Fiscal Integrity and Social Responsibility Confronting the State Budget Crisis August 3, 2010 Kathy Ryg

Overview Landscape – crisis of confidence in government and budget collapse Roots of the fiscal crisis Impact: businesses, families and communities pay the price Opportunities for change

Estimated General Funds Budget Deficit for FY 2011 FY 2011 operating deficit$3.8 B Carryover deficit from FY 2010$7.5 B Cumulative deficit$11.3 B

Legislative Mandates: 25% of General Funds Budget in FY 2011

General Funds Appropriations Excluding Pensions (in $ billions)

FY 2011 GF Budget Cuts After Governor’s Allocations State Board of Education$241 M3.3% Higher education$96 M4.4% Dept. of Human Services $313 M 7.7% Dept. of Agriculture $4 M 11.1% State Police $15 M 5.2% DCEO $5M 10.0% Dept. of Aging $17M 2.6%

GF Backlog of Unpaid Bills and Transfers as of June 30, 2010 PreK-12 education $1.30 B Higher education agencies.56 B Human service agencies.70 B Health care.63 B Inter-fund transfers.96 B All other.56 B Total4.71 B

Hidden Spending Cuts Even more significant than enacted spending cuts: long delays in payments At end of FY 2010, State Comptroller reported $4.7 billion backlog of unpaid bills Another $2.6 billion in FY10 appropriations not yet processed Some service providers have shut down programs

Projected General Funds Budget Deficit for FY 2012 FY 2012 operating deficit$6.2 B Carryover deficit from FY 2011$11.3 B Cumulative deficit$17.5 B

Projected FY 2012 Deficit as Pct. of FY 2011 Budget, 10 Largest States

Broken Budget Process Legislators place unprecedented budget decision-making responsibility on the Governor Most state agencies given lump-sum funding rather than line-item appropriations – exacerbating uncertainty Additional $3.5 billion appropriated to Governor’s Office to allocate Governor given emergency budget powers to control spending Nothing done to address structural deficit or reduce backlog of unpaid bills

“Moody’s downgrades state Bonds, revenues continue to slide” “Illinois Stops Paying Its Bills, but Can’t Stop Digging Hole” Headlines tell the story

Bloomington: Could state budget woes boost crime? Bloomington: State hiring freeze leaves community center in limbo Bloomington: Universities brace for funding uncertainty Springfield: Cities struggling as state funding lags Quincy: Adams County Health Dept. decides ‘not to do business with the state,’ will discontinue seven programs Peoria: Early childhood cuts slash deeper than just education

Jeopardizing Quality & Accountability Lack of accountability or transparency Jobs left undone & resources sacrificed

Roots of State Fiscal Crisis Cyclical deficit –Effects of recession –Declining revenue combined with increasing need Structural deficit –Gap between revenue generated by tax system and underlying economic growth –Revenue structure can’t support established service levels and other ongoing obligations

General Funds Revenue from State Sources (in $ billions)

Magnitude of Budget Deficit Deficit CAN’T be closed by: –Waiting for economic recovery –Efficiencies alone –Spending cuts alone –New revenue/tax increases alone

Need for Balanced Approach to Responsible Budget Reform Strategic spending restraints Modernization New, recurring revenue

Reform Measures – a start Pensions Medicaid Government purchasing Campaign finance Ethics Greater openness in government Transparent budget process

The Heckman Equation Invest + Develop + Sustain = Gain

ILLINOIS KIDS COUNT SYMPOSIUM

Kids & the Recession The most visible signs of recession don’t reveal full impact on children Children are hidden casualties of the economic crisis Recessions have lasting effects on child poverty

Effects of Unemployment One in seven children in U.S. lived with unemployed parent at the end of 2009 When parents lose a job, children are more likely to: Struggle in school Repeat a grade Have behavior problems

Long-Term Effects of Child Poverty Children growing up in poverty are likely to have: Lower levels of educational attainment Diminished employment prospects Greater health problems

Children in poverty: 530,000 Child poverty rate: 17% (18% in U.S.) Children as share of Illinois residents: 25% Children as share of poverty population: 35% Child Poverty in Illinois, 2008 (before recession)

Recession and Child Poverty Poverty rates will be higher for 2009 Poverty expected to continue rising even after economy begins to recover Child poverty in U.S. projected to reach 24% in 2012 Expected rate in Illinois: 22% (more than 650,000 children)

Kathy Ryg President Voices for Illinois Children For more information