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A huge hole

Monday, Jun 2, 2014

* My weekly syndicated newspaper column

On the bright side, I suppose you could argue that last week’s budget passed by the General Assembly will lead to the largest tax cut in Illinois history come January, when the 2011 income tax increase partially expires on schedule.

But that’s about the only bright side. And, really, pretty much nobody expects that some sort of tax hike will be avoided after the election, no matter who wins come November.

The new Fiscal Year 2015 budget proposal had to be based on the partial expiration of the tax hike on January 1st, when it will drop from 5 percent to 3.75 percent. House Democrats claim they couldn’t find enough votes to permanently extend the tax hike.

But this new budget will blow close to a $6 billion hole in the following year’s budget, according to my own back of the envelope analysis that top Senate Democrats said looked accurate to them.

I based what follows on what what I know about how the budget was crafted. But whatever the final number ends up being, it’s crystal clear that whoever wins the governor’s race will face a monstrous challenge after he’s sworn in next January.

Borrowing $660 million from special state funds, as this new budget does, is a one-off affair. The money is being put into the state’s spending base and will have to somehow be replaced the following year. A two-year repayment plan means another $330 million will also have to be found in the next budget, for a total hole of about a billion dollars.

Using about $500 million in one-time revenue increases from this fiscal year to pay forward some bills in next fiscal year means that same $500 million will have to be found again in when the next budget is crafted.

Not funding employee salary and health insurance benefit cost increases kicks another $380 million down the road. So, now we’re at $1.9 billion.

And then, of course, there’s the approximately $3.6 billion in full-year revenue lost after the income tax hike partially expires. That puts the hole at around $5.7 billion.

Also, Rep. Greg Harris, who chairs a House appropriations committee, told reporters last week that the new budget could create as much as a “couple of billion” dollars in past-due bills in the coming fiscal year. If that’s accurate, then the FY16 hole becomes much, much worse, plus there’s all that new debt owed to providers which will eventually have to be paid back.

Not to mention that some state agencies have been given lump sum operating appropriations. Gov. Pat Quinn could conceivably try to avoid cuts before the election by putting off decisions until after the election. Doing so, of course, would blow a big hole in the second half of the coming fiscal year, which begins July 1st.

And that brings us to Bruce Rauner, the Republican nominee for governor.

Gov. Quinn’s campaign has been pushing Rauner hard lately to divulge his “secret” plan to balance the budget. The reason for that is they may have him caught in a trick bag of his own making.

Rauner has hinted more than once that he’d like to taper off the income tax hike over a period of time. But he can’t do that now because last week’s legislative inaction means that most of the 2011 tax hike will automatically disappear on schedule this coming January 1st.

Because of that legislative failure, if Rauner follows what was widely believed to be his original plan, the Republican would actually have to raise taxes in order to lower them again.

Needless to say, don’t bet on that ever surfacing as his plan now.

So, he’s gonna have to come up with a new idea. And that won’t be easy, because as I explained above this “kick the can budget” has planted a multibillion dollar nuclear time bomb that is so massive Rauner won’t possibly be able to simply cut his way out of it.

The other option is to do what he’s doing now: Refuse to answer any questions about his secret plan. But after promising for a year and a half to deliver one, he’s going to find himself dogged on the campaign trail from now on if he tries to stay mum.

Either way, though, it’s Quinn who has the most problems. He’ll have to deal with a big budgetary hole during the campaign while attempting to convince voters to reelect him so that he can try once again to raise their taxes. I wouldn’t want to be in his shoes.

We’ll have more on the budgetary fiasco later today.

- Posted by Rich Miller        


31 Comments
  1. - Anon - Monday, Jun 2, 14 @ 9:25 am:

    They’ve definitely got Rauner in a pickle. Any “plan” detailed enough to be realistic would be painful- any budget next year will be.

    I say he either stays mum on it all, or releases some vague guidelines.

    Either way it’s not going to hurt him much.


  2. - Soccermom - Monday, Jun 2, 14 @ 9:27 am:

    Rich, I agree that the failure to pass the tax increase extension was short-sighted and stupid. But the General Assembly could address at least a fraction of this problem by shutting down a good number of special funds and putting those dollars into grf. I know each of those funds represents a successful lobbying effort by a well-funded special interest group, but the result is just insane.

    It’s like someone saying they don’t have money to pay the utility bill because they would have to dip into their special savings account for macadamia nuts…


  3. - DuPage - Monday, Jun 2, 14 @ 9:35 am:

    Does the budget figure in pensions at the SB1 rate, or the present rate? If it is figured at the lower rate, then get thrown out by the court, will that also be in next years budget?


  4. - Cassiopeia - Monday, Jun 2, 14 @ 9:43 am:

    Rauner is in the driver’s seat for the next 156 days. Quinn can only react to the Rauner attacks and try to find some ways to attack back, but Quinn cannot make a credible case that makes him look either competent nor a responsible steward of the state’s finances.


  5. - wordslinger - Monday, Jun 2, 14 @ 9:48 am:

    –And, really, pretty much nobody expects that some sort of tax hike will be avoided after the election, no matter who wins come November.–

    If Quinn loses, I can’t see him signing a lame-duck tax proposal. The people will have spoken.

    If Rauner wins, he’ll have to have a plan for the remainder of this fiscal come January.


  6. - Apacolypse Now - Monday, Jun 2, 14 @ 9:52 am:

    Why should Rauner propose a budget, when the Democrats can’t get their act together. Rauner sits back and waits until he is Governor and presents his budget plan to Cullerton and Madigan.


  7. - The Prince - Monday, Jun 2, 14 @ 9:54 am:

    If Quinn loses, what does he have to lose by signing a lame-duck tax proposal?


  8. - Walker - Monday, Jun 2, 14 @ 10:01 am:

    Soccermom: The “macadamia nut” maneuver?
    LOL


  9. - wordslinger - Monday, Jun 2, 14 @ 10:02 am:

    –Why should Rauner propose a budget, when the Democrats can’t get their act together.–

    Because he has promised he would for more than a year.

    –If Quinn loses, what does he have to lose by signing a lame-duck tax proposal?–

    The pleasure of sticking it to Rauner.


  10. - A guy... - Monday, Jun 2, 14 @ 10:04 am:

    It’s high stakes “Tug O War” and as usual, the taxpayers are the rope.


  11. - JoJo - Monday, Jun 2, 14 @ 10:08 am:

    == Why should Rauner propose a budget ==

    Because that is how it works now.

    Any Republican candidate for governor is going to have to propose a full budget during campaign season if he is challenging the status quo.

    Republican candidates complaining about problems without offering tangible solutions means they have no credibility.

    It’s just that simple.


  12. - ZC - Monday, Jun 2, 14 @ 10:10 am:

    And let’s not forget, looming over all of this is still the constitutional challenge to the pension reform. What if it’s struck down in its entirety? And when on Earth will we find out? That uncertainty further scrambles any long-term budgetary planning for IL.

    And that part is not directly Quinn’s fault, nor the Democrats’ (except maybe they could have opted for the constitutional convention option when they had a chance). We don’t just have a budgetary problem (though we certainly do). We have two extremely unhelpful provisions in the state Constitution handcuffing our options - that ironclad-seeming pension clause and the ironclad ban on a progressive tax.


  13. - Grandson of Man - Monday, Jun 2, 14 @ 10:13 am:

    “Why should Rauner propose a budget, when the Democrats can’t get their act together.”

    Why should voters elect someone based on nothing?

    We constantly complain about our politicians, often for very justified reasons, but what does it also say about us if elect someone who won’t tell us what he intends to do in regards to our most pressing problems–our finances and budgets?


  14. - OneMan - Monday, Jun 2, 14 @ 10:34 am:

    As always, ask question #1…

    Will a given action increase the chance of someone getting elected or re-elected?

    Then decide the action based on that…

    As much as it would be ‘nice’ to see the Rauner budget as it were, not sure how him saying anything on it gets him elected.


  15. - RNUG - Monday, Jun 2, 14 @ 10:43 am:

    - DuPage - Monday, Jun 2, 14 @ 9:35 am:

    It’s my understanding the FY15 budget figures the State pension fund payments at the current (95 ramp) rate and does not rely on any SB-1 savings.


  16. - downstate hack - Monday, Jun 2, 14 @ 10:49 am:

    “Why should voters elect someone based on nothing?”

    They elected Blago!!! (Twice)


  17. - Linus - Monday, Jun 2, 14 @ 10:59 am:

    –If Quinn loses, what does he have to lose by signing a lame-duck tax proposal?–

    If Quinn loses, it’s hard to imagine he even gets a chance to sign such a bill. Even with a few lame ducks’ support, would the G.A. approve a tax measure after an election seen as a referendum vote against taxes? Returning legislators would be too spooked to do it.


  18. - The Prince - Monday, Jun 2, 14 @ 11:05 am:

    It passed last time. There has been no ideological shift in the General Assembly since 2010 and there is never going to be. “Spooked” is not in their vocabulary; you may hear “how sorry they are to have to do it.” Sticking it to Rauner for some reason is the only plausible answer and that’s iffy at best.


  19. - Anonymous - Monday, Jun 2, 14 @ 11:07 am:

    “Why should voters elect someone based on nothing?

    We constantly complain about our politicians, often for very justified reasons, but what does it also say about us if elect someone who won’t tell us what he intends to do in regards to our most pressing problems–our finances and budgets?”

    Because we’ve seen the alternative option fail to deal with those problems many times over already.


  20. - Louis G. Atsaves - Monday, Jun 2, 14 @ 11:09 am:

    “Why should voters elect someone based on nothing?”

    This means you are opposed to reelecting the Democratic majority that currently runs the two branches of government?

    The lame “it is all the fault of Rauner and the Republicans” argument and the “where is your plan” counterattack really doesn’t work very well here when the controlling Democrats did not require a single Republican vote to fix the problem including having the Governor sign the provisions into law.

    As a Republican, I expect Rauner and my party to offer a sound fiscal plan for the future of Illinois. As an Illinois resident and voter, I expected the controlling Democratic party to stop kicking the can down the road and making things worse, and offer a sound fiscal plan for the future of Illinois.

    Are my expectations misguided?


  21. - Linus - Monday, Jun 2, 14 @ 11:15 am:

    -“Spooked” is not in their vocabulary-

    Have you talked with any of the numerous froshie Dems who’ve been elected after the 2011 income-tax increase? Or taken a look at the stridency of their successful, anti-tax campaign pledges and statements?


  22. - Archimedes - Monday, Jun 2, 14 @ 11:25 am:

    The 2015 budget has no “savings” from SB1. The 2016 budget has $1.2 billion cost reduction due to SB1.

    Just add that amount to what Rich has said, if the ISC rules the law to be unconstitutional.


  23. - The Prince - Monday, Jun 2, 14 @ 11:26 am:

    Louis: Your expectations are misguided. I would like to see the same thing, but I have seen this movie before.


  24. - Anon - Monday, Jun 2, 14 @ 11:27 am:

    == what does it also say about us if we elect someone who won’t tell us what he intends to do in regards to our most pressing problems–our finances and budgets? ==

    People don’t want to hear the bad news. They’d rather believe that core services can be funded, overdue bills paid while taxes are cut — a belief Rauner won’t do anything to disturb prior to the election. After the election, they may not like hearing that core services will be decimated and some new tax will be raised, but they will have no one to blame but themselves.


  25. - Arizona Bob - Monday, Jun 2, 14 @ 11:45 am:

    How ironic that amongst a record number of advisory questions on the ballot and the spectre of a “millioinaires tax” and a “graduated income tax” out constitutional ammendment out there, NO ONE proposed the REAL constitutional change that needs to be made; limtitation on that clause that pensions may not be “dimished or impaired”. Simple changes such as excluding those 3% annual increases to pensions, retiree health care subsidies and limiting those portions of pensions that are protected from being “diminished or impaired” by defining “earned pension benefits that may not be diminshed or impaired” be limited to time served and not limited through perpetuity.

    By that I mean accrued pension benefits should not be “diminshed or impaired” for a what a teacher has earned up to a date of benefit change, but benefits going forward could be limited by statute or contractual agreement.

    Using a system similar to that of Social Security where income while drawing a pension could reduce pension payments would also make sense.

    Those folks like the Superintendent in SD 162 (Blondean Davis) in Matteson who I believe is getting a fat pension from CPS while making a ridiculously high salary for the suburban district would be a case in point for future “retirees”.

    Taking back pension benefits ex post facto should still be prohibited, though IMHO.


  26. - Grandson of Man - Monday, Jun 2, 14 @ 11:48 am:

    “The lame “it is all the fault of Rauner and the Republicans” argument and the “where is your plan” counterattack really doesn’t work very well here when the controlling Democrats did not require a single Republican vote to fix the problem including having the Governor sign the provisions into law.”

    Who would be screaming if the Democrats passed the income tax increase extension on their own? Who would be calling them dictators for passing the bill without a single Republican vote?

    “As a Republican, I expect Rauner and my party to offer a sound fiscal plan for the future of Illinois. As an Illinois resident and voter, I expected the controlling Democratic party to stop kicking the can down the road and making things worse, and offer a sound fiscal plan for the future of Illinois.”

    The can was kicked down the road because voters and politicians refused to extend the income tax increase. Isn’t that what Republican voters want, that the income tax increase is not extended?

    What are the Republican plans? I hope some will give detail to them, so we can evaluate them.


  27. - Walter Mitty - Monday, Jun 2, 14 @ 12:22 pm:

    Enough with the straw man… The super majority could have passed the tax permanent. They have a super majority. They chose to not with the idea of sticking it to Rauner if he should win. He will have to have a plan, the Super Majority stuck it to him and the tax payers….Yay! Anything about the applicant for the job is just folly. The folks in the current positions let us all down…again.


  28. - Anon - Monday, Jun 2, 14 @ 12:32 pm:

    == What are the Republican plans? I hope some will give detail to them, so we can evaluate them. ==

    Don’t hold your breath. Rauner has been campaigning for 15 months and has been successful without providing any specifics. I have no doubt the Tribbies will endorse him even if he doesn’t reveal his secret plan until after the election.


  29. - Louis G. Atsaves - Monday, Jun 2, 14 @ 1:36 pm:

    Grandson: “The can was kicked down the road because voters and politicians refused to extend the income tax increase. Isn’t that what Republican voters want, that the income tax increase is not extended?”

    Apparently that is also what a whole bunch of Democratic voters wanted. Not just Republicans.


  30. - Budget Watcher - Monday, Jun 2, 14 @ 2:31 pm:

    I think it’s fair to assume that if you’re a state employee or a teacher or someone reliant upon social services you can count on some serious pain from a Rauner plan that has to cut $6B.


  31. - Archimedes - Monday, Jun 2, 14 @ 4:39 pm:

    Arizona Bob,

    If only earned pension benefits are protected, we are in the same boat as we are now. The pension benefits already earned is the $97 billion unfunded liability, and $5 billion of the $6.5 billion cost.
    The cost of benefits earned currently during the year is only about $1.5 billion.
    That’s why SB1 reduced already earned benefits - no cost savings if any reduction is limited to future benefits.


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