Last week Governor Quinn proposed a budget to address the state’s $11.6 billion budget deficit.  The state’s total proposed budget is $53.1 billion, with a little over $28 billion in general revenue funds (GRF).  It is GRF funds, rather than federal funds or state funds collected for specific purposes, that provide spending flexibility and are thus the focus of where adjustments must be made to fill our deficit.  Spending from GRF breaks down as follows:
 


Education                                                       38.2%
Healthcare & Family Services                     30.8%
Human Services                                            21.3%
Public Safety                                                   5.2%
Government Services                                     3.7%
Economic dev’t and infrastructure                   .6%
Environment $ Business regulation                .3%

 
Given this allocation of resources, it is very challenging to solve our budget problem with no increases in revenue unless we cut education, health care and/or human service programs dramatically.  While federal stimulus dollars of close to $2.2 billion are included in the Governor’s budget, they must be used to bring down our Medicaid payment cycle to 30 days (something we should absolutely be doing) and in most cases can not be used to “supplant” other state dollars.  Clearly the federal dollars are extremely beneficial for the state, nonetheless, they will not solve our budget dilemma.
 
Governor Quinn’s proposed budget closes the $11.6 billion deficit with a combination of revenue increases and cost cutting measures outlined below.  You can see the complete budget at http://budget.illinois.gov. 
 
Revenue Increases

• 50% Income Tax Increase Offset by Tripling Personal Exemption to $6,000.   The personal income tax is increased from 3% to 4.5%.  According to his budget proposal this increase in the exemption means that a family of 4 would not pay any increase in taxes unless the family earned more than $61,000. 
• Comparable Corporate Tax Increases.  The corporate income tax is increased from 4.8% to 7.2% and other corporate “loop holes” are closed.
• Cigarette Tax.  A $1/pack increase phased in over 2 years is proposed.

 
Budget Cuts

• Pension Reform.  The benefits for new state employees would be changed to raise the retirement age to match Social Security requirements (67 years old), alter the benefit formula, and provide a cost of living adjustment equal to 50% of the CPI change or 3%, whichever is lower.  Additionally, current employees would increase their contribution by 2 percentage points. 
• Healthcare Contributions.  State employees and retirees would increase their contributions for healthcare.
• Agency Spending Cuts.  Several state agencies are consolidated and across the board spending cuts are proposed for most agencies other than education, healthcare and public safety.K-12 Education.
• K-12 education will receive the lowest increase ($174 million) in more than a decade. 

 
Governor Quinn made a persuasive case that he is trying to change Illinois’ spending problems with this budget even though I am not comfortable with all of his specific proposals.    His Illinois Reform Commission will recommend changes in April to make the state honest, ethical and transparent, and he is establishing a Taxpayer Action Board, headed by Tom Johnson of the Taxpayer Federation. His efforts to make our tax system less burdensome on low income families is admirable even if there may be better mechanisms to achieve this objective.
 
I applaud the Governor’s courage to forthrightly address our structural budget deficit – a problem that has been growing over many years.  This budget is just a starting point, however.  I will need a number of issues resolved before I can support this budget including the following:

• Medicaid and Educational Budget Reforms Can Improve Services.  The budget does not include any Medicaid reforms. With better prevention and community-base services for our elderly, mentally ill, and infants, we can improve health outcomes and reduce our health care liabilities. Moreover, Illinois’ 869 school districts create unnecessary overhead costs and may deny students diverse course offerings that would be associated with school district consolidations. I will pursue these issues and any other viable suggestions I receive as a member on the Senate’s Deficit Reduction Committee.   
• Reduce Income Tax Increase and Look at Other Revenue Options.  I believe there are ways to reduce the size of an increase in the income tax.  We should consider increasing the earned income tax credit rather than tripling the personal exemption to better target tax relief to poor and working families.  We should also look at broadening our sales tax base (and even potentially lowering the sales tax rate) to include services as an option to an income tax increase.    
• Solve Long Term Public Policy Issues with Balanced Budget.  If we are going to increase taxes, I believe we must solve our two most intractable public policy issues with revenue increases – reduce local property taxes and increase state support for schools. Illinois has the largest share of its educational system funded from local revenues of any state in the country.  This reliance leads to a very unfair educational system, where the amount spent per child varies dramatically based on where the child lives.  As you all have likely felt, this has also resulted in property taxes that are some of the highest in the country.  If we are going to increase the state income tax we must address these fundamental problems, which the Governor’s proposed budget does not do.

 
We clearly are in tough economic times and must behave responsibly and with sensitivity to what residents throughout the state are experiencing.  The tone in Springfield has improved dramatically with our new Governor, and I am hopeful that the legislature and Governor will work cooperatively to address our budget deficit.  I welcome your thoughts and suggestions about how best to tackle our $11.6 billion problem.  You can call me at 773-769-1717 or email me at heather@heathersteans.com.
 
Sincerely,

Heather A.Steans
State Senator