Illinois Rushes to Finish Budget, Medicaid and Pension Changes

By: - May 30, 2012 12:00 am

What may be the nation’s most fiscally troubled state is in the middle of a fateful week. Illinois legislators are racing to approve a new state budget and changes to the state’s Medicaid and public employee pension systems ahead of their scheduled adjournment tomorrow.

On Medicaid, legislators already approved $1.6 billion in cuts last week. Now, the state is poised to approve a dollar-a-pack cigarette tax increase that would help Medicaid meet its costs. The measure would more than double the amount of the tax. 

In addition to the cuts to Medicaid, the state’s budget is expected to include reductions to other services. To limit the size of the cuts, lawmakers may try to bring in more money through a gambling expansion. It passed the House last week, but has not cleared the Senate and faces opposition from Governor Pat Quinn.

On pensions, as the Chicago Tribune reports, legislators are debating a plan to change cost-of-living adjustments for current retirees, current workers and future workers as a way of reducing the state’s long-term obligations. They face obstacles because the state’s constitution has been interpreted as limiting changes to pensions for workers who are already in the system. Illinois’ public pension systems are among the worst-funded in the country, with long-term unfunded liabilities of $83 billion.

Illinois’ new fiscal year doesn’t begin until July 1, and for the state, it wouldn’t be unusual to blow past that deadline without a budget. Yet, as Rich Miller of Capitol Fax noted earlier this month, May 31 is considered a key deadline this year because of the political dynamics in play.

Starting June 1, bills in Illinois require a three-fifths vote to pass. Democrats hold majorities in both the Illinois House and Senate, but they lack three-fifths supermajorities, meaning legislation after June 1 would take a bipartisan agreement. That might be difficult on a host of topics.

Illinois is facing outside pressure to act soon. The large income tax increase the state enacted in early 2011 is set to begin expiring at the end of 2014. Despite the additional tax revenue, Illinois still faces a backlog of unpaid bills that totals about $8.5 billion. Quinn has warned that the state could face multiple credit rating downgrades if it doesn’t act now to place the state’s budget on a more sustainable path—and Illinois already rivals California for having the worst credit ratings in the country.

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Josh Goodman

Josh Goodman helps lead research on fiscal management and place-based economic development programs as part of Pew’s state fiscal health project. Goodman has served as a primary author for Pew studies that examine how states should evaluate tax incentives and maintain budget discipline when implementing those incentives.