February 18, 2015 / 6:23 PM / 3 years ago

Illinois governor's budget seeks cuts to end structural deficit

SPRINGFIELD, Ill./CHICAGO (Reuters) - Illinois Governor Bruce Rauner proposed a fiscal 2016 budget on Wednesday that he said will eliminate a $6.2 billion structural deficit without relying on higher taxes or borrowing.

Republican Bruce Rauner smiles after winning the midterm elections in Chicago, Illinois, November 4, 2014. REUTERS/Jim Young

Instead, the $32 billion general funds spending plan for the fiscal year that begins July 1 would dramatically reduce spending by $6.6 billion, with one-third of the savings coming from shifting government workers into pension plans with reduced benefits, according to budget documents.

Those proposals are likely to hit roadblocks in the Democratic-controlled Senate and House and also antagonize public labor unions which are now negotiating for new contracts.

Michael Madigan, the powerful Democrat and longtime House speaker, called tapping the anticipated pension savings for the budget “reckless conduct.” He also took issue with Rauner’s rejection of additional revenue in the proposed budget.

“I think that the elimination of the deficits will require a blend of service cuts plus new revenue,” Madigan told reporters, adding he would once again push for a 3 percent income tax surcharge on earnings over $1 million to raise about $1 billion for schools.

Illinois has a chronic structural budget deficit, as well as the lowest credit ratings and worst-funded pension system among the 50 states. The fiscal crisis is the most severe the state has seen in decades, according to budget experts. Rauner said reforms must precede new revenue and that his budget plan was a first step.

“It will take time to restore Illinois to fiscal health,” he said in his budget address to the legislature.

Rauner, a political neophyte who took office in January, is the first Republican elected governor in Illinois since 1998.

Medicaid, the state and federally funded healthcare program for the poor and the biggest single cost item in Illinois’ budget, would be cut by $1.5 billion, according to a budget briefing by Rauner’s staff. Ironically, the Rauner administration considered opting out of the U.S. Affordable Care Act, despite Illinois’ status as home state of the act’s leading advocate, President Barack Obama.

Rauner also plans to put $700 million in savings in worker healthcare coverage on the table during ongoing union contract negotiations.

LOOMING LABOR BATTLE

Fiscal pain would spread to higher education, which would get a $400 million funding drop, and to mass transit, with the Chicago area’s bus, rail and subway services losing $127 million. Revenue sharing to local governments would fall by $600 million as the governor also seeks a two-year local property tax freeze. Primary and secondary schools would receive a $300 million funding boost.

Rauner proposed moving future retirement benefits for all state workers into the less-generous pension plan that the state imposed on workers hired after Jan. 1, 2011. The move would save more than $2.2 billion in the coming fiscal year and more than $100 billion over 30 years. A buyout option would give workers a lump sum payment and a defined contribution plan in return for a voluntary reduction in cost-of-living adjustments.

State pension payments are squeezing spending on essential state services and a 2013 law aimed at easing a $105 billion unfunded liability is being challenged in court by unions and others. The Illinois Supreme Court on Tuesday set oral arguments over the constitutionality of the law for March 11.

Unions immediately blasted Rauner’s pension proposal.

“These unfair cuts are clearly in violation of the plain language of the constitutional pension clause,” said a statement from union coalition We Are One Illinois.

State Senate President John Cullerton, a Democrat, said Rauner’s budget “raises significant questions about its viability in the legislative process.”

“For all the pain that Governor Rauner’s budget plan would extract from the most vulnerable people with human service needs, the basic math still doesn’t work in his proposal,” Cullerton said in a statement, taking issue with the $2.2 billion budgeted from pension savings.

Republicans, on the other hand, were heartened by Rauner’s budget message.

“It’s refreshing to hear a governor say we’re going to live within our means,” House Republican Leader Jim Durkin said in an interview on local public television.

Editing by Matthew Lewis

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