Distributed via Email: July 16, 2009

FY 2010 BUDGET IN PLACE; EDUCATION REDUCED

In a matter of hours Wednesday, the legislature approved a Fiscal Year 2010 state budget and the governor signed it into law. The last minute action allowed the state to pay its employees, though some received their paycheck a day later than usual. The budget will allow the state to operate through the end of the year, but legislators – before the fiscal year is over – will either have to approve new revenue sources or force Governor Pat Quinn to make mid-year budget cuts.

Generally, the budget mirrors the "50% budget" that was approved earlier by the legislature and was vetoed by the governor. However, $6.7 billion more was added to that budget yesterday to pay for human services programs – money that came from borrowing. Many legislators are concerned that the borrowing will merely add to the budget pressures next year.

REDUCTION IN EDUCATION FUNDING

For elementary and secondary education, over $100 million less was approved than was included in the previous budget bill. The per pupil foundation level amount will be increased by $160 – not the $231 per pupil increase that was approved earlier. The foundation level for the 2009-2010 school year, then, will be $6,119 per pupil. The mandated categorical grants are still supposed to be fully funded.

Like other state agencies, the Illinois State Board of Education (ISBE) will receive a lump sum amount to fund the other budget line items for grants (truancy programs, reading block grants, early childhood block grants, etc.). This amount will roughly be 50% of the amount from last year. The ISBE has not yet announced how it plans to allocate these funds.

As for the "hold harmless" line item, this will likely be cut in half. Though no substantive language was approved to phase out the hold harmless provision, the amount in the budget is 50% of the total amount needed. New school districts could be added as eligible districts for hold harmless funding, and the payments to all eligible districts will be prorated according to the budget amount available.

MORE BORROWING

To free up money to be used elsewhere in the state budget, a law was enacted to issue short term "pension notes" to the tune of $3.4 billion. The notes will have to be paid back within five years, an estimated $750-800 million per year for the next five years. Opponents to the proposal said that this will automatically start next year’s budget in a deficit position. The plan, then, allows $3.4 billion to be allocated to other parts of the state budget this year – specifically to human services programs that the governor would otherwise have had to cut.

It is intended that the full scheduled payment will be made to the state’s pension systems.

Another $3.2 billion was freed up by, generally, borrowing from the state’s vendors. The state will allow this amount of bills the state owes to "pile up" and remain unpaid, or at least significantly increase the payment lag time. The legislation gave the governor additional authority to use these funds as he wishes, presumably for human services programs.

NEW BILL NUMBERS

SB 1216 contains the appropriations for FY 2010. It is now Public Act 96-0042.

SB 1292 contains the $3.4 billion in pension borrowing. It allows for the issuance of short term "pension notes" that will have to be paid back over the next five years. It is now Public Act 96-0043.

SB 1912 is the budget implementation bill. It increases the foundation level of the General State Aid formula by $160 per pupil. It is now Public Act 96-0045.

WHAT IS NEXT FOR THE BUDGET?

Governor Quinn and Senate President John Cullerton have not given up on their push to find new revenues to fund state services. Specifically, they both are supporting an increase in the state income tax rate. Though the governor initially called the legislature into session in late June in an effort to pass a tax bill, last week he announced that the push for a tax hike would wait until later this year (likely the fall veto session). Senator Cullerton this week said that he intends to bring the discussion back to the Senate in January. At some point, something will have to give. The budget approved is still, generally, a half year budget. If increased revenues are not found, billions of dollars more will have to be cut from the FY 2010 budget.

Beginning in January, a simple majority vote will again suffice to pass a budget or tax bill (now it requires a 3/5 majority vote). So, technically, a bill to increase the income tax rate could be approved with just Democrat votes. Politically, however, this is unlikely as Democrat party leaders will be hesitant to allow Republican candidates to run for election on a platform of working against the "Democrat tax increase". Likely, an agreement will have to be reached between all four legislative leaders which will include putting Republican votes on a bill to increase taxes.

Republican leaders have not flatly said "no" to new revenues. They have said that raising taxes should be a last resort and other actions need to take place, namely: the overall state budget needs to be cut (this is being done), there needs to be reforms in the Medicaid program (talks are beginning), there needs to be reform in the state pension systems (a task force is working on this), and any tax increase should be modest and, possibly, temporary. These are the issues which will be discussed between now and the legislature’s return later this year.

The legislature is due to return to the Capitol for the Veto Session Oct. 14-16 and Oct. 28-30.

This legislative report is written and edited by the lobbyists of the Illinois Association of School Boards to provide information to the members of the organizations that comprise the Illinois Statewide School Management Alliance.

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