Business leaders are willing to challenge budget fundamentals that are central to the state’s fiscal collapse. Four major areas of expense must be addressed if lawmakers are to regain control of runaway spending obligations:
- Public employee pension benefits
- Public employee and retiree healthcare benefits
- Medicaid payments
- Educational accountability and standards.
Many elected officials want to defer these obligations and ignore underlying issues to avoid upsetting voters or special interest constituencies. Yet these budgetary trolls reappear annually and wreak havoc on the process of building a balanced state budget. They must be restrained.
Pensions
In the case of benefits, it means daring to confront politically active public employees, government retirees and unions. It also means acknowledging the current system is not sustainable with over $40 billion in unfunded pension liabilities and annual payments equivalent to over half the state’s total estimated revenue growth.
Ironically, rather than place a moratorium on benefit expansion, the General Assembly continues to sweeten benefits while inadequately funding the systems. A moratorium is required.
This is not new ground. Private sector employers and their unions have been realigning benefit structures over the past two decades. Such changes are always difficult, but the business community clearly sees healthcare and pension programs available to many Illinois public employees that are more generous than programs commonly available to private sector taxpayers who are paying the bills.
Illinois needs a two-tiered system where new employee benefits and contributions are aligned with private sector standards.
Healthcare
Although Governor Blagojevich continues to promote expanded subsidized healthcare, our state already has one of the most generous healthcare structures in the country. Illinois taxpayers subsidize healthcare for 2.4 million people, or one out of every seven. Two out of three nursing home residents and one of every three children’s healthcare expenses are covered by the state.
Sadly, our government does not pay medical providers in a timely manner and thrusts borrowing costs upon the medical community caring for the indigent. Illinois routinely ignores Medicaid vendors and defers over $1 billion of obligations from one fiscal year to another.
The state also drastically underpays medical providers for true costs of service, forcing higher costs on owners of private insurance, primarily employers.
Annual medical costs borne by taxpayers have trended up nearly seven percent annually during Governor Blagojevich’s tenure. Next year’s budget is projected at almost $8.9 billion. Like pensions and healthcare benefits, the $640 million, 7.8 percent increase in Medicaid would claim over half of the total anticipated revenue growth for the next budget year. The growth in healthcare spending is not sustainable.
Illinois must aggressively pursue opportunities to reduce Medicaid costs, not expand them. For starters, all children and non-disabled, non-elderly enrollees should be switched to managed care plans.
Education
The key to future education funding is accountability. Since 1997 when achievement standards were first adopted, state funding for elementary and secondary schools grew from $3.7 billion to $6.5 billion in FY07. Total spending for K-12 education in Illinois hasn’t been sluggish. It grew from $13.2 billion to $21.5 billion in 2006, or 60 percent. Yet there was no appreciable academic improvement shown by the Prairie State Achievement Exam or Illinois Student Achievement Test between 1997 and 2005.
The business organizations embracing this financial reforms statement expect Illinois’ political leaders to stop sending hundreds of millions of new taxpayer dollars to local schools annually without also requiring: 1) exam proficiency for high school graduation, 2) a core curriculum aligned to academic standards, 3) budget transparency with linkages to improve school performance and student learning measures, 4) a value-added student assessment system for all grades and all students, and 5) creation of more charter schools.
Cut Spending
State spending demands put forth by Governor Blagojevich for FY2008 far exceed projected new revenue growth of $1.1 billion. As outlined above, status quo public employee benefits and Medicaid spending alone could claim all new revenue.
Individual and corporate income taxes surged in FY2007. Total state receipts were up by $1.3 billion, yet Illinois was one of a handful of states failing to run a surplus or give tax relief. Despite $1 billion in annual revenue growth, Illinois’ fiscal condition has lacked stability for years.
If Illinois’ economy is not robust enough to generate adequate tax revenue, perhaps our leaders should be more focused on the economic engine rather than increasing already over-extended government spending.
Business leaders do not condone fiscal shenanigans. The state is not engaging in honest budgeting. Fiscal restraint and cost cutting are in order.
The business community is offering thoughtful, practical structural reforms that portend long-term financial benefits to the taxpayers of Illinois. Our elected leaders must recognize that while cutting programs and spending are difficult political choices, the best opportunity to undertake the task is when cash is short.
To review the complete 2007 Illinois State Financial Reforms Statement, visit the Illinois Chamber web site, www.ilchamber.org. IBI