Cook County, Illinois, offers up painless budget

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CHICAGO — Cook County Board President Toni Preckwinkle unveiled a $6.2 billion 2020 easy-to-swallow budget that closes a minor gap without any new taxes and fully funds planned supplemental pension contributions, but clouds loom due to a rising healthcare tab.

The lack of new taxes — a pledge Preckwinkle first announced when the $19 million preliminary deficit figure was announced in June — provides a stark contrast to Chicago’s budget that is set to be unveiled next week on Oct. 23 and the new taxes passed by the state for its fiscal 2020 budget that began July 1.

Lightfoot, who prevailed over Preckwinkle in an April runoff, faces a more than $800 million deficit due to rising pension, debt, and personnel costs and has warned new revenue will be needed. Lightfoot is expected to seek approval from the state during the fall veto session for a change in tax on property sales to allow for a progressive rate. She also will seek changes to a proposed Chicago casino tax structure in hopes of making it more attractive to a potential operator.

Illinois passed a motor fuel tax hike and other transportation-related hikes. The state also will ask voters on the November 2020 to approve a constitutional amendment allowing for a shift to a progressive income tax from the current flat one. If passed, Gov. J.B. Pritzker would seek to raise rates on top earners.

The county, which covers Chicago and neighboring suburbs, offers upits budget before the city as its fiscal year begins Dec. 1 while the city’s starts Jan. 1. Hearings begin this month and the board of commissioners will take a vote in November.

“This $6.18 billion budget is both responsible and responsive and guides our work in justice, health, economic development and the environment,” Preckwinkle said in an address last week. “It does this without the need to increase existing taxes…more than 90% of our annual budgetary solutions are structural in nature. This budget is no different.”

The proposed spending plan is up from the $5.94 billion budget adopted for fiscal 2019. About $2.8 billion goes to the health system and $1.3 billion toward public safety. The proposed budget earmarks $283 million for capital projects, $105 million for highway work, and $103 million for capital equipment. About $200 million in borrowing is expected.

The county projects a fund balance this year of $368 million, above a $309 million target, so it plans to draw down some reserves in the coming years for one-time expenses so as not to cause a structural imbalance. That includes $10 million in 2020.

Preckwinkle has touted the steady decline in the county’s deficit during her tenure that began with an inherited deficit of $487 million eight years ago.

The county whittled it down through past job cuts, refinancing and reducing debt levels by 11%, and across-the-board spending cuts. Preckwinkle in 2017 turned to a tax on sweetened beverages that the board rescinded later in the year after a public backlash. That drove further cuts as the tax was expected to generate $200 million annually.

The projected general fund shortfall is due primarily to rising personnel costs due to cover a cost of living pay hike and increased health care expenses. The gap was closed by measures that included not filling some vacant positions and savings in healthcare costs.

The budget stays on course with supplemental contributions to its pension fund under an intergovernmental agreement with its pension fund. The county will make an additional $300 million pension contribution above its statutory amount. “Cook County is on track to provide supplemental pension payments of more than $1.3 billion,” Preckwinkle said. The county will contribute more than $500 million in total to the fund in 2020.

The county pushed through a sales tax hike in 2016 to raise funding levels. Legislation has stalled that would factor in the supplemental contributions toward an actuarial level over the current statutory level that falls short of an actuarial amount.

Some of the $391 million of annual revenue generated by the higher tax also goes to pay for transportation work.

The fund and county have been at odds over issues that would be addressed in the legislation, with both sides offering up draft versions. The fund has proposed a payment scheme that would cost an additional $267 million between 2021 and 2024 above what the county anticipates has proposed paying. It would reach full funding status several years ahead of the county’s 2053 target.

“The ramp provided in the proposed legislation puts an undue burden on the county’s fiscal position in the coming years for little gain to the CCPF in the long run,” the county’s chief financial officer, Ammar Rizki, wrote to the pension fund this month.

The two also remain at odds over the governance structure and have not settled the fate of funding for the Cook County Forest Preserve fund and whether it should be merged with the county’s main fund.

The two pension funds—one for county workers and the other for Forest Preserve employees—are just under 61% funded, with a combined $6.8 billion unfunded liability.

Persistent pension pressures prompted S&P Global Ratings to shift its outlook on Cook County’s AA-minus general obligation rating to negative from stable in 2017. Fitch Ratings rates the county A-plus with a stable outlook. Moody’s Investors Service assigns its A2 rating and stable outlook.

The county has about $3.3 billion of debt outstanding under its general obligation and sales tax-backed credits and its credit line.

S&P Global Ratings cut Cook County’s sales tax bonds two notches to AA late last year, affecting about $416 million of debt. The county last year asked Kroll Bond Rating Agency to rate the revenue bonds. Kroll assigned its AAA rating.

The county’s budget includes a longer-term financial forecast that casts a shadow over the current picture as a $110 million gap in the general fund and health fund projected for next year grows to $307 million in 2024 with $197 million due to rising healthcare costs.

Pressures are mounting on uncompensated health care cost which is projected to rise by $46 million next year to $590 million. “The increase in uncompensated care can be partially attributed to delays in Medicaid application processing at the state level,” read budget documents.

Cook County Health expects to provide $544 million in uncompensated care this year, up 8% from $502 million in 2018 and $314 million in 2014 after Medicaid coverage expanded under the federal Affordable Care Act, according to a recent report from the Chicago Civic Federation.

The system has given various reasons for the rising tab saying it’s due in part to unaffordable, high-deductible health insurance plans offered on the insurance marketplace created by the ACA. They also suggested that other hospitals were increasingly referring uninsured patients to the health system. More recently officials have also cited a significant decline in Medicaid managed care enrollment it says was linked to the state’s new automated procedures for removing beneficiaries from Medicaid rolls if they do not fill out the forms required to renew their eligibility, the Civic Federation report said.

The budget documents report that the healthcare system “has identified several strategies” to help tackle the shortfall including the reduction of full time employees by 750 vacant positions. Officials also will work with Illinois Health and Family Services on application processing. The county will increase the annual property tax allocation by $10 million to $112 million in 2020 for the system.

The county also is no longer projecting it will receive $3.3 million in the coming year as the legal sale of marijuana begins in the state Jan. 1. Potential revenues won't be counted until 2021.

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Budgets Public pensions Cook County Illinois