First we saw the Topinka budget plan. Then Budget Director John Filan lambasted it. Then Sen. Steve Rauschenberger slammed Filan’s criticism. And now we have Director Filan’s retort, done on his own time.

Thank you to Senator Rauschenberger for providing a little more information on Judy Baar Topinka’s spending and revenue proposals. But it still doesn’t add up. Taxpayers need to know how Topinka calculates her proposed revenues and cuts, rather than just taking her guesses at face value, and how much is she really going to invest in education and health care. Unfortunately, the Senator’s response still does not present a clear picture of either the details of Topinka’s proposals or of how the spending proposals and the revenue proposals, when put together add up to a balanced budget in each of the next four years. This stands in clear contrast to the Governor’s budgets, which have won national recognition in consecutive years for being clear and complete by Government Finance Officers Association.

More information helps citizens make an informed judgment about the competing priorities of the candidates, and it also exposes the real problems with Topinka’s budget analysis. Unfortunately, many of Senator Rauschenberger’s comments show the same flaws as Topinka’s plan. The comments, and the Plan, misleads taxpayers, relies on inflated revenues and unrealistic assumptions, and shows continued policy flip-flops.

1. Education

Misleading Taxpayers. If the Topinka budget plan assumes including teacher pension spending in its “education” spending, it is misleading. It provides school districts with an inaccurate estimate of how much they can expect to receive from the State, and claims money for education that actually will be used to pay interest on pension payments prior administrations failed to make. In addition, Topinka has said that she would spend more on schools than the Governor. To the extent that her plan would spend $8.2 billion and also pay for the pension costs of teachers, this is impossible. She should come clean about her spending plan – you can’t say that the same money is going to both pensions and schools, you can’t spend the same money twice.

2. Property Tax Reimbursement

Misleading Taxpayers. Topinka’s property tax proposal continues to mislead taxpayers and local governments. Despite the fact that Topinka claimed $2.4 billion in property tax relief, real tax relief based on historical property tax growth associated with schools from her proposal is only $1.8 billion over 2 years. Moreover, this spending binge will create a harsh hangover in 2010, as the first “unfrozen” school property tax bill will rise by an estimated $1.8 billion, which will be three times as much of an increase as the current property tax our taxpayers have been paying. As the Chicago Sun-Times noted yesterday, “her proposal is akin to pulling a drowning victim into a leaky boat: It merely prolongs the inevitable.” (See: Richards, Cindy “Neither school plan deserves an ‘A’” Chicago Sun-Times 8/30/2006)

3. Cutting Healthcare

Misleading Taxpayers. There is no reason why “Medicaid math” would work differently than ordinary arithmetic. Medicaid eligible individuals are real people who receive healthcare, and the State pays hospitals and doctors based upon the rates they charge, then gets reimbursed by the federal government. To cut these costs, you have to serve fewer people or reduce the rates that hospitals and doctors are paid, or both. Simple math. And if you do this math, you realize over four years 450,000 children, 275,000 parents, or 100,000 seniors could lose needed medical care.

Unrealistic Assumptions. The Topinka plan shows no detail on how these savings will be realistically achieved. But there is one reason that these cuts can’t occur immediately: moving to a block grant requires federal approval, and this takes time. This means that the cuts won’t be achievable in 2008, which means that actually the State would need to cut Medicaid spending by nearly $1 billion- with a B- each year to meet the Treasurer’s claimed targets. Because of federal reimbursement, described below, this means that actual services provided will have to be reduced by as much as $2 billion a year (a quarter of the size of the current Medicaid program). To achieve the savings Topinka claims, the plan also assumes no growth in healthcare costs while this approval process occurs.

Unlike the Topinka plan’s lofty assumptions, the only real solution to controlling healthcare cost increases is to implement realistic cost-controls, like prescription drug controls that are working now, and the primary care case management and disease management managed care initiatives that the Governor has implemented this year, leading to liability growth of 4.4%, significantly lower than historical averages, or what Topinka would have you believe. Republican Governors had 25 years to implement statewide managed care- we’re doing it after just 3 years.

4. Lost Federal Revenue

Senator Rauschenberger notes increased federal receipts from a block grant. The Topinka plan does not provide substantiation for this in its materials, and there is no basis to believe that total federal reimbursements would increase under a block grant. The Bush Administration has been trying for the past three years to significantly reduce State Medicaid funding, not increase it, including recently reducing funding for special education to Illinois schools. In fact, Topinka’s support of block grants (like the Medicaid Block Grant Program President Bush announced in 2003) will reduce federal revenues to the State significantly- which is the Bush Administration’s goal, less money for healthcare, not more. For an example of a non-partisan analysis of California’s attempt to move to a block grant, (See:
http://www.cbp.org/2004/0407medicalrestructure.pdf).

Misleads Taxpayers. Illinois receives 50% reimbursement from the Federal government for most medical services it pays for. Under a block grant, this federal reimbursement will disappear, and by making cuts, our reimbursement would also be reduced, by nearly $500 million a year. It is misleading to suggest that moving to a block grant will allow spending cuts that will offset this lost revenue, in fact such cuts would have to be twice as deep.

Unrealistic Assumptions. In addition, block grants do not allow for intergovernmental agreements or assessments, and the Topinka plan is proud to eliminate this revenue. The assumption that the federal government will replace these revenues is unrealistic. Eliminating transfers and assessments will cost the State and its healthcare providers in the following ways, with a total cost to Illinois (and its healthcare providers) of more than $1.3 billion. The Topinka proposal indicates that it will get rid of these revenues:

Cook County IGT- The State receives $317 million in 2007 from this transfer, and Cook County receives approximately $270 million from this transfer. The State and the County would have to find ways to make up for this lost revenue.

Hospital Assessment Tax - Illinois generates over $600 million from this assessment, of which Illinois Hospitals will receive almost $500 million, GRF receives $80 million, Illinois Nursing Homes receive $40 million and the Illinois developmentally disabled community receives $40 million.

University of Illinois IGT - The State and the University of Illinois share the $48 million that this transfer generates.

DD Assessment - Illinois developmentally disabled community receives an additional $40 million as a result of this assessment. Though GRF is not impacted by the assessment, this will leave a hole in community funding that GRF spending would need to be increased to replace.

Nursing Home Assessment - GRF receives $15 million and Illinois nursing homes receive an additional $30 million from this assessment.

5. Gaming

Flip-flop from Prior Position. Some of the details of Topinka’s gaming plan have only recently been received. While $1 billion in one-time revenues may be plausible given the massive expansion of gaming that Topinka proposes, Topinka provides no detail to support this assertion. More importantly, she provides no detail for recurring revenue assumptions either, and these assumptions seem to fail to take into account relatively obvious results of such an expansion. The Topinka plan would increase overall gaming positions in the state from just over 10,000 to 30,000, supposedly without expanding gaming, and assumes that this expansion will magically create more discretionary dollars to be spent on gambling, rather than competing with the current gambling that exists in the State, as well as, other businesses that rely on consumers discretionary dollars.

Inflated Revenues. When you increase the gaming opportunities in the State as much as Topinka has suggested, these opportunities begin to become counterproductive. That is, casinos are luring the same dollars statewide, and these dollars will begin to be split among facilities, rather than moved from other facilities. Some market share will be taken from Indiana and Wisconsin casinos, and as a result, we estimate based on studies by Deloitte Consulting, LLC and the Illinois Department of Revenue that about $600-700 million annually may be obtained from recurring revenues, about half the $1.25 billion annually that Topinka predicts. There is absolutely no empirical support for an additional $1.25 billion in revenue per year.

Unrealistic Assumptions. The Topinka budget also makes another misleading prediction in its four year plan. It assumes that new positions can be built immediately, and that the legal hurdles that have tied up the tenth riverboat license for years will be immediately surmounted and a new Chicago casino immediately constructed. As most of us know and as suggested in the discussion about capital above, it takes time to build additional space, we estimate very aggressively no less than 9 months for existing casinos and 18 months for the Chicago casino. This means that the full value of the gaming expansion won’t be available until 2010 or 2011- at the earliest. And this doesn’t even take into account the amount of time the 10th license will remain in limbo.

6. School Construction

Unrealistic Assumptions. As the Senator points out, debt service costs will mature at the same rate as the underlying capital spending. However, contrary to his assertions, school construction spending historically has occurred much more quickly than ordinary capital spending. This is also because Republican obstruction to a school capital bill has left our schools desperately in need of improvements, and these improvements need to begin in the next 18 months, not over a period of 5 years. Otherwise, the Topinka plan would unnecessarily delay the commencement of repairs critical to our children’s safety and ability to learn.

7. Pensions

Misleading the Taxpayer. The listed pension increase includes planned increases to POB debt service (at a rate which is consistent with the 1995 funding plan and is GRF funded), as well as increases in required contributions and includes all funds. However, Senator Rauschenberger is apparently unaware that 90% of our pension funding comes from the State’s general funds, and that over 95% of POB debt service does. A GRF value for FY08 is not $520 million, depending on employee payrolls, it will be over $600 million in FY08, and will rise similarly in FY09 and FY10. And, despite her claims, Topinka’s plan would not “fully fund” the pensions- it would only fund the pensions at the level proposed by the flawed Republican 1995 payment schedule, which underfunds the pensions each year until 2035.

8. New Hiring

Unrealistic Assumptions. The hiring of 400 correctional officers over 4 years is a departure from Topinka’s previously public support for the AFSCME proposal to increase correctional officers by 600 immediately and to increase statewide staffing (See: Chambers, Aaron “Union: Forensic shortage hinders evidence analysis” Rockford Register Star 3/28/2006). As AFSCME’s entire proposal was to increase statewide staffing by 2,000, rehiring was based on that calculation, and includes both salaries and related costs (pension, health insurance, social security, fringe benefits), raising average cost of employee to approximately $75,000 per employee (on average over four years)- the very number Topinka used in her August 17, 2006 budget cuts proposal. Her assumption that her budget can be based on a lower number is not credible in this context.

9. Pay Raises

Flip-Flop from Prior Position. “Treasurer Judy Baar Topinka, the Republican candidate for governor, got big cheers from the crowd when she said non-union workers should get the same raise as union employees. Then she tells the IAMG that merit comp employees deserve a raise” (Finke, Doug, “Statehouse Insider” Copley News Service, 5/14/2006).

10. Energy Plan

The estimate simply includes $45 annually as debt service in support of $500 million in capital spending Topinka has proposed in her energy plan, as well as $15 million in one time spending proposed in the energy plan.

11. “Pork”, “No-Bid Contracts” and Firing State Employees

Misleading Taxpayers. The Topinka Plan also attributes $200 million annually in savings to “reducing pork”, eliminating “no-bid” contracts, and getting rid of merit compensation employees. These “savings” were not included in the initial critique of the plan because they are misleading and even her plan shows that they will be unlikely to occur.

Flip-Flop: Pork- Although Topinka claims that she can save $100 million a year by eliminating “pork” from the budget, she does not state what this “pork” includes and cites only tiny examples of what she claims is $100 million a year. Instead, in her description of one-time spending, she promises to allocate funds to “pay-as-you go local projects”- in other words pork. Topinka can’t both promise to pay for pork and eliminate it at the same time- that is a flip-flop.

Flip-Flop: No Bid Contracts. Although Topinka claims that the State can save $75 million a year on eliminating “no-bid” contracts, the Treasurer’s office from 1995-2006 has a significantly higher rate of issuing contracts that were not competitively bid than the Governor’s Office. If Topinka had wished to end “no-bid” contracts, she could have started with her own office, especially with contracts awarded to her campaign contributors. The contracts that Topinka would reduce also affect core state services, such as vaccines for poor children and the ability to get service for Medicaid recipients at Children’s Memorial Hospital, once again a tiny portion of her $300 million claim.

Unrealistic Assumptions. Topinka’s estimate that it can save money by firing merit compensation employees hired over the last four years shows an inability to understand the business of governing and is yet one more unrealistic assumption to base savings on. The 350 employees that Topinka would fire (and not replace any) are in many cases long-term state employees who have changed agencies, or whose term has expired and has taken a non-term position. Firing all of these employees would leave a vacuum that other employees would have to fill, not unlike the vacuum created by George Ryan’s $3.5 billion ERI mistake of 2003.

12. Economic Development Plan

Unrealistic Assumptions. Topinka’s Economic Development Plan makes unrealistic assumptions, and like most other giveaways to large corporations, will actually cost the Illinois taxpayer money. There are already plentiful tax credits that provides hundreds of millions of subsidies to these industries. Though Topinka seems lately to intend for this plan to apply only to incremental manufacturing jobs (or in the case of the new jobs credit, all jobs), in any given year the average job growth is made up of a lot of new jobs and job losses. Unfortunately, Topinka’s plan would provide credits to the new jobs (and make these credits transferable, so even large corporations who outsourced jobs to India could take advantage of them), but not provide a counter measure to offset the lost jobs. This doesn’t make sense, and is estimated, depending on how the plan is structured (whether or not retaining current manufacturing jobs) to cost between an incremental $90-450 million per year, growing each of Topinka’s four years.

13. Elimination of Fund Transfers and Chargebacks

Flip-Flop from Prior Position. Topinka has previously opposed the administrative chargeback procedure and blocked it for over a year (See: Sweeny, Chuck “Topinka blames gov for ‘dysfunctional’ state” Rockford Register Star, 4/21/2006), but now Topinka has flip-flopped and appears to support it, though she has publicly claimed to end “fund raids”. The estimate provided for lost revenue in total is an average of four years of transfers from FY2004 through those anticipated in FY2007. After opposing this practice for four years, we welcome her support if she currently supports processing administrative chargebacks to special funds.

Misleading the Taxpayers. However, Topinka’s opposition to fund transfers is also misleading. Fund transfers are approved and determined by the General Assembly, and Topinka has had and will have no ability to prevent them, short of vetoing fund transfers authorized by the legislature and creating a deficit.

We have responded to the unrealistic and misleading numbers thrown together in the Topinka proposals. However, like the public, we have little or no information. Topinka needs to answer the question – “How did you determine your revenues and budget cuts? Are they real?” Even Topinka’s spending is misleading and needs clarity, especially her education spending. Claiming it doesn’t make it true. Her budget just doesn’t add up.

I would like to thank both campaigns for putting the effort into these highly detailed pieces. This electronic budget “debate” is unprecedented in Illinois. If either side feels the need to continue this, I’m completely open to more.