April 5, 2012
The Illinois House has approved a spending plan for FY2013 that would cut the State of Illinois’ expenditures from the level proposed by Governor Pat Quinn and use an additional budget surplus to reduce the State’s backlog of unpaid bills.
House Resolution 706, approved on March 29, 2012, calls for spending $32.9 billion from general operating funds in FY2013. That spending level is $858.6 million, or 2.5%, below the expenditures proposed in the Governor’s FY2013 budget.
The spending plan represents the second major step in the House’s budget process for FY2013, which begins on July 1, 2012. As discussed here, the House earlier in March approved general operating funds revenue projections for FY2013. House Joint Resolution 68, which effectively imposed a cap of $33.7 billion on spending for the fiscal year, was also adopted by the Senate.
The following table compares the House spending plan for FY2013 with the Governor’s recommended budget.
The House developed its spending plan by starting with the General Assembly’s projection for general operating funds resources in FY2013. The General Assembly’s revenue projection of $33.7 billion is $221 million below the Governor’s projection of $33.9 billion. The House allocated portions of the revenue to what it described as non-discretionary items: pension contributions, employee group insurance payments, Medicaid, debt service and legislatively required transfers to other funds. These amounts are substantially the same as in the Governor’s proposal.
As discussed here, the Medicaid appropriation is unchanged from FY2012 at $6.6 billion, even though the program’s actual costs are expected to be $2.7 billion higher in FY2013. Like the Governor’s budget, the House plan is based on the assumption that Medicaid costs will be reduced by $2.7 billion in FY2013 to prevent unpaid Medicaid bills from rising to $4.5 billion at the end of FY2013 from $1.86 billion at the end of FY2012. An explanation of how the State defers Medicaid bills can be found here.
After allocating resources to non-discretionary items, the House set aside $500 million to pay down the backlog of Medicaid bills and $300 million to pay down other bills. The remaining resources were then allocated to various groups of agencies. As shown in the table above, higher education shows the largest reduction from the Governor’s proposed budget. All areas are reduced except public safety, which is increased by 5.3%.
The Governor’s proposed budget projected $500 million in unspent appropriations. Appropriations might not be spent by the end of the year because insufficient funding is available or expenses do not reach budgeted levels. The House plan provides for $650 million in unspent appropriations.
The operating surplus in the Governor’s budget is $163 million, compared with $801 million in the House plan. The following table compares how the two budget plans would affect the State’s backlog of unpaid bills.
Under the Governor’s proposal, the $163 million operating surplus would be used to pay down the $5.7 billion backlog of General Funds bills, reducing that backlog to $5.5 billion. The House plan would use roughly $300 million of its operating surplus to pay down non-Medicaid bills. The table assumes that the total amount would be applied to General Funds bills to simplify the presentation.
The Governor’s proposal would not affect the Medicaid backlog of $1.86 billion. Under the House plan, $500 million of the operating surplus would be used to pay down Medicaid bills. Due to federal reimbursement, the State would also receive $500 million in matching federal funds, reducing the Medicaid backlog to $861 million.
The total backlog at the end of FY2013 is approximately $9.0 billion under the Governor’s proposal, compared with roughly $7.9 billion under the House plan. It is important to understand that both the Governor’s proposal and the House plan assume that the State will reduce Medicaid costs by $2.7 billion in FY2013. HR 706 states that if the $2.7 billion reduction is not achieved that the cuts would have to be taken from other areas of the budget.
The State is expected to end FY2012 with $1.86 billion of Medicaid bills because the Medicaid program was underfunded by $1.55 billion (and the State began the year with $314 million of Medicaid bills on hand). As discussed here, Medicaid was underfunded in FY2012 largely because the General Assembly reduced Medicaid appropriations without cutting the program’s costs. The Governor had recommended a cut in reimbursement rates to hospitals, nursing homes and other healthcare providers, but that proposal was not supported by the legislature.