Progress Illinois

The backlog of payments to Medicaid providers is a serious problem in Illinois. When these notoriously low reimbursements to primary care physicians administering care to Medicaid patients don't arrive on time, it makes the doctors increasingly reluctant to treat that population. That diminishes health care access for some of the state's most vulnerable citizens, thus raising the potential for public health outbreaks and preventive disease and deaths. It's an unsound system, both economically and morally.

Since the recession hit, Illinois has been making payments to most providers by the skin of its teeth, thanks almost exclusively to President Obama's stimulus bill, which provided $2.9 billion in short-term federal aid. Congress could pass along a little more help if the Democrats' health care reform bill passes; the version that the House approved provides $23.5 billion for state legislatures to pay a higher share of all Medicaid costs -- 66 percent on average, up from 57 percent prior to the stimulus -- for an additional six months in 2010.

This morning, the state also took some independent action aimed at solving this problem, as Gov. Pat Quinn signed into law HB 542, sponsored by Rep. Dan Reitz (D-Sparta) and Sen. Jeffrey Schoenberg (D-Evanston).

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Earlier this week, the State Journal-Register asked the candidates contending for their respective Illinois gubernatorial party nominations a series of questions about state pension system. According to the paper, most called it their "high" or "highest" priority. If the pols want to get a better sense of what type of shape the system is in, they should flip through the report released today by the Pension Modernization Task Force, a 19-member group assembled by Gov. Quinn earlier this year.

Some members of the media have already maligned the 19-member coalition. Most notably, the Tribune called the report a "less than candid document" even before it was released. But as the debate moves forward about how to crawl out from under the staggering accumulated debt, it will be essential reading. Here's what the panel concluded:

Unfunded liability growth:

Between the FY 1996 and FY 2008, Illinois' total unfunded pension liability ballooned by $35.7 billion. The primary cause was insufficient contributions from the state, which added $18.8 billion to the shortfall.  From the paper:

The deadly combination of nearly 30 years of systematic State underfunding of its employer contributions to the pension systems, followed by the cataclysmic decline in asset values caused by the national meltdown in financial markets over the last year, combined to create an all-time high in the State's unfunded pension liability. (Page 44)

Other factors -- including "more retirements than expected, rates of mortality that did not meet actuarial projections, and terminations that did not meet actuarial projections" -- added $8.5 billion to the tally.  The size of the pension benefits played only a marginal role, according to the report. "In sum," the task force writes, "the main culprit is the State’s inability to fund its pension systems according to actuarial [sic] principals."

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Here's the latest in health care news ...

A Silent Stimulus?

To weather the unrelenting economic recession without slashing services, state governments are going to need more assistance from Washington. Luckily, some help is on the way. And it's coming via an unlikely source.

Today, the Washington Post reports that wedged into the House health care reform bill passed two weekends ago was $23.5 billion directed at states to cover short-term Medicaid costs. Here are the details:

Medicaid relief for states comprised one of the biggest pieces of February's $787 billion federal stimulus package, but that funding will run out next year, halfway through states' next round of spending plans.

Under the Affordable Health Care for America Act, the federal government would continue to pay a higher share of all Medicaid costs -- 66 percent on average, up from 57 percent before the stimulus -- for an additional six months, and erase in one fell swoop a major chunk of states' projected shortfalls for the coming year.

If enacted, this would be a huge boon to state lawmakers clawing to close projected 2011 budget gaps in the coming months. The provision is not included in the Senate version yet, but there is still plenty of time to insert it.

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After watching again and again as Illinois lawmakers relied on financial gimmicks to pay for core services, budget experts knew it was only a matter of time before Springfield would be forced to confront the state's ballooning structural deficit.

Last week, the Pew Center on the States confirmed that the moment of reckoning is near, ranking the Land of Lincoln among 10 states now on the brink of financial peril.  The Pew researchers recounted how Illinois lawmakers -- in order to avoid generating more revenue by modernizing the income and sales tax systems -- have resorted to short-sighted budget maneuvers, such as delaying bill payments and skimping on the state's annual pension contributions.

Now the nation is in a recession and those bills are coming due, leaving Illinois' an estimated $12.8 billion in the hole in FY 2011.

"It's like a balloon mortgage," University of Illinois at Chicago public policy professor Michael Pagano explained during a budget roundtable on WTTW's Chicago Tonight last Thursday. "At the end of the period you have to make a big payment for what you've been consuming. We've now been consuming a lot of state resources for the past eight years without paying for them." Watch it (full video here):

For some perspective consider this: On a per capita basis, Illinois is one of the lowest-spending states when it comes to core services.  Yet we still can't generate enough revenue to cover our obligations.  Why?  Because we are one of a mere mere seven states with flat income tax system.  Moreover, our 3 percent rate remains lower than the other six (Colorado: 4.63 percent, Michigan: 4.35 percent, Tennessee: 6 percent, New Hampshire: 5 percent, Pennsylvania: 3.07 percent, and Utah: 5 percent).

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Over a year ago, we wrote our first post advocating in favor of federal assistance for state governments. The reasons were simple enough: a slowing economy causes revenues to decline and demand for services like Medicaid to rise; recessions always hit states later than the federal government; and the General Assembly is required by law to pass a "balanced" budget.

The Obama administration delivered with its $789 billion economic stimulus bill. Illinois received $2.9 billion in Medicaid relief, $1.6 billion in education money, and another $374 million in flexible state block grants. (The last figure was supposed to be considerably higher, but was cut during negotiations to appease "conservative" Democrats in the Senate.) These resources prevented devastating cuts to the state's human care infrastructure and saved thousands of jobs, a fact conservative critiques of the stimulus plan consistently overlook.

But Illinois' FY 2011 budget deficit will be even wider than it was this year.  Indeed, it's currently estimated at $12.8 billion, thanks to declining tax receipts, loads of borrowing, and the fact that the remaining $1.4 billion in federal aid is scheduled to run out at the end of 2010. Nationwide the situation is no different, with states facing their largest collective budget shortfall in recent memory.

In a new paper published today, the Center for Budget and Policy Priorities (CBPP) offers a novel solution for policymakers in Washington: buoy states by approving additional fiscal relief.

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Back in July, The Chicago Reporter exposed one of the Prairie State's dirtiest secrets. Not only are dozens of Illinois nursing homes ranked among the worst in the nation (PDF), but African-Americans are increasingly likely to receive sub-standard medical care and be housed in facilities with dangerous criminals.

Social service providers were not surprised. For years, they've witnessed firsthand the way the poor have been dumped into these homes simply because affordable housing, drug treatment programs, and mental health facilities are in increasingly short supply. The private nursing home industry has been more than eager to fill this void (and, of course, cash in on the flow of Medicaid reimbursements).

In a subsequent investigation, the Tribune revealed how lax state regulation paved the way for the current situation. More from the Trib's investigation:

Mentally ill patients now constitute more than 15 percent of the state's total nursing home population of 92,225, government records show, and the number of residents convicted of serious felonies has increased to 3,000. Among them are 82 convicted murderers, 179 sex offenders and 185 armed robbers [...]

Just 50 nursing homes in Illinois house more than half of the 3,000 offenders, according to the Tribune's analysis. In Chicago, many of those homes are clustered in a few ZIP codes in Uptown and on the South Side.

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This week, the 19-member Pension Modernization Task Force will finalize its report on how Illinois should reform its retirement benefit program for government employees. The panel includes lawmakers, labor leaders, business representatives, and public pensioners.  Because they're still deliberating, we aren't sure exactly what their recommendations will be. But details are beginning to emerge. According to reporting from Doug Finke of the State Journal-Register, those hoping to move to a two-tiered system won't be happy with the results:

Another task force on Illinois’ massive state pension problems is set to wrap up its work next week, but it appears the group will not formally recommend changes to pension benefits as a way to save money. [...]

A draft copy of the task force report specifically blames lack of state funding — not too-generous benefits — for the financial problems facing the systems. The draft report says comparisons were made to public employee pension systems in other states and that Illinois’ systems “were generally found to be in the statistical median.”

The draft report also asserts that the cost of public pensions, measured as a percentage of payroll, are comparable to or less costly than private-sector retirement programs. The Civic Committee and Civic Federation of Chicago disagreed with that analysis. One version of the draft report included those disagreements; in another draft version circulated last week, the disagreements were deleted.

While we credited the Tribune editorial board for their TIF commentary today, their reaction to this news wasn't as reasonable.

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Two weeks ago, state lawmakers wrapped up the fall veto session and headed home with hopes that Illinois' financial crisis wouldn't follow them back to their own districts. So far, the bad budget news has trickled in slowly enough that many have been able to distance themselves from the severity of the state's financial situation. But they won't be able to dodge blame forever. For example, adding millions in school reimbursements to the growing pile of unpaid bills is weighing heavy on cash-strapped districts. And in places like the Central Illinois town of Pekin, the backlog -- coupled with other uncertainties and cutbacks -- is growing too big to sweep under the rug. The Pekin Daily Times explains:

The state has a multi-billion-dollar deficit. Inflation is down so far that school districts are limited in how much they can raise taxes to bring in new revenue. Corporate Personal Property Replacement Taxes and sales taxes are down.

General state aid funding for schools is running three months behind. Programs like special education and transportation will not be funded at the full levels. The state has not yet received an application for additional federal American Recovery and Reinvestment Act funding, which was used in lieu of state-generated general state aid payments.

Illinois State Board of Education Chair Jesse Ruiz summed it up best when warned that if the state doesn't generate new revenue for schools next year, "we fall off the cliff."

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If there's one thing observers of Illinois politics can agree on, it's that next year's state budget deficit is going to be extraordinary. Not only are billions in federal stimulus money scheduled to dry up, but state officials will soon have to pay out $3.5 billion in pension notes and cover $3.9 billion in unpaid obligations from the current fiscal year. Compounding the problem are tanking revenues and the need to pay back $205 million in short-term loans used to cover college aid.  Now the projected 2011 shortfall has hit a whopping $12.8 billion, according to the Voices for Illinois Children's (VFIC) latest policy memo.

VFIC puts the staggering deficit in perspective:

How much is $12.8 billion? This amount is equivalent to total state General Funds spending for the State Board of Education and the departments of Human Services, Children and Family Services, and Public Health. The entire General Funds budget — aside from mandatory spending for pension costs, debt service, and other statutory transfers — is about $26 billion. Closing a $12.8 billion gap without new revenue would require devastating spending cuts, on top of those enacted this year. If such reductions were applied across the board, they would slash 50 percent of funding from every state program; if not distributed equally, many specific cuts would run far deeper.

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This morning we flagged an ominous warning from State Sen. Donnie Trotter (D-Chicago), who predicted that "drastic cuts" to state services are on the horizon. With the backlog of bills already topping $3.7 billion and an estimated $11 billion shortfall looming over next year, there's no question that Illinois is running on fumes at the moment.  During a roundtable on WTTW's Chicago Tonight yesterday, Chicago Democratic Reps. Art Turner and Greg Harris pointed out the backdoor cuts that are already occurring across the state as a result of the General Assembly's failure to pass a responsible budget this year.  To illustrate the ripple effect, Turner reported that there is a severe shortage of amenities -- such as walkers -- at Stroger Hospital in Cook County, spurring some local residents to search for donations.

Host Carol Marin later asked the panel -- which included GOP Reps. Jim Durkin (Western Springs) and Suzie Bassi (Palatine) -- "Does it feel like the state's on fire and nobody can find the hose?" Watch an excerpt from their conversation:

TURNER: Absolutely. I have a relative that was just admitted to the hospital who informed me that he did not get a wash cloth, toothbrush, or any welcome to the hospital kit. And here was there for three days. It wasn't until they found out that his parents were there that they brought out the gowns and things. I went by to visit him and the nurse told me that the vendor has not been paid. So they're not dispensing walkers, slippers. My neighbor is a physical therapist and she's actually collecting walkers in the community to take to the hospital.

MARIN: Do you hear this from other constituents, Rep. Harris?

HARRIS: We hear service organizations are not able to pay their employees and take holidays because the state is not able to pay its bills. And they're behind in paying people in a timely manner who are doing the after-school programs for our children. It's only going to get worse until all of us take responsibility for what we need to do and bite the bullet.

"The numbers keep getting worse," Turner said elsewhere in the segment. "We have not seen a baseline for how bad it is." 

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