Pritchard’s Perspective 7/24/17

Observations and comments about state government by State Representative Robert W. Pritchard.

July 24, 2017
In This Issue:
A Closer Look at the Budget
Local Government to Receive More Timely Payments
Status of Education Funding
Credit Rating Slide Halted for Now
Higher Education Funds Forthcoming
Senior Health Fair on Thursday

A Closer Look at the Budget
With any bill that is as comprehensive as an appropriation bill, people can focus on one section and overlook the compromises that were made to pass the bill. For example, statements have been made there weren’t spending cuts. No pension reforms. No effort to pay old bills. Upon a closer look at the FY2018 budget, you will see these perceptions are wrong.
Perhaps most importantly we have a budget for the first time in 2 years. We now have guidelines for spending and available revenue which are both below what the governor requested in his February budget address. Yes, in order to recover from the crippling debt and unpaid bills, state income taxes were increased 1.2 percent for individuals and 1.75 percent for corporations–to a level below FY2014. These increases were effective July 1st, the start of the new fiscal year. The Illinois Department of Revenue estimates that the individual income tax increase will generate $4.453 billion in FY2018 and the corporate income tax increase $514 billion.
Just as few people are willing to pay more tax; neither are most willing to see their favorite program cut. Even so, the budget provides for about $3 billion less spending. Among those cuts were 10 percent less for public universities and 5 percent less for certain programs in most agencies.
Spending for pensions will be reduced by $500 million through several actions in the appropriation bill. There will be a third pension tier for new state workers, and pension payments will be evened out rather than fluctuating greatly from year to year. More comments about old bill payment later in this newsletter.

Local Government to Receive More Timely Payments
The State Revenue Sharing Act provides an important source of revenue for local units of government like counties, townships and cities. As the state receives income tax revenue, a portion is transferred to the Local Government Distributive Fund (LGDF) and paid monthly to the units based on population.
With the state’s cash flow problems, revenue transfers have been delayed causing fiscal challenges for many units of government. The FY2018 budget addresses this issue and LGDF funding in two ways.
First, the budget and implementation bill makes the transfer of money from the state’s General Revenue Funds (GRF) to LGDF as a direct deposit thus making the money available immediately and avoiding the past delays in transfers of 2 months or more. This is an issue local governments have been seeking for years.
The new budget also provides for a 10 percent reduction in the amount of funds sent to local governments just for FY2018 to help balance the state’s budget. However, the state will also catch up in payment for the past 2 months currently owned local units. The net effect on local units of government will be about a $90 million increase in payments during FY2018.
This new procedure in transferring funds is another way the FY2018 budget seeks to address paying the backlog of bills.

Status of Education Funding
While the FY2018 budget provides for about $12 billion in funding for K-12 education, it cannot be spent unless Senate Bill 1—school funding reform– is signed into law. The governor has threatened to veto the bill so the Senate has held the bill since May 30 hoping to get some compromise with the governor.
Last week, Governor Rauner asked that the bill be sent to him by today or he will call more special legislative sessions this week. The Governor appears ready to make amendments in his veto of the bill to reduce pension payments for Chicago schools among other actions.
The legislature then has two options: accept the amendments–which appear very unlikely– or over-ride the veto. If this veto cannot be overridden, the bill will be dead and conversations toward a better compromise would continue and a new bill drafted.
Efforts are being made to find a compromise and draft it in a bill that could be passed and signed into law before the vote to over- ride the veto in the House. While that is an uncertain course, it would preserve SB1 as the education reform bill and take into consideration concerns voiced by many legislators and the governor.
One of the current stumbling blocks is the charge that SB1 favors Chicago Public Schools (CPS) over other districts in the state. The bill calls for the state to pay CPS current pensions (just like the state does for all other school districts), and allow CPS to count its unpaid pension debt as part of the districts local capacity target. In addition, CPS will continue to receive grants based on 1995 student numbers rather than use current student numbers like all other districts.
Another stumbling block is the provision to provide a floor of funding for every school district based on their payments in FY2017 rather than a floor based on student enrollment. The state currently pays districts an amount per student based on a three-year average enrollment.
One of the compromises for the CPS benefits in SB1 would be to allow all school districts to have the 3rd party contracting provisions and management negotiation rights given to CPS in 1995. Those provisions would allow districts to reduce expenses and give districts more flexibility.

Credit Rating Slide Halted for now
The legislature may not have handed the governor a budget he wanted but at least it stopped a threatened downgrade in the state’s credit rating. Moody’s Investors Service had warned of a downgrade to junk bond status if the state took no action on passing a budget.
Yet there are long-term challenges still facing the state which continue to threaten its credit rating—now at Baa3. The analysts are concerned about the pile of unpaid bills, and how the state will manage its cash flow situation.
The General Assembly crafted a way to pay the $15 billion in unpaid bills without raising taxes. The budget sweeps special funds of about $1 billion and allows for the governor to borrow up to $6 billion dollars to pay the bills. Combined with federal matching dollars for paying Medicaid bills, the accumulated unpaid bills could be reduced to about $4 or 5 billion–which many feel is acceptable for a budget of our size.
The governor, however, is undecided if he will exercise that borrowing authority. This indecision makes the credit agencies nervous. They are also concerned that the governor hasn’t acted as he indicated to re-negotiate lower payments for judicial consent decrees that drove paying billions of dollars when the state didn’t have the money.
Another practice that concerns the credit analysts is the state entering into contracts with vendors for services without having appropriation authority. This has forced some vendors to wait years for payment and some have stopped serving the state or gone out of business.
The Governor could improve the fiscal situation by further reductions in state spending. His agency heads in recent legislative hearings, however, didn’t have any ideas for cuts that they were willing to make. It’s therefore hard to criticize the legislature for not making more spending cuts.
The climb out of the Illinois fiscal hole continues and much more work is needed to satisfy the credit agencies, citizens and businesses looking for a sound fiscal policy from the state.

Higher Education Funds Forthcoming
Comptroller Susanna Mendoza has released $695 million in existing education funds to begin paying community colleges, universities, and MAP grants for students. The institutions were under severe budget constraint since state payments have only been made partially and intermittently over the past two years.
This money included $327 million for the Monetary Assistance Program (MAP) that helps an estimated 110,000 students who qualified for the need-based scholarships. The release of these funds is extremely significant as it provides assurances to many students attending school in the fall that they will have funding, and that scholarships would be honored.
The uncertainty of higher education funding over the past two years has encouraged nearly 60 percent of high school graduates attending college to go out of state. In addition, out-of-state universities have been raiding Illinois schools to employ our best teachers and researchers.
The FY2018 budget provides back funding to pay higher education institutions for FY2017 at the rate of the budget in FY2015. Collectively this funding provides assurances that the institutions will continue to receive accreditation, something that was in jeopardy. Comptroller Mendoza added that every $1 invested in higher education returns $4 in economic activity for the state.

Senior Health Fair on Thursday
You are invited to my annual health fair for older residents and their care givers this Thursday in partnership with Senator Dave Syverson and the DeKalb County Family Service Agency. This event brings together over 70 vendors representing different state agencies, local businesses, and health service organizations for area seniors.
The fair will be held on July 27th from 9 a.m. until noon at DeKalb High School, 501 W. Dresser Road.
I encourage all who are interested in services for seniors to attend for the information and the various free health screenings available. This year’s free health screenings will include hearing tests, and blood pressure. There will also be a special presentation on veteran’s benefits from the Illinois Department of Veteran’s Affairs, and a fire safety demonstration.
Light refreshments will be served, courtesy of the Voluntary Action Center, and all attendees will have the opportunity to win special door prizes. For questions, call my district office: (815) 748-3494.

Have a great week and call my District Office to share your opinions or if I can be of assistance.

Bob Pritchard

http://www.pritchardstaterep.org
District Office 815-748-3494 or E-Mail to bob@pritchardstaterep.com