Arc and Rauner’s Red Ink Challenge

We are really going to have our work cut out for us in this next legislative session and
The Arc will be leading the way for community services and supports.

Excellent story from Chicago Tribune on the issues confronting people with disabilities
and their families.

Tony

 

By Bob Secter, Rick Pearson and Monique Garcia Tribune reporters

On his path to becoming Illinois’ next governor, equity investor Bruce Rauner boasted
he would be able to fix the state’s massive financial problems, assuring voters, “I’ve
been a success at everything I’ve done.”   As the Republican prepares to take the reins
of power Jan. 12, that campaign theme is sure to be severely tested. Here’s a taste of
what he faces:

• Some state agencies are expected to run out of money for critical services a little more
than a month after he’s sworn in. That’s because the Democrat-approved budget
Rauner inherits may be short at least $1.4 billion.

• Rauner will have to put together a new budget a month or so after the bulk of the
state’s temporary income tax hike expired. As a result, revenues flowing into the state’s
general checking account — the one tapped to fund schools, health care, prisons,
pensions and many other services — are projected to drop from nearly $37 billion in the
last budget year to under $32 billion in the coming one, analysts say.

• Meanwhile, the accumulated deficit in that main state account — the red ink that at
least in theory should be erased before paying for anything else — is expected to almost
double to $12.7 billion. That figure includes $6.8 billion in unpaid bills.

Little wonder then that before taking the oath of office, Rauner has embarked on a new
campaign to convince voters the state’s financial picture is bleaker than he thought and
that fixing it almost surely will lead to at least a couple of years of pain and sacrifice.

“Our financial condition is far worse than has ever been discussed publicly before,”
Rauner declared after the election, an idea he’s continued to hammer in the weeks
since.

That claim comes as news to many politicians and budget experts who say the scope of
the state’s money problems was hidden in plain sight. At the end of May, Rauner himself
issued a statement decrying the “phony budget” lawmakers approved.

“There are no surprises, no secrets, this was all well-known,” said Charles Wheeler III,
an expert on Illinois government at the Springfield campus of the University of Illinois.
“For convenient political sake, it’s easy for him to now pretend, ‘Oh, I had no idea.’ ”

Rauner is pulling from a well-worn playbook of incoming Illinois governors who have
entered office vowing to rescue the state from the sins of leaders past.

“The free ride is over,” declared Democrat Dan Walker as he took the oath of office in
1973.   Four years later, he was replaced by Republican James R. Thompson, who
pledged an anti-corruption agenda as well as a hiring freeze “to ensure that the state
will be able to pay its bills.”

During his first budget address in 1991, Republican Gov. Jim Edgar pledged to “tear up
our credit cards.”   A dozen years later, Democratic Gov. Rod Blagojevich vowed in his
inaugural address to reject “the politics of mediocrity and corruption” and shake up the
Springfield status quo.

“It took years of mismanagement and waste to create the mess we now face, and it will
take tough choices to fix it,” Blagojevich said. “… No more cutting corners. No more
ducking the tough choices.” He then proceeded to do the opposite, eventually getting
impeached and landing in prison.

From rhetoric to reality

Now Rauner gets his chance to match up results with rhetoric as he tries to restore
trust and solvency to Illinois government. Complicating any assessment is the
deliberate vagueness of both Rauner’s campaign and his transition.   As a candidate,
Rauner spoke mostly in general terms of his desire for lower taxes and higher school
spending, though he did not reconcile the two or explain how he intended to accomplish
both.

He added another wrinkle in mid-December, telling an audience in Springfield that he
had no intention of making significant cuts in the Medicaid program providing health care
to the poor.

But education and Medicaid are the two biggest items in the state budget, together
accounting for well over half the spending in the already stretched general funds that pay
for day-to-day expenses.

“That dog won’t hunt,” said Ralph Martire, executive director of the Center for Tax and
Budget Accountability, a union-backed research center in Chicago. “He can’t maintain
or enhance the spending he claims he will maintain or enhance with the tax policy he
proposes. One of those two has to give.”

In a new report, Martire said even if Rauner and lawmakers attempt to hold spending
in the next budget at current levels for the most critical services — health care, education,
human services and public safety — the state will find itself $12.7 billion in the red at end
of June 2016. That’s almost double the deficit expected at the end of June 2015.

Driving the deficit are increased state contributions to public employee pensions,
repaying bonds and restoring $650 million Democrats used to help offset the current
budget’s loss of income tax revenue by borrowing money from a variety of state funds.

In addition, Rauner has said some state agencies already are asking for $760 million
more to cover the final six months of the current budget. The incoming governor blamed
those unnamed agencies for failing to manage for a full 12 months, suggesting they
spent in hopes of getting more money after the election.

Rauner’s team did not specify last week what, if any, contingency plans are in place for
agencies that are soon to run out of money. an immediate plan is necessary, that will be
ready to go,” Rauner spokesman Mike Schrimpf said. “But the overall larger picture is
that what you do in this budget year impacts the next budget year, so as we develop the
budget we are mindful that short-term decisions have a major longterm impact as well.”

Rauner enters office a giant question mark, a rookie politician who made his reputation
in a private equity industry where successful businesses use strategies to legally pay
the least amount of taxes. Rauner’s new job puts him in charge of enforcing tax policy
in Illinois and maximizing state revenues in a time of extreme financial stress.

Rauner has lashed out at the perceived management stumbles and shortcomings of
Gov. Pat Quinn and other Democratic politicians involved in running the state for
many years. But Rauner has remained closemouthed, both before and after the
election, about any plans he might have to do things differently.

Last week, Rauner’s transition team released a short memo that shed no new light on
what the new governor will do. “Before detailing solutions, it is important to continue
outlining to the public how Illinois arrived at the worst financial crisis in the nation,” the
memo stated.

Edgar, the former Republican governor and one of Rauner’s transition advisers, sees
that lack of specificity as a plus. “I’m amazed he was able to promise as little and say as
little and get elected,” Edgar said. “But it’s a great thing governmentally because it gives
you flexibility until you really can see the problem.”

Still, Edgar said Rauner’s most pressing task is reconciling the state to the impact of
Thursday’s income tax cut, which is expected to slice $2 billion from state revenues over
the next six months. If left intact, the income tax cut could cost the state more than $4
billion in revenue over an entire budget year.

“Doomsday’s coming, we do not have a printing press,” Edgar said. “I was talking to
some people to see if there’s any smoke and mirrors left and I don’t think there are.
They’ve used them all.”

State Rep. Frank Mautino, a top budget expert for House Democrats, said one area of
immediate concern for Rauner is the Illinois Department of Corrections. High overtime
costs for prison guards are threatening to exhaust the agency’s legal spending authority
months before the current budget year ends June 30, said Mautino, of Spring Valley.

State prison officials blame the problem on more prison guards retiring than expected
and higher union payroll costs. But the guards’ union says the prisons are understaffed.

Also running out of money is a Department of Human Services program that pays
providers for day care for about 150,000 low-income children, state officials said.

The road ahead   Illinois finances, long skating on the edge, have now become prisoner
to last year’s election politics.

In 2011, Quinn and the Democrat-controlled legislature agreed on what was billed as
a temporary increase in Illinois’ flat income tax rate to 5 percent from 3 percent for
individuals, and to 7 percent from 4.8 percent for corporations. The aim was to address
a financial crisis brought on by recession, soaring pension costs and a backlog of bills
that could not be paid on time.

Under the arrangement, the increases were to phase down in stages beginning in
January 2015, dropping to 3.75 percent for individual taxpayers and 5.25 percent for
corporations.

Last spring, Quinn sought to block the income tax rollback and make the higher rates
permanent, arguing the state could not afford the steep revenue drop. Fearing political
blowback, lawmakers balked and put off a decision on tax rates until after the November
election.

They did, however, pass a budget that Quinn criticized as “incomplete” but signed anyway.
It anticipated spending at levels that couldn’t be supported by a rollback of the income tax
rate halfway through the budget year.

Rauner, meanwhile, went on the attack against Quinn, warning voters that reelecting the
Democrat was tantamount to ensuring taxes would stay high.

At the same time, Rauner declined to outline his own prescription for tax rates.

The cash infusion from the 2011 hikes helped ease the state’s budget pain but was by no
means a cure for a chronic mismatch of revenues and spending that built up over decades
under Democratic and Republican governors alike.   With the tax rates now lowered, the
mismatch greatly intensifies.

Looming large over the financial problems is a $100 billion-plus pension debt the state
amassed by systematically failing to put enough money into retirement systems covering
hundreds of thousands of current and retired teachers and other public workers.

The practice dates to at least the era of World War I, according to a study by Eric Madiar,
at the time the chief legal counsel for Illinois Senate President John Cullerton, a Chicago
Democrat.

The costs of now playing catch-up are proving extremely expensive.

The current budget allocates more than $6 billion for pensions, with about 80 percent of
the money being used to cover old, inadequately funded debts and not new benefits
earned.

Meanwhile, a Quinn-backed law aimed at trimming the state’s annual pension bill is on
shaky legal ground, with a judge in Sangamon County recently ruling it unconstitutional.

An appeal is pending before the Illinois Supreme Court. A high court ruling last year in a
different case involving retiree benefits raised doubts about the viability of Quinn’s reforms.

Rauner was no fan of Quinn’s pension moves, though the Republican declined during the
campaign to discuss alternatives in any detail.

Nonetheless, an adverse ruling from the Illinois Supreme Court would greatly complicate
his efforts to tame the state’s budget woes.

Playing to Republican audiences during the primary campaign, Rauner sought to pin the
blame for much of the state’s financial trouble on public employee unions whose leaders
he alleged were corrupt, greedy and driving up costs.

He claimed government workers were overpaid and vowed to hang tough in union contract
renegotiations, all but proclaiming he might force a strike.

And Rauner declared his intention to use his office if elected to diminish the clout of
organized labor in much the same fashion as had Wisconsin Gov. Scott Walker and former
Indiana Gov. Mitch Daniels, two Republicans he said were his mentors.

Rauner, however, will face a very different political dynamic than either Walker or Daniels,
both of whom enjoyed the backing of Republican-controlled legislatures.   In Illinois,
Democrats remain in control of the House and Senate, and by margins large enough to
potentially thwart Rauner vetoes or executive actions.

In short, Rauner will require significant buy-in from Democrats to accomplish anything on
the budget, taxes, pensions, labor and business reforms and just about anything he outlined
as goals during his campaign.   For now, at least, Democratic leaders say they are taking a
wait-and-see approach toward cooperating with Rauner.

“He’s a very bright guy, but he’s never been in government,” the Senate’s Cullerton said.
“The way you campaign, apparently, for governor these days, you don’t have to be very
specific. He talked about lowering taxes in general and spending more money on education,
so we’re looking forward to hearing how he’s going to do that.”

For his part, Rauner has expressed confidence that he can end the cycle of fiscal crises
plaguing Illinois government both in the near and long term.

“We’ll get through this budget hole right now,” he told that audience in Springfield recently.
“…The critical thing is we make the structural reform, we take on the core processes in the
government and the structure of the government, the cost structure of the government so
we get away from these long-term structural deficits and we have longterm balanced
budgets.”

“I ain’t perfect,” he continued. “I fail sometimes. But you know what? In the long run, I
don’t fail.”

Tribune reporter Ray Long contributed from Springfield.
bsecter@tribpub.com   rap30@aol.com   mcgarcia@tribpub.com

Tony Paulauski
Executive Director
The Arc of Illinois
20901 S. LaGrange Rd. Suite 209
Frankfort, IL 60423
815-464-1832 (OFFICE)
815-464-1832 (CELL)
Tony@www.thearcofil.org