Progress Illinois

Media outlets across the region have heaped coverage on a report (PDF) released yesterday by the Civic Federation criticizing Gov. Pat Quinn's state spending plan.  Each of these articles have noted that the Federation offered its own proposal to deal with the $12 billion budget deficit.  Below are a few examples of how that alternative plan has been described:

AP:

The group offered its own proposal that includes more spending cuts and a smaller income tax increase, with all the money dedicated to reducing state debt.

Sun-Times:

Mostly, [Federation President Laurence] Msall said, Quinn's $1.3 billion in proposed cuts was not enough and the state's $79 billion unfunded pension debt needed to be dealt with in a different way.

Peoria Journal-Star:

The 90-page report ... determined that the state budget should be cut beyond the $1.3 billion in reductions suggested by Quinn, that the state's fee-for-service health insurance plan be eliminated because it is enormously costly and that the state should consider taxing retirement income and also food and drugs.

Sounds so easy, right?  Just cut a few billion more and everything will be swell. The problem? None of these reports noted that the Federation urged somewhere between $1.4 and $4.2 billion in additional spending cuts, but offered no specific plan for how to slash this much from the state budget.

Before we get into that, let's examine the report as a whole.

The Federation found a fair amount it liked in Quinn's budget and preserved those ideas in its alternative plan.  Specifically, it endorsed these budget balancing mechanisms proposed by the governor, which amount to $6.7 billion in new revenue:

- $4.8 billion in federal stimulus funds to pay for Medicaid, education and other programs;
- $1.1 billion in spending cuts;
- $200.0 million in increased employee healthcare contributions;
- $200.0 million in FY2009 funds sweeps; and
- $199.0 million in general tax changes. 

On the flip side, the Federation stripped out Quinn's business tax changes (which would generate $465.9 million) and opted to pay the state's pension obligations in full in the short-term, adding about $3 billion to the FY 2009-FY 2010 budget deficit.  They also decried Quinn's proposed income tax hike as too high and got rid of the increased personal exemption included in his proposal, which intends to shield families making less than $50,000 from the tax hike.

In the end, this left them with a $7.9 billion hole.  To fill it, they proposed a smaller income tax hike (from 3 percent to 4 percent), which would generate $3.6 billion and narrow the gap to $4.25 billion.  The Federation proposed that this amount be erased through a mix of further budget cuts and/or a 4 percent retirement income tax and/or the imposition of state sales tax on food and drugs.  Below are the four scenarios they envision:

As you can see, they propose a minimum of $1.45 billion in additional cuts and a maximum of $4.25 billion.  Yet their plan for how to go about this is ridiculously vague:

Deep budget cuts will require reductions in existing programs, perhaps even deeper cuts than the cuts that have already been proposed. It may require employee layoffs and reductions in state grants to other governments, entities, and individuals. In our view, cutting spending and limiting future liabilities is an essential, fiscally responsible option to shore up the state’s precarious fiscal situation.

Any move to cut state spending must consider federal mandates and the impact reductions could have on the receipt of federal matching funds. It could require the redrafting of rules and regulations in certain areas and reducing eligibility for certain social programs, including areas such as healthcare which have been expanded without regard to cost in recent years.

They go on to offer six "immediate examples for spending reductions," which together amount to a mere $41 million in savings.

If the Civic Fed is so adamant about cutting the budget, why are their suggestions so puny? Probably because there's very little lawmakers can actually trim without drastically scaling back the state's education, health care, and social services programs.  Once you dig into those areas, there is a human cost.  So they avoid specifics.  And then the local media outlets fail to point this out. (The Sun-Times even went so far as to describe the Federation as "shred[ding]" Quinn's budget.)

Ralph Martire, executive director of the Center for Tax and Budget Accountability, told us yesterday that the Federation should explain exactly where the governor needs to slice costs. "There is no way there is $4 billion of fluff in this budget," he tells us. "It's irresponsible to just say, 'Find $4 billion, good luck.' If you call for cuts of this magnitude, you must have the integrity to tell voters where it's coming from." 

Indeed, $4.25 billion represents about 15 percent of our $27 billion in General Funds spending (the other half of the state budget is covered by federal dollars). 

The Voices for Illinois Children report released last week provides a useful counterpoint. For example, their study showed that, despite some growth in spending since 2000, the state's education system is still woefully underfunded. Meanwhile, most of the other programs supported by the General Funds -- higher education and human services are two examples -- have experienced very little growth. In other words, they're already cut to the bone. "Those who want 'spending cuts first'" the report concludes, "are either ignoring fiscal realities or asking the state to abdicate its social responsibilities."

The Civic Federation deserves credit for opting to address the full pension obligations in the short-term and for proposing an income tax hike.  However, it should also be noted that their plan preserves the state's regressive tax structure. While denouncing Quinn's proposal to increase the personal exemptions, the Federation doesn't call for any alternative measure that would shield low- and middle-income earners, such as an increase in the state Earned Income Tax Credit. Thus, their proposal would batter those Illinoisans already suffering from a disproportionate tax burden.