The Illinois Chamber has joined a number of major business organizations in Illinois to adopt a joint statement recommending the Governor and General Assembly include structural reforms and financial restraints to help satisfy the state’s unresolved budget dilemma.
The incremental and status quo budgeting concepts that have been the basis of past state budgets can not be sustained when the fundamentals dictate outcomes that obviously exceed anticipated revenues.
Business leaders are willing to challenge budget fundamentals that are central to the state’s fiscal collapse.
Four major areas of expense must be addressed if lawmakers are to regain control of runaway spending obligations and achieve desirable outcomes for taxpayers:
• Public employee pension benefits
• Public employee and retiree health care benefits
• Medicaid payments
• Educational accountability and standards
Public financed healthcare, public education and pension payments accounted for 93.6% of the FY07 budget: Human Services (primarily Medicaid) 51.2%, Education 37.4%, and Public Employee Pensions 3.6%. State employee payroll and benefits is a major component of the equation. At $6.9 billion, approximately 15% of the $46 billion operations budget for FY07, this cost can’t be ignored.
As these costs have risen in recent years to dominate the fiscal picture all other state services, including everything from public safety to parks, have become almost incidental to the process.
Many elected officials want to ignore the critical underlying issues to avoid upsetting voters or special interest constituencies. Yet, these budgetary trolls reappear annually and wreak havoc on the process of building a balanced state budget. They must be restrained.
PENSIONS
In the case of benefits, it means daring to confront politically active public employees, government retirees and unions. It also means acknowledging the current system is not sustainable with over $40 billion in unfunded pension liabilities and annual payments equivalent to over half the state’s total estimated revenue growth.
Ironically, rather than place a moratorium on benefit expansion, the General Assembly continues to sweeten benefits while inadequately funding the systems. A moratorium is required.
This is not new ground. When faced with similar fiscal problems private sector employers and their unions have been realigning benefit structures over the past two decades. Such changes are always difficult, but the business community clearly sees the healthcare and pension programs available to many Illinois public employees that are more generous than programs commonly available to private sector taxpayers who are paying the bills.
Illinois needs a two-tiered system where new employee benefits and contributions are aligned with contemporary private sector standards.
HEALTHCARE
Although Governor Blagojevich continues to promote expanded subsidized healthcare, our state already has one of the most generous healthcare structures in the county. Illinois taxpayers subsidize healthcare for 2.4 million people or one out every seven. Two out of three nursing home residents and one of every three children’s healthcare expenses are covered by the State.
Sadly, our government does not pay medical providers in a timely manner and thrusts borrowing costs upon the medical community caring for the indigent. Illinois routinely ignores prompt payment to Medicaid vendors and defers over $1 billion of obligations from one fiscal year to another while claiming a balanced budget.
The state also drastically underpays medical providers for true costs of service, forcing higher costs on owners of private insurance, primarily employers.
Annual medical costs borne by taxpayers have trended up nearly 7% since Governor Blagojevich’s tenure. Next year’s budget is projected at almost $8.9 billion. Like pensions and healthcare benefits, the $640 million, 7.8% increase in Medicaid would claim over half of the total anticipated revenue growth for the next budget year. The growth in healthcare spending is not sustainable, even without the governor’s ambitious plans for broader government-funded coverage.
Illinois must aggressively pursue opportunities to reduce Medicaid costs, not expand them. For starters, all children and non-disabled, non-elderly enrollees should be switched to managed care plans.
EDUCATION
The key to future education funding is accountability. Since 1997 when achievement standards were first adopted, state funding for elementary and secondary schools grew from $3.7 billion to $6.5 billion in FY07. Total spending for K-12 education in Illinois hasn’t been sluggish. It grew from $13.2 billion to $21.5 billion in 2006 or 60%. Yet there was no appreciable academic improvement shown by the Prairie State Achievement Exam or Illinois Student Achievement Test between 1997 and 2005.
The business organizations embracing this financial reforms statement expect Illinois’ political leaders to stop sending hundreds of millions of new taxpayer dollars to local schools annually without also requiring: 1) exam proficiency for high school graduation, 2) a core curriculum aligned to academic standards, 3) budget transparency with linkages to improve school performance and student learning measures, 4) a value added student assessment system for all grades and all students, and 5) authorization of more charter schools.
Speaker Madigan’s “straw man” budget passed by the House of Representatives and rejected by the Senate at the close of the regular legislative session directed $400 million, approximately one-third of new revenues, to education. Legislators continue to claim education funding as their highest priority. They want to spend an ever-increasing amount of public funds on children. They desire to continue substantial annual increases in state spending for education, as has been the trend over the last decade. But, once again underlying fundamentals dictate trouble. Since Governor Blagojevich has introduced early childhood education into the funding equation there is another new program to compete with teacher pensions for a large claim on the limited new resources available.
From the business community’s perspective the concerns are not so much about the amount spent for public education as it is about the outcomes. Employers, like parents, expect government to provide a quality education and produce a skilled workforce that is prepared to compete in the global economy. These are reasonable expectations. Business leaders are looking for educators to demonstrate measurable results and improving outcomes that track favorably with increased funds. It is time for the accountability measures to be more stringently applied.
CUT SPENDING
State spending demands put forth by Governor Blagojevich for FY2008 far exceed projected new revenue growth of $1.1 billion. As outlined above, status quo public employee benefits and Medicaid spending alone could claim all new revenue even as legislators desire to promote education funding.
Individual and corporate income taxes surged in FY2007. Total state receipts were up by $1.3 billion. Yet, Illinois was one of a handful of states failing to run a surplus or give tax relief. Despite $1 billion in annual revenue growth Illinois’ fiscal condition has lacked stability for years.
If Illinois’ economy is not robust enough to generate adequate tax revenue perhaps our leaders should be more focused on the economic engine rather than increasing already over-extended government spending.
Business leaders do not condone fiscal shenanigans. The state is not engaging in honest budgeting. Fiscal restraint and cost cutting are in order.
The business community is offering thoughtful, practical structural reforms that portend long-term financial benefits to the taxpayers of Illinois. Our elected leaders must recognize that while cutting programs and spending are difficult political choices, the best opportunity to undertake the task is when cash is short.
To review the complete 2007 Illinois State Financial Reforms Statement visit the Illinois Chamber web site. |
