Chicago Civic Federation Gives Illinois Budget the Green Light

CHICAGO — Illinois Gov. Pat Quinn’s proposed $34 billion fiscal 2013 operating budget, along with recently unveiled Medicaid and pension reforms, received the endorsement Tuesday of a local government review organization that said the package “would put Illinois finances on the road to recovery.”

“Illinois citizens have waited far too long for our leaders to make the difficult decisions necessary for fiscal recovery,” said Laurence Msall, president of the Civic Federation of Chicago. “We are encouraged to see a budget proposal that finally addresses Illinois’ fiscal crisis with sensible reforms that match the magnitude of the problem.”

The federation’s Institute for Illinois’ Fiscal Sustainability raised some concerns in its 87-page report Tuesday, but overall offered a positive assessment of the $57.4 billion all-funds budget because of major structural reforms that would rein in pension and Medicaid costs. Its support marked the first budget to win its endorsement in four years.

In addition to the reform proposals, the federation praised the administration’s decision not to rely on deficit borrowing and to hold spending in check and close out the next fiscal year with a modest operating balance of $163 million that would go to pay down a backlog of bills.

The changes mark “a departure from the state’s pattern of pushing current fiscal problems into future years,” the report reads.

Quinn last month unveiled a plan aimed at eventually erasing the state’s $82.9 billion of unfunded pension obligations by asking employees to shift to a new plan that increases their contributions and cuts some benefits in exchange for keeping health care benefits in retirement and other perks.

The changes would require the state to make the actuarially required contribution to fully fund the system by 2042, and is estimated to save the state $65 billion to $85 billion. 

Though supporting the proposals, the federation cautioned that more information was needed on how the state arrived at the savings projections and the impact on future state contribution levels.

Quinn also recently unveiled a plan to save $2.7 billion in Medicaid spending through benefit and reimbursement cuts and a cigarette tax increase that would leverage additional federal matching funds. The federation supports the changes although raised concerns that some projected savings might be overly optimistic.

The report warned that if lawmakers ignore Quinn’s push to reform Medicaid, the state could end up closing out the next fiscal year with a backlog of $4.5 billion in Medicaid bills, which could jeopardize the program’s survival.

“The Civic Federation calls on the Illinois General Assembly to approve the governor’s pension and Medicaid reform plans or identify reasonable alternatives,” Msall said. “Continued inaction will have devastating consequences for all Illinois residents.”

The report raises concerns the state will make little headway in the next fiscal year paying down a bill backlog that is expected to exceed $9 billion at the close of the current fiscal year June 30. The backlog at the close of the next fiscal year will include $5.5 billion in general fund bills, $1.9 billion in Medicaid bills, $1.1 billion in group heath insurance bills, and $643 million in unpaid business tax refunds.

The federation suggested that the state could collect roughly $1.7 billion to $1.8 billion if it began taxing retirement income to help cut the backlog.

The federation opposes capital authorizations totaling $24.9 billion, including new and reauthorized spending. The plan included $3 billion in new bond-funded projects. The federation wants the state to establish a “transparent and need-based” capital improvement program before it can endorse its capital budget.

The federation also raised concerns over whether the various fees and taxes raised in 2009 to support the state’s long-term $31 billion capital program will generate sufficient revenues.

The report was the second positive one out this week as the state headed to market Tuesday with its largest tax-exempt issue ever, $1.8 billion of general obligation refunding bonds.

The deal captured a true interest cost of 3.35% and 8.7% in net present-value savings. The yield on 10-year maturities in the deal ranged from 165 to 175 basis points over the triple-A MMD scale, a level in line with recent secondary trading.

Moody’s Investors Service on Monday praised Quinn’s proposed pension and Medicaid reforms as a credit positive.

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