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Critics Say Illinois' Governor's 'Turnaround Budget' Is a Wrong Turn

Bruce Rauner's new budget has cuts his opponents call "reckless."

By Rick Pearson and Monique Garcia and Ray Long

Republican Gov. Bruce Rauner on Wednesday dubbed his first spending plan a "turnaround budget" for a financially shaky state, but Democrats rebuffed his proposed cuts to health care for the poor, government worker pensions, state universities, mass transit and cities across Illinois.

"This is our last, best chance to get our house in order," the governor declared during a speech that drew tepid applause from the lawmakers he addressed. "Let's get it done, together."

Rauner went after some of state government's political sacred cows: Medicaid; money for Mayor Rahm Emanuel's beleaguered city budget; the CTA and Metra; public employee health insurance and retirement benefits; and the University of Illinois.

All of those interests sounded dire warnings and geared up their powerful lobbying operations to fight the proposed budget. Some Democratic leaders reacted angrily to the rookie governor's address, hearkening back to his days as a partner in a private equity investment firm.

"One of the things Gov. Rauner has to learn is the Illinois Constitution refers to the General Assembly and the governor as partners," said Rep. Lou Lang, D-Skokie. "He wants to run the government like it's a business, we're middle management, and he's the CEO, and we must take orders. That's not going to work."

But Senate Republican leader Christine Radogno said Wednesday that Rauner's call to cut the budget should not have come as a surprise.

"I think people understand that Illinois is in dire circumstances and we absolutely need to change the way we do things," said Radogno, of Lemont. "This is the starting gun, not the checkered flag."

In many cases, Rauner's state budget cuts could simply end up shifting costs: local governments could choose to raise property taxes, state universities could raise tuition and the CTA could increase fares. Such decisions, however, wouldn't have to be made until after the governor and legislative leaders arrive at a final budget.

Countering the cuts, Rauner committed to a $290 million increase in general state aid to Illinois' schools and another increase of $25.3 million in early childhood education. First lady Diana Rauner is the unpaid head of an organization pushing more early education for at-risk children.

The governor also wants to hire 473 more guards at state prisons, where understaffing and overtime have become significant issues along with inmate overcrowding.

But even as Rauner detailed his spending priorities and cuts for the budget year that begins July 1, he had little to say about how to fill a $1.5 billion hole for the current budget year as child care providers and social service agencies face payment delays. Rauner said he and top Democratic lawmakers were mere "days" away from a fix, a point acknowledged by Democratic House Speaker Michael Madigan.

All told, Rauner said the costs of overcoming "fiscal neglect" by past governors and lawmakers amounted to nearly $7 billion in the new blueprint he proposed.

"This budget is honest with the people of Illinois, and it presents an honest path forward," Rauner said. "Now is the time to start on a responsible path after years of financial recklessness.

"Instilling discipline is not easy, saying 'no' is not popular -- but it is now or never for Illinois. It is make or break time," he said, echoing refrains from his State of the State speech two weeks ago.

Amid the financial doom and gloom Rauner presented to the legislature, the governor also dangled the prospect that he could get behind calls for some increased state revenues. But he said his support would only come after lawmakers approved changes in workers' compensation, unemployment insurance benefits, limits on civil damage awards and altering public employee pensions -- all issues likely to meet resistance from Democratic legislators.

"The governor has said that he feels that he can eliminate the deficits just by cutting state services, I disagree," said Speaker Madigan, who remained tempered in his remarks. "I think that the elimination of the deficits will require a blend. Service cuts, plus new revenue."

Rauner's budget sets up a political landscape in which the Republican governor is arguing the state should significantly scale back government spending and putting the onus on Democrats to push for tax hikes to avoid the cuts. Rauner aides said new revenues were never considered when crafting the budget proposal.

The biggest and perhaps most controversial item on Rauner's budget agenda was his call to shift current public employees on July 1 into a lower-tier pension classification for new hires that provides vastly reduced retirement benefits. The plan would not affect those already retired, and current employees would keep the pension benefits they've earned, Rauner said.

Illinois has the nation's most-underfunded public employee pension liability of nearly $105 billion, and required payments into the retirement funds is estimated at $6.6 billion plus interest in the new budget. Pension payments, along with paying off earlier loans used to cover some pension costs, now total about one-quarter of spending from the state's checkbook.

Lawmakers previously addressed the pension shortfall in a December 2013 law that curbed cost-of-living increases, raised retirement ages and limited how much of a salary could count toward a pension. Rauner campaigned against that law, contending it did not go far enough to reduce costs, and he had suggested shifting all public workers into a 401(k)-style defined contribution plan. That was made an option for newer employees in Wednesday's outline.

But unions sued, a Springfield judge put that landmark pension law on hold and the Illinois Supreme Court is being asked to determine whether the changes run counter to a state constitutional prohibition against diminishing or impairing public employee retirement benefits.

Rauner's new effort to move current workers into the new, lower-tier pension plan, also raises constitutional questions. Moreover, lawmakers questioned why the new governor would count on $2.2 billion in savings from reduced pension payments as part of his budget when the matter would face lengthy litigation if it were to become law.

Madigan called that move "reckless" and Democratic Senate President John Cullerton said Rauner won't "get those savings from the pension reform ... so he's going to have to come up with some proposals to fill that goal. It's his budget. He's the governor."

In addition to pension changes, Rauner said he would negotiate changes to state employee and university employee health care, including higher employee payments and reduced benefits, to save $655 million. Rauner also proposed stopping state subsidies for health care for retired suburban and Downstate teachers and community college staff to save $125 million. Another large target in Rauner's budget is Medicaid, where he wants to trim $1.5 billion from the agency that oversees the health program for the indigent that's funded jointly by the state and federal government.

The agency will scrub eligibility rolls to kick off those deemed unqualified, reduce how much it pays hospitals and nursing homes, shift people to the Affordable Care Act, and reduce or end optional services for adults such as dental care and podiatry.

Rauner's plan also would end services offered by the Department of Children and Family Services to young adults ages 18 to 21 for what the administration says will be $167 million in savings. And Rauner's budget team forecasts another $200 million in savings through changes in substance abuse, mental health and early intervention services.

Rauner's focus on social programs drew criticism from Democrats, particularly those representing poorer neighborhoods.

"This is our first salvo being fired by the governor, but we as a community must stand strong to ensure that those dollars are there, not only for the individuals as they're going through the system but for mental health agencies and also (making sure) providers are also being taken care of to ensure the well-being of our community at large," said state Sen. Donne Trotter, D-Chicago.

Rauner's proposed budget also called for slashing in half the share of state income tax dollars that are sent to local municipalities, a cut of $600 million -- in Chicago's case, an estimated $135 million. At the same time, Rauner also wants to put a freeze on local government property taxes, another major funding source at City Hall.

But Mayor Emanuel, under pressure to find hundreds of millions of dollars to fund city and public school pensions, called the governor's move shortsighted.

"The idea that you would be looking at basic services and cuts to the municipalities when you have a tax code that has giveaways to corporations, in my view is the wrong priorities," said the mayor, who is seeking re-election Tuesday.

Rauner also sought to stop the diversion of gasoline taxes and license fees away from the state's highway construction fund. To that end, he proposed eliminating $17.6 million in road fund subsidies for the Regional Transportation Authority that pay for reduced fares for students, the elderly and disabled, as well as another $127 million reduction in state matching funds to the RTA. The road fund subsidy for Amtrak service in the state also would be cut from $46 million to $26 million.

"It's just another kick in the gut for middle class families who need to take the L and the train downtown for work," said Sen. Don Harmon, D-Oak Park. "If the fares are going to go up because the state support is going down, that's a pretty bitter pill to swallow."

Rauner's budget also called for 30 percent cuts in the operational budgets of Illinois' public universities totaling more than $387 million. The governor argued the cuts were much less severe, when state support for pensions and employee health care was included.

The University of Illinois, the state's largest provider of higher education, said the proposed cut would mean a reduction of about one-third of its state funding, or nearly $209 million. At U. of I., tuition now surpasses state funding, which has been declining for years, and in January trustees voted to freeze tuition for the coming year.

Though she was speaking about Rauner's controversial pension proposal, Democratic Sen. Heather Steans of Chicago summed up the attitudes of many Democrats in the General Assembly.

"This is the opening move in a chess game here," Steans said, "and we're going to have to start delving into the details and understanding what we can do, what we can't, and where we're going to end up, I think, is still a long way yet to be determined."

After his speech, Rauner, who turned 59 on Wednesday, descended a Capitol stairwell followed by reporters. Clutching a batch of brightly colored, hand-made birthday cards sent to him by students, Rauner brushed aside a question on whether his budget was negotiable.

"We're going to have a lot of work together," he said. "We're going to all work together."

Tribune reporters Kim Geiger, Jessie Hellmann, Garcia and Long contributed from Springfield. Bill Ruthhart, Jodi S. Cohen and Pearson contributed from Chicago.

(c)2015 the Chicago Tribune

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