Senate Hearing Sets Stage for Governor’s FY2013 Budget Recommendation

February 16, 2012

A week before Governor Pat Quinn’s FY2013 budget address, a panel of Illinois State senators met in Chicago to hear testimony on the State’s major budget challenges: rising Medicaid costs and unfunded pension liabilities.

The Senate’s two Appropriation Committees held the joint hearing  on February 15, 2012. Senator Heather Steans, who chairs one of the committees, said the hearing was intended to prepare members for the release of Governor Quinn’s recommended budget on February 22.

Senators received a presentation on the Governor’s three-year budget projection, issued on January 3, and an update on the State’s budget reform process, known as budgeting for results. In addition, the Civic Federation made a presentation on its FY2013 Budget Roadmap report, which includes five-year budget projections.

At the hearing, Budget Director David Vaught said that the proposed FY2013 budget will include higher revenue estimates for FY2012 than the Governor’s three-year budget projection. Mr. Vaught did not provide details on the revised revenue numbers. FY2012 ends on June 30, 2012.

As discussed here, the Governor’s three-year projection provided an updated budget for FY2012 and projections for FY2013 to FY2015. For FY2012, total General Funds revenues were estimated at $33.1 billion and General Funds expenditures at $33.6 billion, resulting in an operating deficit of $508 million. General Funds support the regular operating and administrative expenses of most state agencies and are the funds over which the State has the most control and discretion.

Mr. Vaught said that the growth in State pension contributions and Medicaid costs represents “the squeeze” on the budget. The Governor’s projection shows that pension contributions will increase by 27.0%, or $1.11 billion, from $4.14 billion in FY2012 to $5.25 billion in FY2013. However, the projection keeps Medicaid appropriations unchanged from FY2012 at $6.6 billion, despite increasing costs. As discussed here, actual General Funds Medicaid costs are estimated at $8.6 billion in FY2012 and $9.7 billion in FY2013. Underfunding of the Medicaid program is expected to result in $1.8 billion in unpaid bills at the end of FY2012 and at least $4.7 billion by the end of FY2013.

The Governor’s projection does not include any data on the State’s backlog of unpaid bills. At the hearing, several Senators suggested that future budget projection reports should provide information on unpaid bills.

The presentation by the Budgeting for Results Commission focused on early efforts to reform State budgeting and future challenges. As discussed here, budgeting for results is designed to be a way for state governments to more effectively manage their resources. Unlike traditional budgeting, which begins with the prior years spending, budgeting for results starts with available revenues, prioritizes results, decides which activities can best achieve the desired results and budgets available dollars to the most significant programs and activities. The Budgeting for Results Commission was appointed by Governor Quinn in August 2011 and issued its first annual report in November 2011. Senator Dan Kotowski, chairman of one of the Senate Appropriations Committees, also chairs the Commission.

One of the recommendations in the Commission’s annual report—which was incorporated into the Governor’s three-year projection—was to establish a separate result category for healthcare. In the Governor’s recommended budget for FY2012, healthcare was included in the human services category. The Commission recommended that healthcare, which covers mostly Medicaid spending, be treated as a separate category because of its unique financial pressures.

Budgeting for results depends on the State’s ability to measure the effectiveness of programs. Once performance measures are in place, the State hopes to be able to determine objectively which activities are working well and which are not successful. At the hearing, John Kamis, the Governor’s advisor on budgeting for results, said that developing and implementing appropriate performance measures is the most difficult aspect of the budgeting for results process. As a result, Mr. Kamis said that the Governor’s recommended budget for FY2013 will not include many additional performance measures. 

Some senators expressed frustration that budgeting for results has not prevented social services agencies with effective programs from being hit with funding reductions. Other lawmakers said they were concerned that it might be difficult to measure the effectiveness of programs designed to provide preventative services.

Laurence Msall, President of the Civic Federation, made a presentation on the FY2013 Budget Roadmap report issued on January 30, 2012 by the Federation’s Institute for Illinois’ Fiscal Sustainability. The report stated that existing revenue and expenditure policies could result in a $34.8 billion backlog of unpaid bills by the end of FY2017.

Mr. Msall also took questions about recommendations in the report, with many of the questions focusing on pensions and Medicaid. When asked about borrowing in order to pay down the State’s backlog of unpaid bills, Mr. Msall reiterated the Civic Federation’s opposition to issuing debt. He said that the State could not afford the additional interest payments that would be required to repay the debt.

The General Assembly plans additional budget-related activity prior to the Governor’s speech. On February 21, a day before the Governor releases his budget, both the Senate Revenue Committee and the House Revenue & Finance Committee are scheduled to meet to consider how much revenue will be available in FY2013.