SPRINGFIELD HIGHLIGHTS - February 22, 2012
Wednesday, February 22, 2012 at 1:21PM 
(CLICK HERE to read the IMA’s Budget Press Release.) At noon today, 02/22/12, Governor Patrick Quinn provided his fourth annual Budget Address since taking office in January 2009 following the impeachment of former Governor Rod Blagojevich. Under the Illinois Constitution, the Governor is required to annually prepare and submit a balanced budget to the General Assembly.
In the coming weeks, members of the General Assembly will review the budget, meet with state agencies, conduct hearings, and ultimately pass a final budget to the Governor for his signature prior to the scheduled adjournment on May 31. Given the enormous magnitude of the state’s debt, this will be a significant and difficult task during an election year.
Illinois currently has more than $8 billion in unpaid bills that include $5.6 billion owed to vendors, $1.5 billion in delayed Medicaid bills, and another $600 million in corporate tax refunds dating to 2008. This debt has remained unchanged despite the record $7 billion tax increase passed by lame-duck members of the 96th General Assembly and signed into law by Governor Quinn in January 2011.
FY13 Budget Numbers
Governor Quinn’s FY13 budget includes $33.940 billion general funds revenue (taxes and transfers), representing an increase from the $33.22 billion in revenue in the FY12 budget. On the expenditure side of the equation, Illinois is expected to spend $37.77 billion, a slight increase over the FY12 expenditure of $33.727 billion. The $163 million balance in the state’s checkbook will be used to reduce the state’s outstanding debt from $5.7 billion to $5.5 billion. While the state budget general budget is increasing by nearly $600 million, the total includes an additional $1 billion to fully fund the required pension payment and nearly $400 million in reductions in general operating expenses.
Total state tax revenue is expected to increase from $30.179 billion to $30.819 billionlargely fueled by increases in the individual ($211 million) and corporate ($196 million) income taxes while sales taxes are estimated to increase by $202 million. These three taxes comprise 88 percent of general fund tax revenues.
The budget proposal assumes economic growth of 1.9 percent in calendar year 2012 and a decrease in the state’s baseline unemployment rate from 8.8 percent to 8.6 percent. Illinois added a total of 72,500 jobs in FY12 and is expected to add another 86,900 jobs in FY13.
Speech Highlights and Budget Points
In the speech, Governor Quinn announced that the FY13 budget is predicated on five key points that include (1) jobs and economic growth, (2) investing in education, (3) stabilizing and strengthening our pension systems, (4) restructuring our Medicaid system, (5) rebalancing institutional living/community care, and (6) reductions and efficiencies across state agencies.
The speech will include Quinn’s often stated mantra of “closing corporate loopholes” which will include eliminating the continental shelf exclusion to push more income into Illinois for taxing purposes. The IMA has consistently opposed this tax increase on companies that operate globally.
Other key details and messages include:
· Governor Quinn is calling for most state agencies to reduce spending by approximately 9 percent. While this is a good sound bite, education and some other key agencies that comprise a majority of the state budget are not being cut.
· Despite continued calls for real pension reform by the IMA and many others, Governor Quinn will not call for specific reforms to the state’s pension systems that are the worst-funded pension system in the nation with an unfunded liability of $85 billion. The state’s required payment to the pension system will increase from $4.1 billion to nearly $5.1 billion in FY13. Instead of calling for specific reforms, Governor Quinn will await the results of a current pension workgroup that was recently appointed.
· While Illinois’ Medicaid program costs continue to skyrocket, Governor Quinn fails to call for specific Medicaid reforms that will cut spending in the $8 billion program. Without changes in eligibility, optional services or reimbursement rates, Medicaid costs are expected to increase by $4 billion or 50 percent in the next four years. The Governor would like the General Assembly to work with the Department of Health & Family Services to achieve nearly $2.7 billion in costs savings. The Governor’s budget does not include any specific line item funding allocations and is instead presented as a total target sum with the “expectation that line item appropriations can be specified once cost reductions are set out in legislation.”
· Maintain funding for K-12 and Higher Education. The Governor’s FY13 budget proposal increases education funding from $8.86 billion to $8.95 billion and includes additional dollars for both early childhood education ($20 million increase) and the need-based Monetary Award Program ($50 million increase). Both of these are linked to the Governor’s stated goal of increasing the percentage of Illinoisans with a college degree or trade certificate from 43 percent to 60 percent by the year 2020.
· To promote trade and reach his goal of doublingIllinois exports by 2014, Governor Quinn plans to lead trade missions to Brazil and Germany in 2012. Illinois exports increased by 29 percent in 2011 with the majority of exports produced by the manufacturing sector.
· Governor Quinn’s budget includes elimination of the state’s tax on natural gas that is estimated to cost $164 million in revenue. Illinois’ natural gas tax is the lesser of 2.4 cents per therm or 5 percent of gross revenue from each gas customer. The IMA has long-called for eliminate of the state’s sales tax on both natural gas and electricity.
· According to the Governor’s budget, Illinois “loses” a total of $473 million in FY13 because the state did not decouple from the federal bonus depreciation passed by Congress and signed into law by President Obama in 2009.
· The Governor’s budget specifically notes that increased federal taxes and the Smoke Free Illinois Act have “negatively impacted revenue.” Assuming no increase in cigarette taxes, this tax revenue will decrease by $10 million in FY13.
· Within the Department of Commerce & Economic Development, the total budget decreases from $1.98 billion to $1.74 billion while headcount remains level. Dollars for job training will remain at $11.1 million while the number of workers trained will increase from 138,000 to 143,000. The budget for the Environmental Protection Agency, which includes no general funds, remains relatively level at $289 million with a slightly decreased headcount of 895 workers.
· The budget more than doubles funding for the Workers’ Compensation Anti-Fraud Unit at the Department of Insurance.
· As the Manufacturing STEM leader in Illinois, the Illinois Manufacturers’ Association is pleased to see $384 million included in the Governor’s capital budget to build and equip new STEM (Science, Technology, Engineering & Mathematics) facilities in both public and private universities. Three million dollars will be provided to each of Illinois’ 48 community colleges for STEM learning centers. Anadditional $616 million is allocated to primary and secondary schools with technological and energy efficiency updates.
· Quinn’s capital budget includes $30 million for Argonne National Laboratory to help plan and construct a new energy storage facility in partnership with Northwestern University, the University of Illinois, University of Chicago, and others to help develop the next generation of batteries for everything from cars and trains to smart phones and laptops.
· Illinois will provide $300 million in capitalfunding to continue investing in the CREATE (Chicago Region Environmental and Transportation Efficiency Program) designed to significantly reduce freight rail and passenger rail delays in the Chicago region. CREATE is a partnership between the USDOT, City of Chicago, Metra, Amtrak, and freight railroads.
· The Governor’s plan continues to move forward on the new South Suburban Airport in Will County. The Illinois Department of Transportation is producing a Master Plan addressing construction and operation of the airport for FAA approval.
· The budget eliminates $11.4 million in state funding for the state’s share of States’ Attorney, Assistant States’ Attorney, and Public Defender salaries and instead transfers funding to the Local Government Distributive Fund. The budget does include funding for Regional Superintendents of Schools.
· Governor Quinn is calling for the closure of two developmental disability facilities (Jacksonville and Rockford) and twomental health facilities (Tinley Park and Centralia). Additionally, the Governor is seeking to close the Tamms Supermax Prison, Dwight Correctional Center, two juvenile youth centers (Murphysboro and Joliet), six Correctional Transition Centers and consolidation of 24 DHS offices and 13 State Police communication centers.