. The governor’s proposal, however, never went anywhere. The state issued $3.5 billion in pension obligation notes in order to meet its statutory contribution for FY 2010 and talk of reform was brushed aside once again.
While the governor’s message on reform- specifically pension and Medicaid reform- was largely subdued in his budget address, his proposed budget does revisit the idea of bifurcating the state’s pension system to squeeze as much as $300 million in savings. The governor’s proposed budget also builds in anticipated savings achieved through the utilization of a new Medicaid managed care pilot program for the state’s aged, blind, and disabled population; a proposal that had been previously detailed by the Department of Healthcare and Family Services through the release of a request-for-proposal in February.
The Illinois Chamber, along with a number of other business groups, has long championed the need for such spending reforms, particularly at a time when the state’s finances are continuing to sour.
Although the governor’s proposed budget does not provide specific details as to what his pension reform will entail, the Senate Republicans unveiled their version of pension reform later on Wednesday under Senate Amendment #1 to SB 2825. The proposal would raise the retirement age, cap benefits, narrow the alternative formula, and prohibit double dipping, among other reforms for all new hires beginning July 1, 2010. The proposal, which is more expansive than the governor’s targeted savings, projects an estimated $500-$600 million savings in FY 2011.
The Senate Democrats are expected to introduce their own version of a two-tiered pension system, which will more closely align with the governor’s targeted savings of $300 million and limit reform to an increase in the retirement age and a capping of benefits.
Whether or not pension and Medicaid reform will gain any ground this year still remains to be seen. The state’s budgeting options are running thin, particularly at a time when the state’s borrowing power may itself be operating on borrowed time and there is little to no political will to increase state taxes.
Both reform proposals, however, still face an uphill battle as they both have attracted a long list of interest groups that take issue with the administration’s attempts to tighten the belts of two of the state’s largest budget busters.
Quinn’s Medicaid Managed Care pilot already faces tremendous hurdles in the General Assembly, with the House Medicaid Reform Committee approving two bills – HB 5086 (Chapa LaVia) and HB 5113 (Flowers) – that would derail the administration’s plans to move nearly 40,000 aging and disabled individuals into a managed care plan.
The Illinois Chamber maintains, however, that the need to move ahead with reforms in both the state’s pension and Medicaid systems is greater than ever. Quinn’s budget may still be too heavy on the “borrow now, pay later” approach, but it has begun to address some very tough budget issues that must be addressed before the state can expect to get back on track fiscally.
Senate Approves Chamber Bills for Publicly-Traded Partnerships and Cooperatives
The Senate unanimously approved two tax-related bills pushed by the Illinois Chamber this week, the first of which includes publicly-traded partnerships in the 2009 repeal of a potentially large tax increase on partnerships while the second bill protects cooperatives from double taxation.
SB 3646 (Holmes/Currie) passed the Senate on Thursday to correct an oversight in legislation that was passed during the fall veto session to repeal a short-lived law that would have increased partnership income tax liability by 50%. The repeal of that law ultimately failed to apply to publicly-traded partnerships.
SB 1826 (Sullivan) passed the Senate today to eliminate an erroneous tax decision that disadvantages cooperatives and subjects them to double taxation. The Chamber has worked with the Department of Revenue to address some technical concerns, which is expected to be attached to the bill when it is taken up in the House.
New Amendment Seeks to Prohibit Use of Credit History in Employment Decisions
Despite opposition from the Illinois Chamber, the House Judiciary Committee unanimously approved HB 4658 (Franks) last week that, as amended, prevents employers from considering an employee’s or applicant’s credit score in employment decisions.
While the Chamber remains opposed to the prohibition on the use of a credit score, the bill as it currently stands is considered less obtrusive than the underlying bill. The House sponsor, however, has since introduced a floor amendment this week that would change the bill back to its original language to prevent employers from using credit history to determine qualified applicants and employees.
The bill currently remains on House Second Reading with the amendment still in Rules Committee, but the legislation, as it both stands now and could potentially be altered by the amendment, presents serious concerns to the employer community.
NEXT WEEK:
Clean Air Permitting and Mercury Emissions Bills Back to Senate Committees
The Senate Energy Committee is scheduled to take up SB 2812 (Harmon) on Wednesday to allow the Pollution Control Board to stay the effectiveness of certain actions taken or permit conditions imposed by the EPA in the course of administering the Clean Air Act Permit Program. The Illinois Chamber has been working closely with the sponsor on an amendment that will address several concerns of the business community, which Senator Harmon is expected to attach to the bill in committee on Wednesday.
The Senate Environment Committee could also hear SB 3227 (Sandoval), which imposes mercury emission standards on nuclear power plants. The Illinois Chamber opposes this legislation.
Save the Date for the Illinois Chamber’s Energy Council Forum Event
The Illinois Chamber’s Energy Council will be hosting a roundtable discussion with energy, environment, labor and government leaders about what is real and what is fantasy when it comes to keeping and creating jobs in Illinois’ energy sector- and what can be done in Springfield to bring more energy jobs to our state. The forum, co-hosted by Representatives Lou Lang and Bill Mitchell and Senators Dan Kotowski and Kyle McCarter will take place Tuesday, March 23 at the State Capitol in Rm. 114.
The forum will include representatives of all kinds of energy and will be moderated by Terry Martin of the Illinois Channel.
For more information and to RSVP, please e-mail Tom Wolf at twolf@ilchamber.org.
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