Civic Federation warns ‘significant problems remain’ in budget recommendations

With days to go before Gov. Bruce Rauner delivers his budget address, the Civic Federation on Friday released a five-year plan of recommendations to help stabilize the state’s finances while warning that although the budget crisis has ended, “significant problems remain.”

Those problems include “staggering public employee pension costs,” having the lowest credit rating in the country and declining enrollment and high tuition at the state’s public universities, the civic watchdog group concluded.

Regarding pensions, by July 2017, the five funds had $129.1 billion in unfunded liabilities, the report said.

While the state’s backlog has reduced some, it’s still expected to stand at a whopping $7.5 billion when the current fiscal year ends on June 30, 2018, and is projected to grow to $13.7 billion by July 2023, the Civic Federation said in the report.

The state spent $1.6 billion on late payment interest penalties from July 2008 through January 2018, the report found.

“Despite a permanent increase in income tax rates, the FY2018 [which ends July 1, 2018] budget has an estimated operating deficit of at least $1.5 billion, and deficits are projected to continue for the foreseeable future,” the report warned.

The Civic Federation’s plan would try to eliminate the operating deficit by 2020 and to clear the backlog of bills by 2024.

Recommendations include limiting spending growth to 2.1 percent annually through at least 2024; reducing the late payment penalty on overdue bills; eliminate the tax inclusion for all federally taxable retirement income; expanding the sales tax base to include the 14 services taxed by Wisconsin; and working towards building a rainy day fund equal to 10 percent of General Funds revenues.

The group also recommends placing a constitutional amendment on the ballot no later than 2020 to allow for “reasonable, moderate changes to current employee and retiree benefits.” It also recommends making supplemental payments to the pension system, which they believe would replace debt service.

Additionally, the report suggests merging the Chicago Teachers’ Pension Fund with the Teachers’ Retirement System, while recommending that Chicago Public Schools resume paying their normal teacher pension costs. They suggest the normal cost for all teachers outside of Chicago be shifted from the state to local school districts over three years.

There are also calls for the governor to create a bipartisan commission to address the need to “eliminate duplicative university programs,” and to determine the need to close or consolidate campuses.

Rauner will present his budget address on Feb. 14. The governor told the Sun-Times editorial board this week, “you’ll see a balanced budget,” when asked if it will include any contingencies. His budget last year included a proposed “grand bargain” Senate deal that hadn’t been passed yet, and the selling of the Thompson Center.

“You’ll see a balanced budget. … It’ll be balanced, and it will not only be balanced, but it’ll show a path to begin to work down the income tax hike,” Rauner said. “Over the next few years I’d like to begin to work that down each year at modest levels to get back to a more attractive rate, more compelling for business owners and for working families. Get it back down to maybe three percent. You’ll see that in the plan,” he said, which will also include spending cuts.”