Bloomberg News

‘Toughest’ Illinois Budget May Cut Medicaid by $2.7 Billion

February 28, 2012

(Updates with governor’s comment in second paragraph.)

Feb. 22 (Bloomberg) -- Illinois Governor Pat Quinn proposed a $33.8 billion spending plan that would cut $2.7 billion from the Medicaid health-care program for the poor.

“Our rendezvous with reality has arrived,” Quinn told lawmakers today in Springfield, capital of the fifth-most- populous U.S. state. The plan, an increase from the current $33 billion, also would close two prisons and two psychiatric hospitals.

It’s the “toughest budget,” Jack Lavin, Quinn’s chief of staff, told reporters yesterday. The proposal would reduce spending in most departments an average of 9 percent. Funding for elementary and secondary education would see a 1 percent increase. The state faces $9 billion in unpaid bills.

The federal Census Bureau reported in December that U.S. state and local-government tax revenue rose 4.1 percent in the third quarter, the eighth consecutive gain. Yet even after record corporate and income-tax increases last year, Illinois faces fiscal 2013 with pension and health-care costs that are ravaging its finances.

Pension expenses have tripled since fiscal 2008, Lavin said. Next year’s spending on retirements will reach $5.2 billion, up from $4.1 billion in the current fiscal year that ends June 30, he said. Payments into the funds are projected to consume 15 percent of the general-fund budget next year, compared with 6 percent in fiscal 2008.

Silent Audience

Quinn today called for closing tax loopholes and mending the pension in a 28 minute address that was uninterrupted by applause.

“Over the past 35 years, too many governors and members of the General Assembly have clung to budget fantasies rather than confronting hard realities,” Quinn said.

The governor didn’t provide specific Medicaid cuts, nor did he detail how he would change the pensions. He called on a special legislative panel to report recommendations to him by April 17.

Republicans quickly criticized Quinn’s lack of detailed recommendations.

“He’s going to have to step up and be a real leader in this process. So far, we haven’t seen that,” said Senator Bill Brady, Quinn’s Republican opponent in 2010. “He’s got no one else to blame but himself.”

‘Recipe for Collapse’

Illinois had its general-obligation bond rating reduced Jan. 6 by Moody’s Investors Service to A2 from A1, making it the company’s lowest-graded state. The unfunded pension liability in 2010 was $85 billion, and the system has assets to pay 45 percent of promised benefits, according to a study by Bloomberg Rankings. It is the lowest so-called funded ratio of any state.

Illinois’s unpaid bills may more than triple to $34.8 billion by 2017 unless lawmakers and the governor immediately bring Medicaid and pension spending under control, the Chicago- based Civic Federation said in a report. The backlog of bills would nearly equal the anticipated budget for fiscal 2017, the report said.

Jerry Stermer, a senior Quinn adviser, said the mounting cost of health care for the poor is “a recipe for collapse of the Medicaid program.”

--Editors: Stephen Merelman, Flynn McRoberts

To contact the reporter on this story: Timothy Jones in Springfield at tjones58@bloomberg.net

To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net


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