January 10, 2013
The 97th Illinois General Assembly’s closing session ended on January 9, 2013, leaving many questions unresolved about the State’s current budget year and fiscal sustainability in the face of its $97 billion unfunded pension liability.
At the end of each two-year legislative session, all of the bills not passed by both chambers of the General Assembly are cleared from the legislative agenda. Legislation must be filed under new bill numbers and the deliberative process must begin again in committee. The 98th Illinois General Assembly includes 25 new members in the 118-member House and 16 new members in 59-member Senate.
The following sections summarize the critical budgetary and financial issues previously discussed here and of continued importance at the outset of the 98th Illinois General Assembly.
- Pension Reform
- Medicaid
- Group Health Insurance
- Gaming Expansion
- Borrowing for Bills
- Governor's FY2014 Budget Recommendation
Pension Reform
The General Assembly did not vote on comprehensive pension reform legislation supported by a bipartisan group of legislators or consider an eleventh-hour proposal by Governor Pat Quinn to delegate the issue to a new commission.
House Bill 6258, the bipartisan legislation discussed here and here, would have significantly reduced State pension costs by cutting the annual automatic benefit increase, increasing member contributions and shifting costs from the State to school districts, universities and community colleges. In order to win broader support, the measure was revised during the January session. Changes included a temporary suspension of annual automatic increases and elimination of the cost shift. The revised proposal was approved by the House Committee on Personnel and Pensions on January 7, 2013 by a vote of 6 to 3 but was not called for a vote on the House floor. Proponents reportedly were unable to round up adequate support from House members.
On January 8, the Governor proposed the creation of a new eight-member commission to address the pension crisis. The commission would have been charged with developing a plan by April 30, 2013 to reach full pension funding by FY2045. The plan would have gone into effect unless it was rejected by majorities of both chambers of the General Assembly. Although the Governor’s plan was approved by the House Pensions Committee by a vote of 7 to 2, it was criticized as an abrogation of legislative authority and was not considered by the full House.
At a press conference after the House adjourned, Senate President John Cullerton continued to maintain that his approach to pension reform—essentially allowing retirement system participants to choose between reduced annual benefit increases and State-subsidized retiree health insurance—was the only way to comply with the Illinois Constitution. A measure based on this approach was passed by the Senate in May 2012 but has not been considered by the House. The measure only applies to two of the five State retirement systems.
On January 9, the first day of the new General Assembly, Senator Cullerton introduced new pension reform legislation. Senate Bill 1 includes both his preferred approach and provisions similar to the revised HB6258. If the latter provisions were found to be unconstitutional, the former approach would take effect. Representative Elaine Nekritz and Senator Daniel Biss, the main sponsors of HB6258, introduced new bills, House Bill 98 and Senate Bill 35, which are similar to the original version of HB6258.
Medicaid
The General Assembly did not pass a proposal to allow Illinois to expand eligibility for Medicaid under the Affordable Care Act in 2014. House Bill 6253 would have lifted the State’s moratorium on eligibility expansion—which ends in January 2015—to permit coverage for low-income, non-elderly, non-disabled adults without dependent children. As discussed here, Cook County’s Medicaid expansion plan is currently scheduled to end after 2013 unless the State moratorium is lifted.
Under the Affordable Care Act, the federal government is scheduled to pay 100% of the cost for the newly eligible recipients for the first three years and at least 90% after that. Opponents are concerned about any additional costs that the State would have to bear due to the expansion. HB6253 was approved by the House Appropriations Committee on Human Services by a vote of 9 to 5 but was not considered by the full House or by the Senate. The bill has been amended to state that the newly eligible recipients would no longer be covered if the federal reimbursement rate drops below 90%.
In another development affecting the Medicaid program, the General Assembly did not authorize a transfer from general operating funds that was part of the State’s plan to close a $2.7 billion Medicaid funding gap in FY2013. As discussed here, the transfer was intended to generate $300 million for the Medicaid program. Senate Bill 2971, which included the transfer, was approved by the House during the regular session last spring but did not pass the Senate. During the January session, another bill including the transfer, House Bill 2891, was passed by the Senate but was not considered by the House.
Group Health Insurance
The budget for the current fiscal year, which ends on June 30, 2013, funded only approximately half of the State’s projected costs for employee and retiree health insurance. This funding gap was not addressed by the legislature in January. How much employees and retirees will pay for health insurance remains an issue in contract negotiations between the State and its largest union, Council 31 of the American Federation of State, County and Municipal Employees (AFSCME). AFSCME’s previous contract expired on June 30, 2012, but it was extended while negotiations continued. Governor Pat Quinn cancelled the contract in November.
Gaming Expansion
A gaming expansion bill approved more than a year ago was sent to the Governor on the last full day of the legislative session. Although SB744 passed both chambers in May 2011, Senate President John Cullerton filed a motion to hold the bill after the Governor pledged to veto the measure. Senator Cullerton removed the hold and sent the bill to the Governor on January 8, 2013.
The bill authorizes a city-owned casino in Chicago and four other new casino licenses in specific locations around the State. It also approves casino gaming at racetracks and State Fair grounds and includes other provisions regarding tax rates and licensing fees. A projection of the fiscal impact of the bill has not been made publicly available and the Governor has not publicly stated what action he will take on the bill.
In May 2012, the General Assembly approved SB1849, another bill that expanded casino gaming and authorized electronic gaming at the State’s horse racing tracks. However, the Governor vetoed the bill on August, 28, 2012, due to lack of regulatory oversight, insufficient ethics rules and inadequate revenues. In his veto message the Governor urged the General Assembly to concentrate on pension reform before continuing with its deliberations on gaming expansion.
The Governor reiterated his opposition to the number of gaming positions and similar regulatory shortcomings in SB744 when issuing his veto of SB1849. The Governor now has 30 days to consider SB744.
Borrowing for Bills
A proposal to borrow to pay down a portion of the State’s backlog of unpaid bills stalled in the House Executive Committee. The measure would have authorized the State to sell up to $4.0 billion in General Obligation Bonds (GO Bonds) and use the proceeds to repay creditors of the State. The State is expected to end the current fiscal year with $4.0 billion in unpaid General Funds bills and billions more in unpaid Medicaid and group health insurance bills.
The bill did not dictate the terms of the bond repayment, so the total interest cost of the proposal and annual debt service amounts were not provided. However, as previously discussed here, due to the partial rollback of the State income tax rates halfway through FY2015 there is little room in the budget to afford any additional General Funds debt service costs.
Although the latest borrowing bill was supported by 21 member of the House, it was not voted on in the Executive Committee and has yet to emerge again under the new General Assembly.
Governor’s FY2014 Budget Recommendation
The State Budget Law requires the Governor to deliver a budget address for the next fiscal year by the third Wednesday in February, unless otherwise directed by law. The budget speech has been delayed in two of the past three years. The General Assembly’s schedule shows that this year’s budget speech will be delayed until March 6, 2013. However, Senate Bill 1280, which changes the date, has not been approved by either chamber. If no action is taken by the General Assembly, then the Governor will be required to present his FY2014 budget recommendation on February 20, 2013.
The Administration is also required to make budget projections for the next three fiscal years by January 1 of each year. The projections have not yet been issued, and a notice on the website of the Governor’s Office of Management and Budget attributes the delay to an ongoing analysis of the impact of fiscal cliff negotiations in Washington. This year’s projections will be the third issued under a law enacted in July 2010.