Quick Hit Ellyn Fortino Tuesday April 15th, 2014, 4:43pm

Illinois Social Service Providers Brace For A 'Tough' Budgetary Year

The philanthropic and non-profit community in Illinois is bracing itself for what is expected to be a "painful" budgetary year.

"It's going to be tough," said Valerie Lies, president and CEO of the Donors Forum, a member association working to strengthen the state's philanthropic and non-profit sector. "I feel like we haven't even started to dig ourselves out, and I think [this] gubernatorial election will be an important one."

The Donors Forum hosted a state budget discussion Tuesday morning in Chicago. Panelists included Rich Miller, Capitol Fax publisher and a Crain’s Chicago Business contributor; Celena Roldan-Moreno, executive director of Erie Neighborhood House, a Chicago-based community service agency that assists low-income and immigrant families; and State Rep. William Davis (D-Hazel Crest), who chairs the Elementary and Secondary Education Appropriations Committee in the House.

Last month, Gov. Pat Quinn unveiled his budget for the 2015 fiscal year, which starts July 1, as well as a five-year budget blueprint. The governor put forward two budget scenarios for the upcoming year — one that accounts for an income tax hike extension and one that does not. Come January, the state's 2011 temporary income tax increase will begin to phase out unless Springfield lawmakers take action.

Quinn, who is up for re-election and faces Republican venture capitalist Bruce Rauner as his GOP opponent, is recommending the budget plan that continues the temporary income tax increase. Rauner wants to see the income tax hike sunset as planned, though he has not spelled out what he would do, if elected, to make up for the lost revenue.

The budget scenario without a tax increase extension comes with a projected $3.6 billion shortfall. And that would mean some $900 million worth of cuts just to the Illinois Department of Human Services (DHS), said Grace Hou, president of the Woods Fund Chicago, a grant-making foundation. Hou said she recently learned of the potential budget cuts from the DHS secretary.

Meanwhile, Davis' education appropriations committee started its budget work last week.

"This is going to be a painful year," the representative warned.

The K-12 education budget faces a $967 million deficit based on the scenario in which the income tax increase phases out as planned in January.

The representative said he is trying to use the budgeting process "as a way to move the conversation about revenue."

"For me, revenue is a broad conversation, whether it's a graduated income tax, extending the current income tax, corporate loopholes, you name it," Davis continued. "I didn't want to try to go about it from the standpoint of, OK, what if we get this extra money, what do we do? I wanted to show them the pain that exists if we don't do it, not only the cuts that would become as a result in general state aid, early childhood education — everything would have to get cut. There's really no real scenario that exists where we're not making cuts in one or several of the major categories out of the K-12 budget."

Overall, the current environment in Springfield for human services providers, non-profits and other groups is "not great," Miller told the crowd.

"[State] grants themselves are getting another closer look right now, because the U.S. attorney in Springfield has been indicting a bunch of people who've got state grants ... and [they are] investigating plenty more," Miller said, adding that the state House recently passed a resolution calling on Auditor General William Holland to look into the spending of the Chicago Area Project "not because they did anything wrong necessarily, but because they were heavily associated with the governor's anti-violence initiatives."

"You take that, and you put it on top of the budget situation ... and you've got a pretty darn difficult environment in Springfield," he added. 

The somewhat good news is that the state projects that its backlog of unpaid bills could drop to $5.6 billion by the end of the current fiscal year, which is June 30. The state's bill backlog reached a high of $9.9 billion back in 2010.

"They'd like to get it down another $3 billion because they say in any big corporation, $3 billion would represent the usual payment processing time, so it's another $3 billion that they have to find," Miller said. "Now, they're not going to do it this year, they're not going to next year, or the year after. This is a multi-year process, meaning that even when revenues do come in, a lot of those revenues are going to be used to pay down that past-due soft debt to providers." 

Overall, Miller told the audience that even if the temporary income tax increase does become permanent, "There's not going to be a huge amount of bucks in the pot for people like yourselves or anyone else to get."

"It's just the cold, hard reality of a state that was completely unprepared for the international financial crash," he said. "When the world went down, the people running the government in this state barely took notice. Why? Because they were involved in a political civil war amongst themselves. Rod Balgojevich was governor back then."

The Chicago community service agency Erie Neighborhood House, which has a budget of roughly $7.5 million, had $1.5 million worth of unpaid state bills as of last month.

"We've tapped into our line of credit for every single payroll for the last seven to eight months," Roldan-Moreno stressed, adding that not all organizations waiting for state payments have the ability to do that, meaning some cannot pay their employees or provide programs.

Erie Neighborhood House is "planning for the worst" this upcoming year, Roldan-Moreno said. The service agency is 70 percent government funded, with over 50 percent of its funding coming from the state, she said. 

Going forward, the organization is looking to switch its funding approach by placing more of a focus on pulling in additional federal dollars. Federal funding is often available for various service providers, Roldan-Moreno said, but it tends to be hard to get because the application process is so "daunting." 

The process of becoming a federal government grantee is "incredible onerous," Lies added.

"There really are some barriers, but I think that if you're an organization like Erie House that has the capacity, it's really smart to start looking to those other sources of income."

Davis implored non-profit organizations to re-think their strategy when it comes to advocating for state revenue.

"I found a lot of situations where [the boards of directors] send you out to do the dirty work and talk to me about increasing revenue for your programs, but your boards, who sometimes are Republican and conservative, don't agree with any of the revenue enhancements that we're talking about to get you the additional dollars that you want," Davis explained. "If your boards aren't willing to step up to the table and at least acknowledge that we need to have it, then I've been telling people, 'Don't even bother to come talk to me. I don't want to hear it.' To me, this is a conversation that we all have to have together."

Also, people working in the human services sector in Illinois should encourage their colleagues located in conservative or Republican districts "to get out and start going after those [General Assembly] members and talking to them about the needs," the lawmaker added.

In response to Davis' comments, Lies acknowledged that the boards at non-profit organizations, who "represent a broad spectrum of society, very often, Republican," do need to be educated and activated. She stressed the importance for groups to understand the relationship "between the cuts in spending and programs for their organizations and the inability of the state to ensure that there are fair and sustainable revenues for the future."

"We've been so focused on 'don't cut me, don't cut me,' that we really need to have a much more comprehensive playing book, I think, about this work," she added.

During questions and answers, Kathy Miller with the Center for Tax and Budget Accountability asked panelists whether House Speaker Michael Madigan's proposed "millionaire tax" constitutional amendment that he abandoned last week was a "trial balloon" for a graduated income tax proposal. Madigan's now-dead measure sought to apply an additional tax to the incomes of Illinois millionaires as a means to bring in extra money for schools. 

"That's not the impression that I got when (Madigan) brought it to us at caucus, that it was anything with regard to the graduated tax," Davis responded. 

Miller chimed in, noting that the House is "way, way short" of the votes needed to pass a measure seeking to place a question on the November ballot about whether Illinois should replace the current flat income tax rate for all citizens regardless of income with a graduated tax rate.

"They didn't run the proposal in the Senate ... before break, and that was an indication that they didn't even have the votes in the Senate," Miller said, explaining that the Senate is the more liberal of the two chambers.

Miller likened a graduated income tax in Illinois to a "fantasy."

"It's concocted by the left and promoted on the right in order to raise more money," he said.


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