April 30, 2015
To help cope with a massive budget deficit as State resources continue to fall in the coming fiscal year, Governor Bruce Rauner has proposed reducing or ending some statutorily required transfers that provide funding for programs and government services outside the General Funds budget.
Total transfers out of the General Funds, excluding amounts set aside to pay for debt service, are reduced by $816 million in the Governor’s recommended FY2016 budget to $1.6 billion compared to $2.4 billion in FY2015. According to the Governor’s recommended FY2016 budget, the total maintenance – or autopilot – amount that would be transferred out of General Funds without the proposed cuts totals $2.5 billion. Unlike other areas of the FY2016 budget book, the transfer reductions compared to the autopilot budget are not broken out for each of the more than 50 funds that receive these transfers.
Reducing statutory transfers can be more complicated than other appropriation reductions. To actually reduce the cost of many statutory transfers specific formulas or designated amounts mandated by State law must be changed to alter annual funding levels.
As previously discussed here, one of the largest reductions in the recommended FY2016 budget is the amount of income tax transferred to the Local Government Distributive Fund and shared with local governments according to population. The proposed FY2016 allocation for the local government transfer totals $634 million. This is a cut of $567.3 million from the FY2015 total of $1.2 billion. Under the formula included in the Illinois Income Tax Act, the reduction is even larger. The formula calls for 8.0% of the individual income tax and 9.14% of the corporate income tax to be set aside for local governments. These percentages are equivalent to 10% of the original 3.0% individual income tax rate and 4.8% corporate income tax rates prior to 2011 based on the current rates of 3.75% and 5.25%respectively. The Governor’s recommendation cuts the amount that would be set aside under the formula by exactly half.
In order to reduce the statutory transfer for local governments, the General Assembly would have to change the State law that instructs the Treasurer to deposit the amounts due to local governments based on the formula on a monthly basis as income taxes are collected throughout the year. Simply approving a budget bill with a lower appropriation to fund the transfer to the Local Government Distributive Fund would not effectively reduce the spending.
In general, annual statutory transfers can be eliminated or modified by adding language to the existing law that establishes a different amount than the current formulas for future years. Other transfers reduced in the FY2016 budget are based on more complicated calculations than the Local Government Distributive Fund and some are not based on formulas at all.
The Public Transportation Fund and the Downstate Public Transportation Fund both receive transfers based on the net sales tax revenues received by the State. The Public Transportation Fund transfer also includes matching funds based on the amount of sales tax collected by the Regional Transportation Authority and is distributed by the RTA to the Chicago Transit Authority, Metra and Pace transit service boards according to a predetermined formula. The Governor’s budget reduces the transfer to the Public Transportation Fund by $111.4 million to $384.8 million in FY2016 compared to $496.2 million in FY2015. According to a statement from the RTA, the transfer included in the Governor’s budget for FY2016 amounts to a $130 million cut from the total that would otherwise occur under the statutory formula.
The Downstate Transportation Fund is divided among other areas of the State that establish mass transit districts and qualify for funding. This transfer is reduced by $70.8 million to approximately $150.0 million from $220.6 million.
The Intercity Rail Fund is used to reimburse Amtrak for discount service provided to State of Illinois employees traveling on official business. The fund receives a transfer from the General Funds each year equivalent to the total number of Amtrak tickets sold at the State’s discounted rate in the previous year multiplied by $50.00. Under current State law the Treasurer must make this transfer once the total is certified after the beginning of each fiscal year. In FY2015 this transfer totaled $293,000 and is completely eliminated in the Governor’s FY2016 budget. Unless the underlying law requiring the transfer to be made is also changed, the State will incur the expense of the transfer regardless of the amount appropriated to account for this cost.
Amtrak receives additional State operating assistance through appropriations from the Road Fund. In FY2015 the State approved a $46 million subsidy to the rail operator but the Governor’s FY2016 budget recommends reducing the amount by $20 million to $26 million in the coming year.
The Governor’s budget reduces or eliminates transfers for other programs including early-childhood education, domestic abuse assistance, veterans, horse-racing, cancer research, anti-recidivism, anti-poverty, tourism, school construction, conservation and many more.
Making changes to statutory transfers can be controversial due to the wide range of constituent groups that have come to rely on this annual funding, which is often less scrutinized during the annual appropriation process than specific line item funding in the budget.
The elimination of the transfer to the Coal Technology Development Assistance Fund, which totaled $14.6 million in FY2015, is part of a larger initiative by the Governor in the FY2016 budget to increase the amount of public utility taxes available for General Funds spending.
Public utility tax projections in FY2016 increase by $168 million to $1.2 billion from $1.1 billion in FY2015. The increase in revenues is attributable to $175 million that would otherwise be spent through ongoing statutory authorization from the Supplemental Low-Income Assistance Fund, the Coal Technology Assistance Fund, the Renewable Energy Resources Trust Fund and the Energy Efficiency Portfolio Standards Fund. These programs are managed by the Department of Commerce and Economic Opportunity and only the Coal Technology Fund receives a General Funds transfer. The spending from these programs is funded from non-General Funds sources including surcharges and fees on energy users and providers. The Governor’s proposed FY2016 budget assumes that the spending on these programs can be eliminated and the Other Funds resources collected can be made available for General Funds spending, despite statutory language that may prevent moving most of these funds into the operating budget.
Of the four utility related funds that are subject to these cuts, the Supplemental Low-Income Assistance Fund is the largest. The fund provides utility bill relief for eligible residents and receives revenues from the charges collected by the gas and electric utilities as determined under State law. The statute authorizing the collection of the funds also prohibits the use of the additional charges collected for any other purpose than providing utility bill assistance to low-income residents. According to the FY2016 budget document, the State will spend $115.4 million from this fund in FY2015 and spent $128.3 million in FY2014.
In order to transfer the funds collected by the utilities for the low-income assistance into the General Funds the legislature would need to significantly change the statute that governs this program. The federal government also provides utility bill assistance to the State, which is expected to total $330 million in FY2016. The federal funds are not affected by the Governor’s proposed cut.
Over the last several years, the State’s Budgeting for Results Commission has recommended that the history, intent, and current need of all statutory budget transfers should be evaluated, and funding through statutory transfers should be subject to the annual appropriations process. The Civic Federation has issued similar recommendations in its annual State Budget Roadmap and suggested that many Special State Funds that receive these transfers be consolidated or eliminated except in rare cases to address a particularly important area of the State budget, such as the funds dedicated to pay for debt service.