SPRINGFIELD – As Illinois' budget impasse extends into the new year, and the need for comprehensive restructuring and reform grow increasingly critical, Republican legislative leaders and the Governor continue to offer reform proposals intended to help right the state’s fiscal course.
On Jan. 21, Republican legislative leaders joined Gov. Bruce Rauner in endorsing a pension reform plan that would save taxpayers $1 billion each year. The plan is a refined version of pension reform legislation embraced in 2013 by many Republicans, Democrats and unions leaders—specifically written to comply with Illinois' Constitution. The Supreme Court has thrown out as unconstitutional more comprehensive pension reform. Illinois’ pension obligations consume almost 25 percent of the state’s budget, a required contribution that directs much-need resources away from other top priorities.
Another proposal introduced during the week would give Chicago Public Schools the tools to fix its serious fiscal crisis—without bailing the system out at the expense of taxpayers in suburban and downstate communities. On Jan. 20, Republican leaders outlined a plan that creates an independent authority to assume control over the school district that is calling on state taxpayers to pay for its $480 million shortfall.
Gov. Rauner is expected to once again stress the need for economic recovery and comprehensive reform of state government during his second State of the State address on Jan. 27.
Such reform is particularly important according to a recent Chicagoland Small Business Economic Outlook Survey that shows a mixed response from Illinois’ business owners with it comes to the state’s economic stability. The survey indicated that while most employers are planning to grow their business this year, they continue to lose confidence in local, state, and national economies.
Republican leaders call for pension reform proposal that saves taxpayers $1 billion
Facing an unprecedented unfunded pension liability of $111 billion, the highest in the country, Gov. Rauner, Senate Republican Leader Christine Radogno and House Republican Leader Jim Durkin are calling for passage of a pension reform plan that the leaders said would save taxpayers $1 billion a year.
The Republican leaders are supporting a pension reform plan, first proposed by Democrat Senate President John Cullerton, founded in a “consideration model” that gives government employees a choice in the future benefits. The plan is a refined version of pension reform legislation embraced in 2013 by many Republicans, Democrats and unions leaders—specifically written to comply with Illinois' Constitution.
Under the proposal, employees could choose between keeping compounded yearly cost-of-living adjustments, but their future pay raises would not be calculated into their retirement benefits. Or they could choose reduced cost-of-living adjustments, but their pay raises would be calculated into their retirement benefits.
Gov. Rauner said he believes with the proper wording, this pension reform legislation will be constitutional. Last year, the Illinois Supreme Court threw out as unconstitutional a more comprehensive pension reform law.
The Republican leaders stressed that if implemented, the bipartisan plan could free up funding for human services, education, and other programs. At this time, nearly 25 percent of the state’s General Funds budget is dedicated to pension payments—almost $8 billion.
Leader Durkin said that if President Cullerton introduces the plan in the Senate, he will introduce the proposal in the House of Representatives.
Republicans offer lifeline to Chicago Public Schools
Chicago Public Schools (CPS) are facing a $480 million budget shortfall, a fiscal crisis that the state’s leading Republicans say demands an overhaul of the current system—not a bailout of CPS at the expense of taxpayers in suburban and downstate communities. Republican legislative leaders introduced a proposal on Jan. 20 that allows for the creation of an independent authority to assume control over the school district that is calling on state taxpayers to pay for its $480 million shortfall.
The proposal offered by Republican leaders is consistent with current state law governing all other school districts in Illinois, which allows the State Board of Education to remove the current CPS Board of Education and establish an independent authority to run the district. The independent authority would run the district until the State Board of Education determines that CPS is no longer in financial difficulty. The legislation makes it clear the state is not liable for the school district’s debt.
Despite a substantial financial advantage of about $600 million dollars in state funding, Chicago Public Schools and its leadership—buoyed by years of support from the state’s Democrat legislative majority—have dug a financial hole for the district that isn’t easily overcome. In response, CPS hopes to rely on long-term bonds to pay for hundreds of millions of dollars in short-term operating expenses, a response Republican leaders say is no solution to the district’s fiscal woes.
Republican leaders are also considering giving Chicago the financial tools to declare bankruptcy, if necessary, and to give CPS the power of bankruptcy protection as well. Two dozen other states have enabled struggling municipalities to file for bankruptcy.
CPS downgraded again
Just a short time after Republican legislative leaders announced a proposal on Jan. 20 to help Chicago Public Schools with their ongoing financial crisis, Fitch Ratings downgraded CPS’ credit rating to B-plus, moving CPS deeper into “junk” status.
It’s the latest mark against a school district facing a nearly $500 million budget shortfall, and which faces thousands of teacher layoffs and the potential for a massive strike.
Fitch Ratings lowered the rating due to the district’s ongoing budget deficit and unfunded pension liability.
The Republican-backed proposal allows for the creation of an independent authority to assume control over CPS, which is consistent with current state law governing all other school districts in Illinois.
Last week, Standard and Poor’s lowered CPS’ rating two notches to the agency’s B-plus status.
Governor Rauner to deliver State of the State address next week
On Jan. 27, Gov. Rauner will deliver his second State of the State address. Like 2015, the Governor’s address is expected to focus on job creation, making Illinois more competitive, boosting the state’s economy, and stressing the need for a balanced budget and structural reforms to state government.
Rauner’s speech comes as the state is operating without a fiscal year budget and is on pace to spend $4.6 billion more than it’s expected to take in for the fiscal year, which began July 1, 2015. Much of Illinois government has remained operational due to spending authorized by court orders and consent decrees.
Republicans have joined the Governor in calling for structural reforms to state government and passing a balanced budget as soon as possible. Democrats, however, have refused to compromise on reforms, instead focusing on another tax increase as a way to fill the budget hole.
During the State of the State address, the Governor generally reports on the condition of the state and outlines his top priorities. It differs from the budget address, which is scheduled for Feb. 17.
Chicagoland survey shows most small businesses planning to grow
There is some good news for job seekers and local economies in the annual Chicagoland Small Business Economic Survey. According to the survey, 76 percent of respondents plan on growing their business in 2016. In addition, 38 percent expect to hire more workers, and 52 percent plan on expanding within Illinois, up from 45 percent last year.
On the other hand, businesses are also losing confidence in local, state, and national economies. Just 28 percent of business owners think Chicagoland’s economy will strengthen over the next year, down from 42 percent the year before. Also, nearly half of respondents feel negatively impacted by local taxation.
The survey also reports that the top three areas small businesses need support are marketing, technology and business planning.
State Senator Dave Syverson (R-Rockford) says this survey shows the need for structural reforms to state government, reforms that bring confidence to the state’s economy, create jobs, and allow Illinois to be more competitive.