CHICAGO — Rookie Illinois Gov. Bruce Rauner and the General Assembly enter the last month of the regular legislative session without visible progress on a state budget or the governor's proposed "turnaround agenda."
At the top of the legislative agenda is adopting a budget that closes a gaping $6 billion spending hole. Chicago and other communities are pressing for an expansion of gambling as well as public safety pension reforms to avert a fiscal reckoning over skyrocketing contributions. Transportation officials want a new infrastructure package.
Market participants and analysts are watching closely because progress toward improving the state's dismal structural balance --underscored by a $5 billion backlog of unpaid bills — is needed to avert further credit rating deterioration. The state — also saddled with $111 billion of unfunded pension liabilities in a system just 39% funded — is rated at the A-minus level across the board, with negative outlooks from all three rating agencies.
Since unveiling a proposed $32 billion fiscal 2016 budget earlier this year, the Republican governor has busied himself with speeches across the state to build public support for his so-called "turnaround agenda" and pressure a resistant, Democratic Party controlled legislature to get it.
On Wednesday, Rauner faces what’s likely to be one of his toughest audiences yet -- the Chicago City Council where he is expected to deliver an address, a rarity for a sitting governor, to push his agenda. “Governor Rauner was born near Wrigley Field and loves Chicago. He recognizes that the city of Chicago and state of Illinois both face unprecedented financial and economic challenges. He looks forward to discussing ways he can work together with the City to find solutions that will turn around the city and the state,” Rauner spokesman Mike Schrimpf said.
Rauner wants spending cuts; reforms to pensions, unemployment insurance and workers' compensation; term limits; and curtailed public employee union powers. Rauner also has floated the idea of adding a Chapter 9 municipal bankruptcy provision to state statutes.
Democrats and Republicans are at loggerheads over both the budget and Rauner's turnaround agenda, with Democrats attacking the budget for its deep cuts.
Senate President John Cullerton, D-Chicago, this week implored the governor to focus on the budget. Cullerton has slammed the budget's reliance on uncertain pension reform savings and a lack of new revenue to balance the need for deep cuts.
"While it's interesting he goes around the state and wants to talk about these interesting issues that we've been debating here for years and decades, he is the governor. He has to get back to the budget," Cullerton was quoted as saying to a meeting of the State Journal-Register's editorial board. "There's his take-it-or-leave it turnaround agenda, which has nothing to do with the state budget. Let's refocus on the budget."
The Rauner administration countered that the structural reforms his turnaround agenda would accomplish go hand-in-hand with the budget. "The governor is committed to reforming the broken structure of state government so taxpayers get value for their money," the administration said in a statement.
The House on Tuesday held its first major discussion on Rauner's turnaround package. House Speaker Michael Madigan, D-Chicago, called a rare committee of the whole meeting to hear testimony on the workers' compensation system and Rauner's proposed reforms.
"Proposals to change the compensation received by men and women injured at their workplaces will have a significant impact on the financial security of middle-class families throughout Illinois," Madigan said in announcing the hearing. "The committee of the whole offers us an opportunity to discuss how proposals would impact individuals who have been hurt and their ability to be fairly compensated for their injuries and lost wages."
Budget
Agreement on budget issues ended after Rauner and the Democratic leadership in late March settled on a plan to drain $1.3 billion in surpluses from various non-general fund accounts and enact a roughly 2% spending cut to close a $1.6 billion hole in the current budget that runs through June 30.
To eliminate what the Rauner administration has projected is a $6 billion hole in the fiscal 2016 budget, he would trim the level of state income taxes doled out to local government to 4% from 8%, reduce Medicaid by $1.5 billion, cut higher education by $400 million, and lower local transit funding by $200 million. Rauner also is banking on $2.2 billion in savings from a series of proposed pension changes and $700 million in employee group healthcare savings.
Democrats have attacked many of the estimates. The pension reforms, if approved, will land in court just like the 2013 pension overhaul that is now before the Illinois Supreme Court after a lower court judge threw it out saying it violated the state constitution.
They have warned the Medicaid cuts could jeopardize federal matching funds and could require federal approval while $570 million in group healthcare savings would require a collective bargaining agreement.
In recent weeks, opponents of the various cuts flooded the state capital to protest. Local government leaders decried the impact of halving $1.2 billion in local government distributive income tax aid while social services providers warned that some agencies would be forced out of business if aid dries up.
Rauner has left the door open to new revenue but tied it to the adoption of his turnaround agenda. The budget anticipates that income tax rates will remain at their current level following the partial expiration of the 2011 tax hike on Jan. 1.
While behind-the-scenes meetings have been taking place, no legislation has been advanced to ease the burden on local governments to meet a prior state mandate that will drive up public safety pension payments next year.
Any legislation that could also tackle benefit reforms isn't expected until the state's high court rules on the state reforms. Chicago alone faces a $550 million spike next year to bring its annual contribution to an actuarially based level.
No legislation has surfaced that would aid the Chicago Public Schools with its rising pension payments and $1 billion deficit.
Rolling the Dice
Another effort to expand gambling is heating up this week, with a hearing held Monday on the state of the gambling industry and another set for next week on the potential impact of establishing a land-based casino in Chicago.
Chicago Mayor Rahm Emanuel is pressing for a city-owned casino and has tied it to a series of measures that could help stave off a steep property tax increase to help the city tackle its rising pension payments. Estimates have varied but it's expected that a city owned casino could generate at least $100 million annually in new revenue.
One pending bill would authorize five new casino licenses including one in Chicago, while another authorizes a state-owned casino in Chicago. Bills are expected to be revised in the coming weeks to allow for the one in Chicago to be owned by the city. One bill also would permit an expansion of slot machines at horse tracks.
Combined, the overall expansion could generate between $500 million and $1 billion in new revenue for local governments and the state. Lawmakers previously approved an expansion but former Gov. Pat Quinn vetoed it over ethics concerns.
On Monday, Rauner left open the door for a deal but it's unclear the price he might seek in the form of backing for his turnaround agenda.
"I know the city would very much like to have a significant casino within the city boundaries and I am very open to considering that I want to make sure that it's good for all the taxpayers and all the citizens, both of Chicago and the state of Illinois when we have that discussion," Rauner said when asked during a public event in Chicago.
Infrastructure
Illinois Regional Transportation Authority chairman Kirk Dillard, a former Republican state senator, on Monday called for more tax dollars to help the agency tackle a long-term $36 billion list of unfunded mass transit needs.
The agency provides financial oversight for the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service.
"We don't have enough money to take care of what we have today," Dillard said during an address to the City Club of Chicago. "We need to either increase the gas tax, index it for inflation, or we need to figure out how to broaden out the sales tax base."
More capital aid could make the operating budget cuts proposed by Rauner more palatable, Dillard said. "If the governor's cuts are sustained we'll live with it. What we need is capital," he said.
The push for more infrastructure funding comes as the state's ongoing partially bond-financed $31 billion capital program is winding down. Rauner says he supports a new program but it's unclear how the state would cover the costs and repay new borrowing.
The Illinois Department of Transportation and Illinois Capital Development Board are conducting a series of "listening sessions" to discuss the state's infrastructure needs with the aim of sending Rauner a list of recommendations this spring.
"With a world-class system of roads, transit systems, airports and railroads, Illinois is rich in transportation infrastructure, but we are at a crossroads. This asset makes us stand out, but it is beginning to deteriorate and in need of reinvestment," said acting Illinois Transportation Secretary Randy Blankenhorn.
Blankenhorn, appointed by Rauner, has called for a more reliable source of funding but has stopped short of naming any specific revenue streams. The expiring capital program relied on a series of new and increased taxes and fees including an expansion of video gambling that has long fallen short of expectations.
The current bond authorization for the expiring capital program totals $16.2 billion, with $11.4 billion sold so far. Capital spending in fiscal 2016 covers approximately $3.3 billion in new appropriations and $15.6 billion in re-appropriations.
The state tentatively plans to sell $1.05 billion of GOs and $200 million of sales-tax backed Build Illinois bonds in the next fiscal year, according to a recent report on the capital budget from the Commission on Government Forecasting and Accountability.
