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Illinois governor takes aim at pensions, healthcare costs in budget

CHICAGO (Reuters) - Illinois Governor Bruce Rauner proposed a $75 billion fiscal 2019 budget on Wednesday that would be balanced if lawmakers agree to push some big-ticket costs onto local school districts and universities.

FILE PHOTO: Illinois Gov-elect Bruce Rauner speaks to the media after a meeting with U.S. President Barack Obama and other Governor-elects from seven U.S. states at the White House in Washington, DC on December 5, 2014. REUTERS/Larry Downing/File Photo

The budget for the fiscal year starting July 1, which includes $37.6 billion in general fund spending, would save money by phasing out state funding for certain pension costs.

It also seeks to cut $470 million from employee healthcare costs by removing that benefit from collective bargaining with unions. With health coverage and pensions accounting for 25 percent of state spending, the Republican governor said Illinois needs to make changes.

“If we don’t, our finances will continue to deteriorate, our economy will remain sluggish and our tax burdens will stay high and keep rising,” he said in his fourth budget address to the legislature.

Illinois’ credit ratings have fallen to the lowest level among the states due to a huge $129 billion unfunded pension liability and an unpaid bill backlog that ballooned to more than $16 billion during a budget impasse.

The stalemate, which left Illinois without complete budgets for an unprecedented two straight fiscal years, ended last July when the Democratic-controlled legislature enacted a fiscal 2018 spending plan and $5 billion income tax hike over Rauner’s vetoes.

Democratic Senate President John Cullerton said some of Rauner’s proposed spending cuts face opposition from both Democrats and Republicans.

“We’ve totaled about $1.5 billion in cuts that won’t pass because his own members won’t want to do it,” Cullerton said in a public television interview.

House Republican Leader Jim Durkin applauded Rauner for proposing “a fair, reasonable and balanced budget.”

The budget envisions shifting certain education-related pension costs to schools and universities by 25 percent annually over a four-year period.

The shift would cost school districts $490 million in fiscal 2019, with a $228 million hit to the cash-strapped Chicago Public Schools. The Illinois Association of School Boards said this would revoke the promise of higher funding under a school financing law enacted last year.

“With the new pension burden, hundreds of school districts will be receiving a cut in education funding under the governor’s budget plan,” the group said in a statement.

Universities would incur $206 million in higher pension and healthcare costs, which Rauner’s office said would be offset by a boost in state funding.

Timothy Killeen, president of the University of Illinois System, said while a pension cost shift had been expected, its pace was a concern.

“Four years to me seems to be an awfully rapid shift,” he said.

The office of Illinois’ Democratic comptroller, Susana Mendoza, said the governor’s budget fails to address the current $8.9 billion bill backlog and $950 million in late payment penalties the state owed vendors and service providers as of the end of January.

Credit rating agency officials have said they will be looking for signs of fiscal improvements to prevent Illinois’s credit ratings from sliding into junk.

Reporting by Karen Pierog; Editing by Daniel Bases and Matthew Lewis