State's revenue will be up, but not enough to avoid big cuts

State's revenue will be up, but not enough to avoid big cuts

SPRINGFIELD — Tax revenue to the state will grow by an estimated $720 million next year, lawmakers were told Tuesday, but it won't be nearly enough to avoid big budget cuts.

One budget-cutting certainty, said David Vaught, who is director of Gov. Pat Quinn's Office of Management and Budget, is a reduction in the state's $14 billion Medicaid program.

"The necessary changes in the Medicaid program are going to be quite substantial," Vaught told a special joint meeting of the Senate and House revenue committees Tuesday. "We know that changes are going to need to be made and those are the really big ones that are going to affect a lot of people."

On Wednesday, Quinn is scheduled to address the Legislature and reveal what has been promoted as a grim budget with widespread cuts.

The governor is expected to slash Medicaid spending by at least $2 billion, which would mean a reduction in state spending of a billion dollars, along with a billion-dollar federal government match.

But even the Medicaid cuts and the revenue growth won't stave off more budget cuts, officials have said. For one thing state pension payments will increase by more than a billion dollars, Vaught acknowledged. Further, the state has an estimated $8.5 billion backlog of late payments.

Quinn's administration projected revenue at $33.94 billion for the year beginning July 1. That's up from revenue estimates of $33.4 billion and $33.1 billion for the current fiscal year, made by two different state agencies.

The Legislature's Commission on Government Forecasting and Accountability projects "conservative" growth next year in the state's three major revenue sources: 2.4 percent in the corporate income tax, 2.5 percent in the sales tax, and 3.1 percent in the personal income tax. The personal income tax projection rate is still below the 15-year annual average of 3.4 percent, said Jim Muschinske, COGFA's revenue manager.

The Legislature is expected to write its own budget this year as it did last spring, potentially ignoring Quinn's spending proposals. House Revenue Committee Chairman John Bradley, D-Marion, said his panel would meet again Thursday to discuss revenue and spending estimates for next year.

The current year's budgeting process earned praised Tuesday from J. Fred Giertz, an economist with the University of Illinois' Institute of Government and Public Affairs. Paraphrasing the late basketball coach John Wooden, Giertz said "when you get behind you don't try to catch up instantaneously."

"The idea is to change your pattern and move to a pattern of discipline and catch up over a period of time. You took the first step last year. But there are still many steps to take."

Giertz also said "there is quite a bit of upside potential for next fiscal year" because Illinois' economy has fallen behind the national economy.

"I think the economy is picking up and that there are better days ahead," he said. "I think Illinois is in a situation where we may be doing some catching up. Not just do well as the whole economy does, but do better relative to the rest of the nation. That gives us the potential next year to grow on a relatively weak base this year. There is quite a bit of upside potential, but that's probably something you don't want to build into your budget at this point."

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ultragreen wrote on February 21, 2012 at 11:02 pm

Some parts of this article are misleading. First of all, much of the $14 billion per year that the state spends on Medicaid DOES NOT come from state tax revenues. Only about ONE-THIRD of the money that is spent on Medicaid (about $5 billion) actually comes from state tax revenues. The rest of the money is provided by the Federal government, local government, and health care providers. Many people, while reading this article, will think that the state of Illinois is spending $14 billion of its own tax money on Medicaid, which is far from the truth.

In addition to the preceding problem, the revenue estimates for the state of Illinois in this article are misleading. In fact, the total gross revenue of the state is about $55 billion per year, rather than the $33 billion per year that is being claimed. The $33 billion figure refers to the portion of state tax revenues that are allocated to the general fund. Unlike other tax revenues that can be spent only on specific programs, the tax revenues from the general fund can be spent on any state-funded program in accordance with the discretion of the governor and the state legislature. Many readers of this article will think that the state is spending almost one-half of its tax money on the Medicaid program ($14 billion out of $33 billion), but in reality it is closer to $5 billion out of $33 billion, and this excludes from consideration the $55 billion per year that the state receives from all taxes and fees.

A third point that I would like to make, is that the Health Care Reform Act that was passed by the Federal government makes it ILLEGAL to slash Medicaid. The governor has already sought a waiver from the Federal government so that he could slash Medicaid, and the state's application for this waiver was rejected by the Federal government because it is clearly illegal. If the state disobeys the Federal government, and proceeds to slash Medicaid anyway, then the state could be forced to pay 50% of the Medicaid costs (instead of 0% paid by the state and 100% paid by the Federal government) for all of the single adults who will qualify for Medicaid in 2014 under the provisions of the Health Care Reform Act (about 500,000 new Medicaid enrollees). As a result, whatever money the state saves by slashing Medicaid now, could be more than offset by increased Medicaid costs in the near future.