July 10, 2015
The State of Illinois’ new fiscal year began on July 1, 2015 without an annual budget and with no clear end in sight to the impasse between Governor Bruce Rauner and the General Assembly.
On July 9, the legislature was widely expected to send the Governor a stopgap budget designed to fund essential State operations for one month. However, that effort stalled amid a partisan dispute about paying for State workers’ salaries.
This blog post reviews the circumstances leading up to the current budget deadlock, summarizes recent developments and suggests what to expect in the near future.
How We Got Here
The FY2016 budget has been particularly challenging because it covers the first full fiscal year since the partial phaseout of temporary income tax rate increases enacted in 2011. Income tax revenues deposited into the State’s general operating accounts are expected to decline by $4.7 billion, or 23.8%, from $19.8 billion in FY2014 to $15.1 billion in FY2016, according to recent estimates by the legislature’s Commission on Government Forecasting and Accountability. (The FY2016 figure also reflects revenue diversions of $918 million that are not related to the tax rate reductions).
In February 2015, Governor Rauner issued a budget proposal for FY2016 that identified spending needs of $38.2 billion based on existing programs and services, compared with available revenue of $32.0 billion. The Governor, who was elected in November 2014, proposed to close the $6.2 billion budget gap through pension changes and steep spending cuts. His $31.5 billion General Funds budget also allocated $500 million to pay down the State’s accumulated backlog of unpaid bills.
As discussed in a recent Civic Federation report, the Governor’s budget was balanced on paper but actually short of billions of dollars in revenue due to unrealistic or imprudent savings projections. The pension plan was budgeted to save $2.2 billion but has not been introduced as legislation and would likely face legal challenges. A recent Illinois Supreme Court opinion that overturned previous pension changes passed by the General Assembly raised more questions about implementing the Governor’s pension plan.
At the end of May, during the final days of the regular spring session, the General Assembly approved a $36.3 billion spending plan for FY2016. With projected revenues of $33.0 billion, the legislature’s budget had an acknowledged shortfall of more than $3 billion. The General Assembly’s leaders said they would work with the Governor to raise additional revenues. After May 31, a three-fifths vote, rather than a simple majority, is needed for legislation to be effective immediately.
Governor Rauner has reportedly agreed that approximately $3 billion to $4 billion in additional revenue is needed in the FY2016. However, the Governor has said new revenue will not be on the table until the legislature passes key components of his “turnaround agenda,” including changes in workers’ compensation; limits on damages in civil lawsuits; constitutional amendments on term limits and redrawing legislative districts; and a freeze on local property taxes, combined with measures to cut costs for local governments by limiting the scope of collective bargaining and eliminating prevailing wage requirements. The legislature has not considered the Governor’s legislation, although it has acted on bills involving some of the same issues.
After passing the spending plan, the General Assembly returned to Springfield for an overtime session that could continue through the summer. The legislature waited until late June to officially transmit most of the bills that made up its FY2016 budget to the Governor’s Office.
On June 25, Governor Rauner vetoed virtually all of the General Assembly’s spending plan, citing a duty to protect taxpayers from an unbalanced budget. The Governor signed the appropriation legislation for elementary and secondary education, which ensured that public schools could open on time despite the budget impasse.
Recent Developments
After the Governor’s vetoes, attention turned to how the lack of a State budget would affect government operations. Illinois Comptroller Leslie Munger, whose office is responsible for paying State bills, said her ability to write checks would be significantly curtailed in the absence of appropriation statutes.
Even without a spending plan, expenditures covered by continuing appropriation would still be authorized. For example, the Comptroller has statutory authority to make required pension contributions, debt service payments and tax payments to local governments. A law passed in 2014 made the salaries of lawmakers and judges subject to continuing appropriation. The legislation followed Governor Pat Quinn’s deletion of lawmakers’ salaries from the FY2014 budget in a dispute over pension changes; a Cook County judge later ordered that legislators be paid.
The Comptroller also has authority to pay expenses required by federal consent decrees. Such court orders cover certain services to children who are wards of the State, the developmentally and physically disabled and those who are mentally ill. In addition, unpaid bills covered by FY2015 appropriations can continue to be paid as cash becomes available.
State workers are due to receive paychecks for the new fiscal year beginning on July 15, but the State’s authority to make those payments is at issue in two courts. The Governor has told State employees that they will be paid. However, a Cook County judge ruled on July 7 that the State can only make minimum wage and overtime payments to workers covered by the federal Fair Labor Standards Act.
The Rauner administration has said it wants to make full payments to all employees because it would take as long as a year to determine which workers are exempt from the federal law and to adjust payment systems to pay only the minimum wage. The administration appealed the Cook County judge’s ruling and a four-judge appellate panel on July 8 blocked the payment of minimum wages until the appeal was resolved. That appeared to prevent any payroll payments.
However, a St. Clair County judge ruled on July 9 that employees should be paid in full while the budget impasse continues. After the ruling, the Comptroller’s Office said it would begin processing payroll for checks to be issued on July 15.
In the meantime, the General Assembly has attempted to pass a one-month budget for July that would cover “essential services” such as salaries for prison guards and State police, probation services, Medicaid payments, childcare for low-income families and community care for the elderly, disabled and mentally ill. Of the total $2.3 billion in appropriations included in the one-month spending plan, $1.1 billion is from General Funds.
The Senate passed the legislation on July 1, but an identical bill fell short of the required three-fifths margin in the House. On July 9, the House approved the Senate’s one-month budget bill after adding an amendment to authorize paychecks through July. The move came after Governor Rauner advocated a continuing appropriation covering FY2016 salaries.
What Comes Next
The amended one-month budget bill must return to the Senate for another vote. The Senate is not scheduled to be in session again until July 14. The Governor has said that he will not sign a short-term budget.
The Illinois Attorney General’s Office said it would review whether to appeal the ruling by the St. Clair County judge. The Attorney General’s Office has argued that paying workers in full without a budget violated the Illinois Constitution.
It remains to be seen how long it will take to enact an annual budget. The General Assembly could try to override Governor Rauner's veto of its unbalanced spending plan. The deadline to begin that process is next week.