The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

The stage is set for the Illinois General Assembly to complete one of the most important tasks of its members’ legislative lifetimes: creating the competitive health insurance marketplace (officially called the Illinois Health Benefits Exchange) to begin operations in January 2014.

Recently enacted Illinois Public Act 97-0142 calls for the creation of a 12-member Legislative Study Committee tasked with reporting to the General Assembly and the Governor by September 30, 2011, on implementation and establishment of a centralized marketplace where individuals and small businesses can shop for affordable health insurance, qualify for public subsidies to purchase insurance, or be enrolled in public programs (Medicaid or All Kids). The full General Assembly will take up the Exchange legislation during the fall veto session, which begins October 26. 

The leaders of the General Assembly should immediately appoint members to the Study Committee—legislators who understand that establishing this marketplace is extremely important to millions of Illinois residents (including the 1.7 million currently without insurance) and small businesses.

Once appointed, the Study Committee members need to educate themselves on what the different and better world of health insurance will be like in 2014. For starters, they need to recognize that by 2014 (sooner in some cases) due to insurance market reforms required by the federal Affordable Care Act, all health insurance companies must:

• offer insurance to all applicants (no rejections  due to health status or pre-existing health conditions),
• set rates based on applicants’ age, geographic location, and smoking status (no charging women or sick people more),
• spend most of the premiums they collect on health care, not on administration, and
• cover preventive health services with no deductible or co-payments, cover care in approved clinical trials, and have no lifetime or annual limits on coverage.

Come 2014, most Americans will be required to have health insurance; that means some 25 million new customers for insurers. The federal government will subsidize the purchase of insurance by people under 400% of the Federal Poverty Level (that’s $43,560 per year for one person and $89,400 for a family of four), and all citizens (and some non-citizens) with incomes under 133% of the Federal Poverty Level will be eligible for Medicaid. Insurers will be able to put their energies into competing by offering the best value and highest quality to customers rather than into avoiding insuring people with health problems, rescinding coverage, or not renewing policies when people file insurance claims.

Study Committee members also need to recognize that the Exchange is about both private health insurance and public health insurance programs. On the private insurance side, the Exchange needs to make it easy for individuals and small businesses to compare health plans, find out if they are eligible for subsidies, and enroll in a health plan that meets their needs. On the public side, the exchange needs to screen people seeking health coverage for eligibility for Illinois public health programs (Medicaid and All Kids), verify their eligibility, and enroll them and reach out to those newly eligible for Medicaid.

Committee members need to understand what the U.S. Department of Health and Human Services (HHS) expects from and offers to the states regarding exchanges, most of which is set out in the newly issued proposed rules announced by HHS head, Kathleen Sebelius, on July 11, 2011.

The Study Committee members also need to get up to speed on the substantial work already done or in progress in Illinois.

First, they need to review the Illinois Health Care Reform Implementation Council Initial Report (March 2011). The Implementation Council, established by Governor Quinn, was comprised of the heads of the several Illinois state agencies responsible for various aspects of federal health reform. In 2010 and early 2011, it held meetings around the state to hear from legislators, medical providers, individuals, and organizations on how to best implement the federal reforms, including the Exchange. The report contains detailed recommendations regarding the Exchange (most importantly, that Illinois establish its own Exchange as a quasi-governmental agency with power to negotiate with insurers and require them to compete on price and quality to sell on the Exchange), with accompanying discussion and summaries of the positions of various interests.

Second, they need to examine carefully Illinois Senate Bill 1729, the Illinois Health Coverage Exchange Act. It was the product of months of Department of Insurance-convened open meetings of five stakeholder working groups (patient and family advocates, employers, insurers, providers, and insurance agents). These groups met separately and then together on the key issues of Exchange governance options, operating models, and financing options. S.B. 1729 was based on all that thoughtful input. Study Committee members should also visit the Illinois Department of Insurance’s website pages on Health Insurance Reform, where they will find much important background information on Exchanges and statutes from other states.

Third, on the public programs side, the Department of Healthcare and Family Services (HFS) is moving ahead in developing the automated processes for screening people for eligibility for Medicaid and All Kids, verifying their eligibility, and enrolling them in the appropriate program via the Exchange. The Study Committee needs to invite HFS Director Julie Hamos to give a detailed briefing on those activities.

Finally, the Study Committee can learn from other states that are going down the same road—some far ahead of Illinois.

The Study Committee should take advantage of all these existing reports and resources and should use its approximately 10 weeks to drill down into the issues, perhaps by inviting recognized experts to meet with it to answer questions members may have and debate various options. And, of course, it should allow the public to describe their needs and express their opinions. 

What it should not do is start from scratch, ignoring the work of the Council, the state agencies, and the input of the hundreds of individuals and organizations who already have participated in good faith in earlier processes.

Its September 30 report should aim to educate the entire General Assembly about the importance of this competitive health insurance marketplace. It should be based on facts and sound economic and policy analysis, should explain the reasons for the policy choices that underlie its recommendations, and should include any substantial conflicting evidence, so that General Assembly members can have a full and fair understanding of the choices they will be making in passing Exchange legislation.

• Email This
• Print
• Comments
• Trackbacks

Among the many provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was one requiring the Federal Reserve Board to report annually on the prevalence of general-use prepaid cards in federal, state, and locally administered payment programs and the interchange transaction fees and cardholder fees charged with respect to the use of such general-use prepaid cards.

General-use prepaid card programs are used as a method for disbursing funds to individuals and allowing government agencies to make payment in the administration of government benefit, assistance, and other miscellaneous programs. The cards can be used to provide payments such as social security, veterans’, disability, unemployment, and other benefits. Government-administered programs that are funded and managed at the federal level largely comprise three Financial Management Services (FMS) programs: (1) Direct Express, (2) U.S. Debit Cards, and (3) Navy/Marine Cash Program. The Direct Express program is used to disburse federal benefits on behalf of several agencies, the largest percentage of which are social security and supplemental security income (SSI) payments. The U.S. Debit Card supports programs such as disaster relief payroll and petty cash, whereas the Navy/Marine cash cards are only issued to personnel who have been assigned to a ship. 

According to the survey, in 2010 depository institutions provided cardholder use information for 90 federal, state and local programs operating in 36 states--five federally operated programs and 85 state and locally operated programs. These programs used 20 million cards (2 million for federal programs and 18 million for state and local programs), representing more than 1 billion transactions that were valued at $34.8 billion.

Recent initiatives of the U.S. Treasury Department will increase the usage of the Direct Express Program. In December of last year, Treasury issued a final rule to require anyone applying for benefits after May 2011 to receive payments electronically (either via direct deposit or a Direct Express prepaid card). Those already receiving benefits will be required to switch to electronic payment by March 2013. This is in addition to two pilot programs by the Treasury to expand prepaid card usage. One of the pilot programs offers taxpayers electronic delivery of their federal tax refunds via a MyAccount Card prepaid card and the other pilot encourages current and potential payroll card users to have their 2010 federal tax refunds deposited directly onto payroll cards. 

There were approximately 185.5 million ATM cash withdrawals, and the average withdrawal was $179.04 for federal programs and $130.68 for state and local programs.

In terms of interchange fees, which are the fees set by networks, charged to the merchant acquirer and received by issuers as part of the purchase transaction, the average interchange fee was lower for state and local programs than federal programs, but as a percentage of the transaction value, the average interchange fee for federal, state, and local programs was essentially the same. Generally, interchange fees for both signature based and PIN based networks are structured similarly to credit cards in that they include both an ad valorem and a fixed component. The average interchange fee was 30 cents or 1.1% of the transaction amount, which is lower than the 2009 average debit card interchange fee of 44 cents and the average 2009 prepaid card interchange fee of 40 cents. The reason for the disparity is that most government programs are PIN based, which have significantly lower fees than signature based programs. 

Cardholder fees averaged $9.69 per card in 2010, or 0.3% of the total amount disbursed to cards. Examples of cardholder fees include balance inquiries, penalty fees, card replacement fees, and statement request fees. Most respondents indicated that there are no monthly fees associated with the cards, that cardholders were allowed at least one free ATM withdrawal per disbursement period, and that most programs allow for more than one. The average ATM cash withdrawal fee was 47 cents or 0.3% of the amount withdrawn. Other fees included balance inquiry fees ranging from $0 to $2.95 per inquiry, penalty fees ranging from $0 to $20 per occurrence, and monthly fees from $0 to $2.25. Card issuers also charged from $0 to $1.75 per ATM cash withdrawals.

Unfortunately, the response rate to the survey was low, particularly from state governments, and many of the responses provided incomplete data, thus data does not provide information on the prevalence of use of general-use prepaid cards as a proportion of total payments disbursed through related government-administered programs. 

Nonetheless, the data that is reported shows that the use of such prepaid cards is on the rise. As a result it is more important than ever that government prepaid cards be afforded the same protections that are provided to other types of cards under the Electronic Funds Transfer Act. Specifically, these cards should have the same consumer protections and terms as other credit and debit cards.

The full report is available at the Federal Reserve’s website. More resources on prepaid cards and the consumer issues that arise from them are available on the Shriver Center’s website.

• Email This
• Print
• Comments
• Trackbacks

If you have a refrigerator and a stove you aren’t really poor! Or at least that is what a recent report, “Air Conditioning, Cable TV and an Xbox: What is Poverty in the United States Today,” by the Heritage Foundation claims.

The report’s premise is that public policy discussions on poverty are meaningless absent a detailed description of the actual living conditions of poor households. Specifically, the report asserts that although the Census Bureau reports that over 30 million Americans are living in poverty, in reality, this number overestimates poverty because poor families own things like refrigerators, stoves, microwaves, washers and dryers, and ceiling fans. Oh and let’s not forget to include the coffee maker that poor families own instead of going to Starbucks for their $4 latte!

 Putting aside the fact that, according to 2009 Census Bureau data, 43.6 million people were actually in poverty (which is the highest number in the 51 years that the U.S. has published poverty rates), the report analyzes data from the Residential Energy Consumption Survey (RECS) which measures energy consumption and ownership of various “conveniences.” Comparing the amenities available to poor households versus those available to all households, the report asserts that the average poor person has a living standard far higher than the public imagines. According to the authors’ analysis, both typical households and poor households each have air conditioning, washing machines and dryers, refrigerators, stoves and ovens, TVs and cable or satellites, a DVD and VCR, and cordless phones. Based on this analysis, the report concludes that poor households are living well today. As the report states, “the poorest Americans today live a better life than all but the richest persons a hundred years ago.”

But everyone is better off today than they were 100 years ago!! The wealthy are better off than they were 100 years ago, too. The real issue is how the poor fare in today’s economy, not how they would have fared in the economy 100 years ago.

For example, the report acknowledges that, although poor households were less likely to have air conditioning in any given year, the share of all households with air conditioning has steadily increased over the past 25 years. (Admittedly, I am sitting in an air conditioned room writing this while outside it’s over 100 degrees, so I currently think air conditioning is certainly not a luxury.) The reality, however, is that poor families have air conditioning solely because most of today’s homes were constructed with it. It’s not a luxury that the poor are indulging in; it’s merely what is available in the housing market. Do we know whether poor families are actually using the air conditioning in their homes, or are they unable to because they cannot afford it?

The report also asserts that poor Americans are well housed because their dwellings are spacious compared to international standards. All American homes are spacious compared with most other countries’ housing, but that doesn’t mean that poor families are living in palaces!

According to the report, homelessness is not a problem either. The authors assert that only 240,000 out of the total 643,000 Americans without a permanent domicile are actually “homeless” because they live in cars, abandoned buildings, alleyways, or parks. The rest of the so-called homeless are in emergency shelters or transitional housing so they don’t really count as homeless. Moreover, the report explains that individuals typically lose housing, reside in emergency housing for a few weeks and then re-enter permanent housing, so the homeless rate isn’t really a problem. But how long is it before they lose this new housing because they can’t continue to pay for it? The report does admit that there has been an increase in the number of families with children who use homeless shelters, but asserts that the increase isn’t a “tidal wave of increased homelessness.” Perhaps the increase isn’t as large because those families that lost their homes have moved in with other family members. Or perhaps it’s because poor families are relying on Section 8 housing instead of sleeping the streets, though they may have to line their sleeping bags up in the gutters soon with HUD programs among the many public benefits programs that the Republican budget proposal would cut.

Similarly, the report implies that having a refrigerator, stove, and oven means that families are not poor. Families should have these items. It’s whether or not there food to put in the fridge and to cook on the stove that matters! Of course the authors also argue that food is available because, even though there has been an increase in the use of charity food pantries and soup kitchens during the recession, only one poor family in five took food from a pantry and even less ate at a soup kitchen. Would that be because more people applied for food stamps to get by instead? And, by the way, food stamps are another public benefit program on the chopping block, so there probably will be longer lines at the soup kitchen soon.

Although the recession has increased the number of families in poverty, the authors contend that once the recession ends the living conditions of the poor are likely to continue to improve as they have in the past. So I am guessing that the racial wealth gap, which has increased fourfold in the past 25 years, is likely to improve to as well? After all minorities and low-income families were the hardest hit by the recession so they should bounce back pretty quickly, if the report is correct.

The report claims that the creation of a new poverty measure is simply a propaganda tool in President Obama’s endless quest to “spread the wealth.” In other words, the new measure’s focus on income inequality rather than poverty is a way to get the American public to unknowingly buy into the goal of income leveling. Yet, even if the new poverty measure was the “Trojan horse” that the authors claim, the horse has already left the barn because research shows that 92% of Americans already favor income redistribution. 

The report correctly states that the current federal poverty measure, which defines poverty in terms of income and ignores public benefits, undercounts the economic resources provided to poor people. The new poverty measure would correct this by including such benefits into the poverty calculation. Since the new poverty measure is merely a ruse, though, I guess we shouldn’t mention that part.

Perhaps the only thing that the authors do get right is the fact that “accurate information about the extent and severity of poverty is imperative for the development of effective public policies.” They are correct when they say that “misrepresentations of poverty data lead to a misallocation of resources and, by obscuring the causes of deprivation, impedes the development of effective countermeasures.” Unfortunately it’s the data and how government dollars should be allocated that they get wrong. As the report points out, federal and state governments spent $714 billion on means-tested welfare programs in 2008. However, the federal government also spent over $400 billion in asset building policies that mostly benefit the wealthy. So maybe the right allocation would be to redistribute the asset building expenditures and tax credits from the wealthy to the poor. Perhaps then there wouldn’t be a welfare state, because the poor would actually own assets that would help them move away from welfare programs.

• Email This
• Print
• Comments
• Trackbacks

Two minor features of the Illinois Medicaid Reform law that passed last January required approval from the federal Medicaid agency, Centers for Medicare and Medicaid Services (CMS), before they could be implemented. They were to be effective on July 1, but on June 24, CMS denied permission for Illinois to implement the changes. The proposed changes would have called upon applicants for the program to provide pay stubs for a whole month’s income instead of just one paystub (the current policy), and it would have required cumulative paper evidence of Illinois residence in addition to the applicant’s sworn statement under penalty of perjury (the current policy). Current policy also calls for rigorous electronic monitoring of both income and residence and full authority to demand additional proofs if any questions arise. 

While there is anecdotal evidence that there are instances of beneficiaries receiving Medicaid coverage based on incorrect income or residence information, there was never any evidence that significant savings would be gained by implementing the proposed changes. Indeed, there was never any evidence that savings, if any, would exceed the undeniable cost of administering the new policies. Implementation would have demanded new document-processing capacities, changes in notices and computer settings, and more staff.

In fact, the Illinois General Assembly, perhaps forgetting that it had previously mandated these new staff and operations-intensive Medicaid policies, slashed funding for staff and operations in the recently enacted budget. That budget decision would have made successful implementation of these new policies very difficult, if not impossible. The CMS denial of permission to implement the changes relieves Illinois Medicaid officials of having to launch a futile and distracting attempt to implement with no resources.

For several reasons, the proposed policies are counter to the smart trends in Medicaid policy indicated by research, best practices, experience in the leading states, and policy directions in the reform law. It is not cost-effective to administer the program through staff-heavy, old fashioned welfare bureaucracy. There are excellent electronic tools that accomplish good accountability and fraud prevention. Indeed, this is one of the main reforms in the Illinois Medicaid Reform law and a much more promising direction than the old-fashioned measures that CMS prohibited.

What policies like those CMS prohibited accomplish in terms of “savings” is mostly the denial or delay of coverage to eligible people, through red tape, understaffing, and mistakes. This blocks a major cost-saving theme of both the federal and state reforms–primary care, prevention, and early diagnosis. Those are the types of care facilitated by insurance coverage. Without coverage, people must wait for care until their conditions are acute, and they must go to the emergency room or be hospitalized. That is a bad health outcome, and it costs money. Senator Kirk has been quoted claiming that CMS’s action will cost Illinois $800 million over six years. That is clearly not the case. CMS’s action is likely to save Illinois money.

 Finally, this is not a story of “Washington bureaucrats”. CMS was not making a judgment call, but carrying out the will of Congress. In the health reform law, Congress placed a high value on stability in the Medicaid program during the reform process, and provided that states may not cut back the eligibility and services features of their Medicaid programs during reform (which will see a massive infusion of federal funds for Medicaid in the coming years).

The two provisions that Congress blocked in this instance were very minor details in the Illinois Medicaid reform law. The three major themes of that law–care coordination, long-term care rebalancing, and expansion of information technology to improve and streamline the eligibility process and prevent fraud–are proceeding steadily towards implementation.

• Email This
• Print
• Comments
• Trackbacks

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 encompasses many types of financial regulatory reforms, including the issue of preemption of state consumer protection laws.

Protecting consumers’ rights has traditionally been a state duty and in fact, for most of the nation’s history, consumers have depended on states, not the federal government, for protection. For most of the nearly 150 years since national banks were created, such banks have complied with state consumer protection laws. During the past two decades, however, there has been a major expansion of federal preemption of state consumer protection laws in the banking sector lead by the Office of the Comptroller of Currency (OCC), the main regulator for national banks.

The recent trend began in 1994 when Congress passed the Riegle-Neal Interstate Banking and Branching Efficiency Act, dramatically expanding the scale of banking activities national banks could engage in across state lines. After its passage, the OCC asserted that Riegle-Neal gave national banks the power to export the interest rates of both the state where the bank was headquartered and the state in which a branch was located, allowing banks to take advantage of the most favorable interest rates (known as the “most favored lender doctrine”). The most favored lender doctrine has become one of the hallmarks of federal preemption.

Two years later, in 1996, the Supreme Court, in Barnett Bank of Marion, N.A. v. Nelson, invalidated a state insurance law that prohibited national banks from selling insurance in small towns in Florida, holding it was preempted by a federal law permitting national banks to sell insurance in towns with populations of not more than 5,000 people. The Court held that a state law that “prevents or significantly interferes” with a national bank’s exercise of its powers is preempted. The Barnett Bank case set a new standard for preemption decisions and provided the OCC with the basis for a vast expansion of its preemption powers, and for the past 14 years courts have interpreted the Barnett Bank standard to preempt the majority of state laws aimed at regulating national banks’ activities.

In 2004, the OCC issued two sweeping rules—a preemption regulation providing that national banks and their operating subsidiaries were not subject to state laws that “obstruct, impair or condition” a bank’s exercise of its federally authorized powers to make loans or take deposits, and a visitorial powers regulation that restricted the authority of states to examine and supervise national banks, making such examination and supervision the exclusive province of the OCC. This aggressive preemption of state consumer protection oversight and enforcement figured prominently in the recent economic crisis and led to the loss of millions of dollars by consumers due to abusive lending and other financial practices.

The preemption reforms contained in Section 1044 of the Dodd-Frank Act recognize that states are closer to where abuses are occurring and that states can often act more quickly than the federal government to stop such abuses. The law makes clear that state laws that provide greater protection than federal law are not necessarily preempted. According to the statute, the OCC may only preempt laws if (1) they discriminate against national banks; (2) a given law “prevents or significantly interferes with the exercise by the national bank of its powers,” as stated in the Barnett Bank case; or (3) the state law is preempted by another federal law. Additionally, the law requires that preemption determinations must be made on a case-by-case basis with respect to particular state laws and can no longer rely on blanket preemption determinations like the OCC’s 2004 regulations. Also, prior to making a preemption decision the OCC must consult with the Consumer Financial Protection Bureau (CFPB) and take its views into account.

Furthermore, the standard for judicial review of OCC rulings was also changed by the new law. Previously, courts accorded a high level of deference to OCC rulings under the Chevron v. National Resources Defense Council case, which held that courts must defer to an agency’s reasonable construction of statutes administered by that agency. Under the Dodd-Frank Act, however, courts must now apply the standard from Skidmore v. Swift & Co., assessing the thoroughness of the OCC’s consideration, the validity of the OCC’s reasoning, the consistency with other determinations made by the OCC, and any other factors that the court finds persuasive and relevant to its decision.

Finally, the Dodd-Frank statute upholds the Supreme Court’s decision in Cuomo v. Clearing House Association. allowing states to sue national banks and federal thrifts to enforce non-preempted state laws. This may result in more activity from state attorneys general and a dramatic increase in enforcement actions by state agencies. In short, the Dodd-Frank preemption provisions explicitly and deliberately overturned the OCC’s previous regulations and limited its ability to continue to preempt state consumer protection laws. 

Yet, when the OCC released its new proposed preemption rules in May, it merely re-adopted its broadly written 2004 regulations, completely ignoring both the substantive and procedural changes required under Dodd-Frank. Specifically, the OCC’s proposed rules evade the statute by allowing the OCC to preempt state laws that merely “obstruct, impair or condition” bank operations. Also, rather than make determinations on a case-by-case basis as required under the law, the OCC proposes to keep the across-the-board preemptions in the 2004 regulations in place. 

The Dodd-Frank preemption reforms will be meaningless if they merely preserve the status quo. By specifying the limited circumstances under which existing OCC preemptions can occur, Dodd-Frank ensures improved consumer protections. Tell Congress that you support preemption reforms and join the growing list of advocates, such as the Shriver Center, that are fighting for stronger consumer protections.

• Email This
• Print
• Comments
• Trackbacks

Illinois’s fiscal year 2012 (FY12) budget saga ended last week, at least for the time being. Governor Quinn approved a final budget, exercising his amendatory veto to make some further spending reductions. The General Assembly will meet later in the year to take action to approve or reject the amendments. 

The general trend of this budget is both better and worse than it could have been. Illinois needed to take major steps in a balanced approach to solving the state’s immense fiscal crisis. It needed to generate significant new revenue while also getting control of the spending side. In January, the General Assembly passed and the Governor signed legislation that made major progress on the revenue side. Without that step, the carnage in the budget would have been unthinkable, and Illinois would probably be in default on many fronts. On the spending side, however, while austerity was needed and expected, the final budget includes far deeper cuts in programs that serve Illinois’s most vulnerable populations, and some of its most important priorities, than were needed.

The final state budget includes about $2 billion less in spending than Governor Quinn had proposed at the start of the FY12 budget process in February. Some of the most damaging cuts for low-income people and other vulnerable populations are:

• General State Aid to schools. The final budget is $400 million less than the Governor’s proposed budget. In addition, $400 million in federal funding that had been provided pursuant to the American Recovery and Reinvestment Act has ended. The greatest impact will be felt by school districts that rely more heavily on state aid because they are low-income and have lower local property tax revenues.
• Community mental health services – cut by $55 million, or 20%.
• Temporary Assistance for Needy Families (TANF) – 1/3 less funding allocated to TANF in FY12 than the amount needed to serve the current caseload, which has grown due to the recession, persistent high rates of long-term unemployment, and improvements in program access.
• Elimination of the Transitional Assistance program that provided a small amount of income support to 9,000 not employable adults in Chicago.
• Cuts of up to 50% in programs for very high-risk children, including teen after school and children’s mental health programs.
• Early Childhood Block Grant – cut $17 million, a 5% reduction on top of last year’s 10% reduction. Will result in 4,000 fewer three- and four-year-olds being enrolled in preschool for all and 1,000 fewer high-risk children aged 0-3 receiving developmental screenings and other services.

These severe cuts have been justified as necessary to “live within our means,” but the truth is that these cuts were not dictated by economics but rather were the product of political considerations.

The adoption of a temporary increase in the state income tax from 3% to 5% during the January “lame duck” session, just before the newly-elected legislators took office, triggered the series of events that led to these cuts. Speaker Madigan’s immediate concern in the wake of the Democrats’ decision to approve a tax increase was the size and strength of the backlash his members would face for that vote. He used the FY12 budget process to attempt to insulate them from this backlash.

The first thing the Speaker did was to make the budget process in the House bipartisan, a departure from past practice. Speaker Madigan and Minority Leader Cross collaborated closely throughout the budget process, and rank-and-file Republican members were included in budget deliberations.

The next step was to adopt a lowball revenue estimate that would necessitate bigger than needed cuts. The House ignored the revenue estimate of the General Assembly’s own bipartisan revenue-estimating agency and instead worked off an estimate prepared by the Governor’s Office of Management and Budget, making some downward adjustments. As a result of the lowball estimate it used, the House had $1 billion less to appropriate than the Senate. When, later in the session, the Governor’s office, based on more recent economic information about the performance of the Illinois economy, revised its estimate upward to the Senate level, the House did not come along.

Next the House locked itself into the lowball revenue estimate by passing a resolution that required any revenues collected in excess of the lowball estimate be solely devoted to paying off old bills, preventing such additional revenue from being used to ameliorate the effects of harsh budget cuts.

The House and Senate passed separate budgets based on different revenue estimates. There was no real effort to reconcile the two budgets, as House members adhered to their resolution and refused to apply any additional revenues to reduce the cuts. No compromise was offered as the May 31 deadline for adopting a state budget without needing a super-majority loomed. Rather than bring the Senate Republicans, who had earlier proposed a budget with several billion more in cuts, into the budget process, the Senate Democrats capitulated to the Speaker and passed the House budget.

Senate President Cullerton made a last-ditch attempt to restore about half of the House’s cuts by attaching an amendment to the bill authorizing the expenditure of funds on capital projects, e.g., roads. When Gov. Quinn announced that summer construction projects would be halted in mid-June if the capital bill was not passed by both Houses, it appeared that he and President Cullerton might have teamed up to exert leverage on the Speaker. But in the end, Gov. Quinn called on the Senate to give in and drop the amendment so that construction could continue as scheduled. 

How could deeper-than-necessary cuts have been avoided? The Responsible Budget Coalition and others championed a number of reasonable proposals to obtain the revenue needed to avoid devastating cuts without raising taxes. The most obvious one of these was to revise the revenue estimate upwards. Another recommendation was that Illinois “decouple” from a change in federal tax law that accelerated the depreciation schedule for big corporations that make large equipment purchases. Under Illinois’s tax code, absent action by the General Assembly, Illinois tax law would automatically provide this tax break as well. In the past, Illinois has de-coupled from similar changes in federal tax law to avoid major revenue losses. But this time around decoupling was falsely labeled and rejected as a “tax increase,” even though no one’s taxes would have gone up (they just wouldn’t have gotten a windfall reduction in state taxes). Decoupling would have saved the state $600 million in lost revenue and allowed the state to avoid making all of the painful cuts described above.

So what are the prospects for the future? We said above that the general trend was at least partially positive because the revenue increase balanced the state’s approach to the fiscal crisis. Now Illinois needs to return to policy considerations (instead of just political ones) before making any further cuts to vital programs and priorities. It needs to find better ways to deploy state revenues, so that more is dedicated to high priorities in the general revenue fund as opposed to lower priorities in special funds that are off budget. It needs to find a way to address the state’s $4 billion of unpaid bills.

What this budget also shows is that there was very little fat to cut. Much of what was cut was not fat at all, shortchanging wise investments like early childhood education and tragically abandoning vulnerable people. The income tax increase enacted in January is only temporary, with a large part of it phasing out after four years. The Illinois revenue problem was structural -- we did not have enough revenue to pay for the important priorities that Illinois residents rightly expect from their government. That problem was well known before the recession hit. This year’s budget includes the new revenue, makes the pension payment for the first time in years, was overly austere on the spending side – and STILL did not pay the bills. Illinois needs to reconcile itself to the fact that the revenue increase must be permanent. 

• Email This
• Print
• Comments
• Trackbacks