CHICAGO – Cook County, Illinois will work in the coming months to close a $97.6 million gap without tax increases but dark clouds loom due to the prolonged state budget impasse and GOP efforts to dismantle the Affordable Care Act.
The projected deficit for fiscal 2018 which begins Dec. 1 was presented as part of the county’s preliminary forecast for fiscal 2018 released Thursday. The good news is that it is the projected deficit is the lowest since board president Toni Preckwinkle took office in 2010. The nation's second-most-populous county, which includes Chicago, is operating this year on a $4.4 billion budget.
The bad news is that the gap could widen.
“While a number of factors, including the dysfunction in Springfield and Washington D.C., could impact our bottom line, we will be prepared to close these gaps in a prudent and responsible manner as we have done in the past,” she added.
Preckwinkle is especially alarmed over the “potentially catastrophic impact” federal healthcare reform could have on future county finances with the potential toll as high as $800 million annually. The impact, if any, on fiscal 2018 is still very much up in the air.
The fate of plans by President Trump and the congressional GOP to replace the Affordable Care Act is still clouded and the county has not yet assessed the newly released Senate version.
But, both the House and Senate version phase out the ACA’s Medicaid expansion which has greatly benefited the county in managing health system expenses.
The county has whittled down its taxpayer subsidy for the system to $111 million this year from $400 million when Preckwinkle took office and that’s mostly due Medicaid coverage users qualified for under the ACA.
The $97.6 million shortfall is driven mostly by the lack of a state budget, rising personnel costs, legacy debt service and increased capital equipment spending. The county will close a projected $1.3 million shortfall in the current budget by holding back some spending and health system expense reductions.
The fiscal 2017 shortfall was offset by better-than-expected amusement tax revenues of $6.2 million due to the success of local professional sports teams.
Projected expenses in 2018 will rise by $108.7 million due to increased personnel costs, higher employee health benefit costs and increasing reserves for claims from legal settlements while $20 million is needed for capital equipment purchases for technology infrastructure that is being funded from the operations instead of borrowing.
Non property-tax revenues will rise by $80.6 million to reflect a full year’s collection of the one-cent-per-ounce sweetened beverage tax that takes effect July 1. It is projected to raise an additional $127 million this year and then $200.6 million in the next fiscal year.
To close the current gap, Preckwinkle has asked the county's finance team to look at consolidating redundant programs and services and real estate to promote contract savings, delay hiring, and establish strategies to reduce costly overtime. No tax hikes are being considered.
Preckwinkle said she remains committed to a three-year pledge made last year not to raise taxes, after the county adopted the soda tax and increased its sales tax to boost pension funding. The commitment is based, however, on the size of the current projected deficit.
The state's budget impasse -- if it continues into a third fiscal year July 1 -- could also add to the county's fiscal 2018 strains.
The impasse has already taken a toll as the county and its health system are owed more than $170 million for past due rent, grants, other reimbursement, and Medicaid funding. Additionally, some mandated programs that were once funded by the state are now covered by the county.
Preckwinkle won approval last year for the beverage tax to deal with a $174 million gap without making deep cuts in public safety and health spending. It covers carbonated soft drinks, fruit beverages that are not 100% fruit juice, sports drinks, and energy drinks.
The county's general obligation bonds are rated A2 by Moody's Investors Service, AA-minus by S&P Global Services, and A-plus by Fitch Ratings. Ahead of a refunding last year, Moody's and Fitch revised the county's outlook to stable from negative while S&P downgraded it one notch. S&P assigns a stable outlook.
The county is tapping the 1% sales tax hike to cover supplemental payments to its pension fund to bring the system to a 90% funded ratio in 2046. The county's system carries $5.9 billion of unfunded obligation that are 60% funded. The county needs state approval, however, for changes to take effect.