Distributed via Email: May 26, 2010

FINISHING TOUCHES BEING PUT ON BUDGET

The Illinois House of Representatives returned to the Capitol on Monday to continue work on the Fiscal Year 2011 state budget. Lawmakers had hoped to complete their budget work two weeks ago, but went home instead when budget negotiations broke down. But even after the two week hiatus, the House approved the same appropriations bill Tuesday night as the Senate did on May 7, so the overall budget numbers really did not change. The Senate returns to the Capitol this afternoon (Wednesday) to debate those bills approved by the House on Tuesday. The session, then, should wrap up before the end of the week.

For elementary and secondary education, the appropriations bill that passed, HB 859 (Currie, D-Chicago), funds FY ’11 General State Aid at the current (FY ’10) level. The foundation level remains at $6,119 per pupil. Mandated categorical grants will likely be cut $320 million below the FY ’10 levels. Not enough funds were available to fully cover the cost of the categorical grants and the plan was to fill the hole with an increase in the cigarette tax. However, not enough votes have yet been accounted for to pass the tobacco bill (SB 44, Schoenberg, D-Evanston) so the $327 million shortfall is likely to remain. SB 44 is still pending on the House floor.

OVERALL BUDGET SUMMARY

The state is operating on a reported $13 billion budget deficit. Discussions of raising stable new revenues (an increase in the income tax rate, for example) to close the funding gap were short-lived this spring as the majority of members from both political parties rejected the idea of a general tax increase. The budget bills approved by the House Tuesday include a patchwork of budget devices that strive to create a balanced budget, including: budget cuts, borrowing, fund transfers, slowing (even more) the state’s payment cycle to reimburse state vendors, an “Emergency Budget Act”, and a “tax amnesty” program.

Pension Borrowing
After multiple failed attempts over the past few weeks to pass a bill to allow the state to borrow money to make next year’s pension payment, a bill was approved on Tuesday night. SB 3514 (Schoenberg) authorizes the state to borrow $3.7 billion to make the scheduled payments to the various state pension systems. With no support to find a new funding source (i.e. taxes) to cover this cost, and with earlier bills being defeated that would have either allowed the state to skip next year’s pension payments or to cut the $3.7 billion needed out of other areas of the state budget, borrowing was the last option. It is estimated that to borrow the money for the pension payments will cost the state about $1 billion more in the long run; to skip the payments would cost the state nearly $20 billion over the long term. The bill still needs Senate approval.

Emergency Budget Act
Proponents and architects of the budget plan readily admit that more money will need to be cut out of the FY 2011 budget. Instead of the legislature making the budget decisions and appropriating certain amounts by individual budget line item, the House passed the “Emergency Budget Act of Fiscal Year 2011” (SB 3660, Schoenberg) which sets aside contingency reserves from the appropriations and allows the Governor to hold back funds, transfer funds, and allocate funds into agency budget line items as necessary. Generally, this requires the governor to make the necessary budget cuts to keep the state budget balanced.

The bill also establishes a new state cash flow by securitizing the receipts from the tobacco court settlement. This allows the state to receive funds next year that would have otherwise been coming to the state in future years. It also makes changes to the state budget process by requiring the governor to prepare quarterly budget statements to evaluate budget revenue receipts versus state payments, requires closer scrutiny of state contracts, and reduces some compensation to state legislators (no cost of living adjustment, reduced per diem, reduced mileage reimbursement).

Budget Implementation Act
The budget implementation act, SB 3662 (Noland, D-Elgin), contains a few changes in the School Code. The per pupil foundation level remains at $6,119. However, if the appropriations are not sufficient to cover the costs of the foundation level, General State Aid (GSA) could be prorated. A provision in SB 3662 alters the School Code to allow GSA and the poverty grants to be prorated simultaneously, instead of current law that requires that all of the GSA be fully funded first.

Another provision allows the Illinois State Board of Education (ISBE), in consultation with the state comptroller, to transfer line item appropriations for General State Aid between the Common School Fund and the Education Assistance Fund (currently it is only allowed from the Common School Fund to the Education Assistance Fund). It also allows the transfer of line item appropriations between the General Revenue Fund and the Education Assistance Fund for payment of mandated categorical grants.

Other Revenues
So where did the funding come from for the FY 2011 budget?

• $3.7 billion in pension borrowing (SB 3514)
• $1.2 billion in securitization of tobacco settlement funds (SB 3660)
• $1 billion in fund transfers from other state budget accounts
• $250 million from a tax amnesty program (SB 377)
• $400 overall budget cut from FY 2010

The rest of the budget cuts will be exercised by the governor. And, of course, state payments to vendors and others that provide services to the state will continue to be delayed.

MANDATE RELIEF BILL APPROVED

The House of Representatives Wednesday approved the Senate’s changes to the bill designed to provide relief to school districts from unfunded state mandates. HB 4711 (Eddy, R-Hutsonville) states that no school district is obligated to comply with any future mandate that is added to the Illinois School Code unless a separate appropriation has also been enacted that provides full funding for the mandate for the school year during which the mandate is required. B efore discontinuing or modifying a new mandate, the school district must petition its regional superintendent of schools for approval. The bill now heads to the governor for his consideration.

URGE CONGRESS TO APPROVE SUPPLEMENTAL FUNDING

The United States Congress is debating legislation that would include $23 billion targeted for saving education jobs across the United States. Please contact your U.S. representative to urge strong support in favor of the education jobs fund as part of the FY 2010 emergency supplemental appropriations bill. The House Appropriations Committee is planning to consider this legislation TOMORROW afternoon, Thursday, May27 .

Under this plan, Illinois public schools could be in line to receive nearly $750 million.

For more information or for a sample letter of support, please contact either: shilton@iasb.com or bschwarm@iasb.com.

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 Statewide School Management Alliance.

Bill Text/Status: Illinois General Assembly

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