July 7, 2011
Governor Pat Quinn signed the State of Illinois’ FY2012 budget on June 30, 2011, a day before the start of the new fiscal year. The FY2012 budget is expected to generate a mountain of unpaid Medicaid bills and a possible court battle over union pay raises.
In signing the budget, which includes $32.987 billion in general operating funds, the Governor reduced the budget passed by the General Assembly on May 31, 2011 by $376.4 million. The main cut involved a $276.0 million reduction in the appropriation for Medicaid payments to hospitals. The Governor also reduced the legislature’s appropriation for school transportation by $89.0 million and eliminated appropriations for regional school superintendents, which were budgeted at $11.3 million.
However, simply reducing Medicaid appropriations will not reduce Medicaid spending. As previously explained on this blog, Medicaid is an entitlement program under which certain categories of low-income people who meet eligibility requirements are entitled to specified medical services. No spending cuts occur unless there are reductions in eligibility, benefits or rates paid to medical services providers.
Governor Quinn’s reduction in Medicaid appropriations was intended to prod hospitals to accept a cut in Medicaid rates. In his budget recommendation for FY2012, Governor Quinn had proposed a $552.3 million reduction in Medicaid rates, approximately half of which affected hospitals. The Illinois Hospital Association strongly opposed the rate reductions, and they were not supported by the General Assembly.
According to the Illinois Department of Healthcare and Family Services (HFS), the budget passed by the legislature decreased Medicaid appropriations by $537.4 million from the Governor’s proposal—without any program cuts. The General Assembly’s budget also reduced proposed savings on a prescription drug program for seniors and blocked a proposed statutory transfer to provide additional Medicaid funding.
The result: $1.4 billion in unfunded Medicaid costs, which would have to be paid for in FY2013, and a delay of roughly 120 days in paying the State’s Medicaid bills. In Illinois Medicaid claims may be paid out of future years’ appropriations under a provision of Section 25 of the State Finance Act. This provision, known as the Section 25 loophole, has repeatedly been used to budget an insufficient amount of Medicaid appropriations to cover costs for a given fiscal year, knowing that the bills will be paid from the next year‘s appropriations.
The Governor’s reduction in the General Assembly’s FY2012 Medicaid appropriation—if not accompanied by rate cuts—would increase unfunded costs to $1.7 billion and the payment delay to 162 days, according to HFS officials. The Illinois Hospital Association recently issued a statement urging the General Assembly to override the Governor’s budget cut.
The General Assembly is scheduled to convene for the fall veto session on October 25. Reduction vetoes such as the Medicaid cut can be overridden by a majority vote of both the House and Senate. Line item vetoes such as the Governor’s action on regional education superintendents require three-fifths votes to be restored to law.
After signing the FY2012 budget, Governor Quinn indicated that the State was cancelling pay raises for 30,000 union workers at 14 agencies. The Governor said the General Assembly had not appropriated enough money for the raises, which reportedly amount to roughly $77 million.
The State’s largest union is Council 31 of the American Federation of State, County and Municipal Employees (AFSCME). The current AFSCME contract, which expires at the end of FY2012, was negotiated by Governor Quinn’s predecessor, Rod Blagojevich. Governor Quinn has renegotiated the contract twice since taking office in 2009, with AFSCME agreeing to defer pay increases and reduce healthcare expenses in exchange for the State’s pledge not to lay off workers or close state institutions through the end of FY2012.
State employees were scheduled to receive a 2% raise on July 1, 2011; a 1.25% raise on January 1, 2012; and a 2% raise on February 1, 2012. In its analysis of the Governor’s FY2012 proposed budget, the Civic Federation recommended that the State reopen negotiations to curtail the salary increases.
Governor Quinn has reportedly asked the General Assembly’s Joint Committee on Administrative Rules to consider emergency measures at its meeting on July 12, 2011 to implement the Governor’s decision. Meanwhile, AFSCME is seeking a ruling from an independent arbitrator to enforce the terms of its contract. AFSCME has also threatened to take legal action against the State.