Cook County, Ill., May Face Tough Future After Balancing Budget

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CHICAGO — Cook County, Ill.'s proposed 2015 $3.7 billion budget manages to eliminate a deficit without raising taxes, but the county faces "future enormous fiscal problems" tied to pensions and a massive public health system, Chicago-based fiscal watchdog group The Civic Federation said Thursday.

The Civic Federation praised County President Toni Preckwinkle's proposed budget for closing a projected $169 million shortfall without raising taxes or fees or laying off employees.

But without additional work, the county's fiscal position could be seriously undermined by looming pension payments, a spike in debt service, and uncertainty and risk tied to operating one of the largest public health systems in the U.S., the federation said.

"The Civic Federation is encouraged by and acknowledges the substantial effort taken by Cook County Board President Preckwinkle and her administration over the last four years to reform county operations and services," the federation said in the 95-page analysis.

"However, while the FY2015 proposed budget is reasonable, even weightier challenges for the county lie ahead. Both the health system and the county's proposed pension reforms, two essential elements to the county's fiscal well-being, have large risks and unknowns in their paths forward."

Preckwinkle unveiled the executive budget in early October, noting it was the second year she had eliminated a deficit without any new taxes, fees, or layoffs.

The county board has held a series of budget hearings in November. The county's fiscal year begins Dec. 1.

The proposed operating budget will jump 17% to $3.7 billion, from a $3.2 billion 2014 budget, the federation said.

The $169 million projected deficit is closed with $93 million of new revenue, largely from the new federal health care law, as well as $54 million of cuts, and $22.5 million of efficiency initiatives.

The county's own five-year forecast warns of significant and growing deficits through 2019.

Its pension funds, while in relatively good shape compared with those in Chicago and the state of Illinois, have suffered steep declines over the last 10 years. The county's unfunded pension liability has grown to $6.4 billion in fiscal 2013, up from $2.7 billion in 2004, with the funded ratio falling to 56.6% from 71% over the same 10-year period.

Preckwinkle deserves credit for pushing comprehensive pension reform during the last legislative session, the federation said. The proposal failed to gain enough support to pass, but Preckwinkle has said she plans to re-introduce it in January, 2015.

The county is already banking on the pension reform passing, as an expected $147 million spike in its 2016 pension payment isn't included in the projected 2016 deficit forecast, according to the watchdog group.

"Given the funded ratio and the unfunded actuarial accrued liabilities of the fund ... failure by the Illinois General Assembly to pass the pension reform legislation brought forth by the county or some amended version puts the fund's stability and the county's fiscal outlook in doubt," the report said.

On top of the pension payment, debt service is projected to rise $75 million in fiscal 2016, the group said.

Another area of uncertainty and risk is the county's large public health system. The system already accounts for more than a third of the county's overall budget, and every year faces deficits offset by county general fund subsidies.

Since 2013, Preckwinkle has increasingly relied on the new federal health care law to bring in additional revenue to plug the chronic shortfalls with an expansion of its Medicaid program, CountyCare. This year, the county expects to see up to $60 million in new money from the reimbursements.

The federation warned that uncertainty and risk surround the health system.

"Running a managed care plan is a complicated and risky business that is far removed from the traditional operations of a hospital-centered public health system," the report said. "However, Medicaid is the health system's main source of revenue. The health system must be a viable option for Medicaid patients in order to continue as a healthcare provider for those who will remain uninsured, even under the ACA."

Starting in 2015, the county is going to face competition from other providers as CountyCare members will have the option of switching to other managed care plans, the federation noted, which will mean "intense competition" and could mean less money.

Cook's proposed 2015 capital budget totals $272.4 million, which includes the issuance of $220 million of general obligation bonds.

Overall, the county's operating budget will increase by 16.8%, or $53 million from the last budget, according to the federation. General and health fund revenues will increase by 18.5%, or $464 million from fiscal 2014.

Ratings agencies have downgraded Cook several times over the last few years, largely due to pension woes. In July, Fitch Ratings dropped the county's general obligation rating to A-plus. Moody's Investors Service rates Cook County A1 and Standard & Poor's rates it AA. Moody's also maintains a negative outlook on the county, chiefly due to underfunded pension obligations.

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