Two states, two different fiscal states

This state’s budget cycle ended Friday, leading the Wisconsin State Journal to report:

What does that mean for most Wisconsinites?

In the short term, very little. Spending levels from the previous two-year budget cycle carry over into the new one, enabling state agencies to continue operating.

If a budget stalemate drags on for months — as has happened a few times in recent decades — highway projects now under construction could be affected, Walker has said. That could mean projects get delayed, adding millions in costs to taxpayers, said Craig Thompson, director of the Transportation Development Association of Wisconsin.

“If this does continue for months, it’s going to have an impact,” Thompson said. “The money won’t be there.”

Wisconsin school districts also could struggle to craft their own budgets since they won’t know how much state aid to expect.

The budget impasse is happening because Walker and his fellow Republicans can’t agree on one. They’re deadlocked on how to fund road projects, how to increase funding for K-12 schools and how to cut taxes. Walker and legislative leaders hinted at progress in budget talks Wednesday, but no deal appears imminent.

If the parties reach a deal in coming weeks, Walker and others have said Wisconsinites would see few impacts.

But in the case of a protracted standoff, road projects would feel the pinch more acutely than other areas of the state budget. That’s because road projects in the last budget relied heavily on borrowing — a one-time measure that, unlike regular spending, doesn’t carry over into the new budget cycle.

How long would the standoff have to continue before road projects would be affected? The Wisconsin Department of Transportation hasn’t said.

But it’s clear something would have to give eventually. The state’s highway improvement program would see a funding reduction of nearly $900 million over the next two years if no new budget were enacted, according to figures provided by the state’s nonpartisan Legislative Fiscal Bureau.

Assembly Speaker Robin Vos, R-Rochester, told reporters last week that this scenario, described as a “base” budget for transportation, could be an option if Walker and lawmakers can’t agree on a new budget. …

Most school districts in Wisconsin are working on finalizing their budgets for the upcoming school year — which includes setting how many teachers and other staff members they can pay for in the 2017-18 school year.

Department of Public Instruction spokesman Tom McCarthy said because districts aren’t facing a cut in state funding it’s not immediately significant. In other words, school districts will likely end up with more money to spend instead of less, eliminating the prospect of laying off teachers after the school year begins.

Not knowing exact aid levels on July 1 isn’t that big of a deal for districts unless budget deliberations are expected to extend beyond August, he said. School districts often settle their final spending plan after July 1 and don’t receive their first payment from the state until the school year is under way.

“Things start to get serious in terms of a budget not being in place the closer you get to Nov. 1,” McCarthy said. …

Under one-party control of state government by both Democrats and Republicans, the state budget was completed by July 1 in three of the past four budgets.

In 2015, Walker signed the budget July 12 and it was published the next day after a protracted debate over transportation, the prevailing wage and funding for a new Milwaukee Bucks arena, which was taken up in a separate bill.

In the 20 previous budgets, nine were completed sometime in July, including two by July 1, three were completed in June, four were completed in August and four wrapped up in October, November or December.

Budget debates that extended for months after the deadline were usually the result of different parties controlling the Assembly and Senate.

What’s unusual about the budget stalemates of the past two cycles is that Republicans have controlled both chambers and the governor’s office.

Mark Graul, a Republican political strategist, said the budget impasse will be a blip on the public’s radar by the time elections roll around next year, “assuming it doesn’t drag out for months upon months.”

“It certainly doesn’t help anybody if this is a protracted situation,” Graul said, adding that the point at which it becomes problematic would be Labor Day.

“If kids are going back to school and school districts are trying to do their budgets next fall, then it starts to become much more problematic.”

In other words, despite hand-wringing by those who want to make Republicans look bad, this is not a crisis.

To the south is what a real budget crisis looks like. The Chicago Tribune did the same story the State Journal did Friday south of the state line, and …

As Illinois hurtles toward a third year without a budget agreement, the state’s political leaders have managed to accumulate a series of notable, if inglorious, distinctions — the lowest credit rating of any state, just a whisker above junk status; a growing pile of unpaid bills that now stands at more than $14.5 billion; and a yearly population decline that is the highest of any state in the nation.

The standoff is costing taxpayers dearly — consider the $387 million in loans that Chicago Public Schools have recently taken to tide it over until state funding comes through. The loans came at a cost of about $70,000 a day in interest alone, the Tribune reported. Think of it as a payday loan, but on a grand scale.

The stalemate has been felt in human terms as well. Just seven months after missing the first budget deadline, Lutheran Social Services, the state’s largest provider, imposed steep cuts in programs like addiction treatment and senior home care. State employees are now finding that doctors in some cases will not accept their health insurance. Vital roadwork is already being suspended. And hospitals are imposing hiring freezes and cost cuts. …

Without a deal, the impact on the state will only be compounded. What follows are seven critical areas of the state’s economy, government and social institutions and how they will be affected if lawmakers continue with business as usual.

New York bond rating agencies have warned they will downgrade the state’s credit if no budget deal is reached by Friday.

It’s the latest in a series of downgrades that started when Democrat Pat Quinn was governor amid concerns over the state’s huge government worker pension debt and continued under Rauner as unpaid bills hit $14.5 billion, nearly half the amount of money the state brings in each year.

The next downgrade is significant because it would leave Illinois’ credit at the level of junk status. Illinois would have the ignominious distinction of becoming the first state to sink that low in the eyes of Wall Street.

The impact? The state’s debt is considered below investment grade, and borrowing money will cost more because interest rates will be higher. So building roads or refinancing existing debt will be more expensive. A federal judge’s recent ruling that the state would have to start paying down more of its $2 billion backlog in Medicaid bills shook investors and tanked Illinois bond prices.

What else is in the junk-status club? Chicago Public Schools; the agencies that run Navy Pier, McCormick Place and the White Sox stadium; and five public universities: Eastern Illinois, Northern Illinois, Southern Illinois, Northeastern Illinois, Governors State.

The state’s public universities have been caught in a ever-tightening financial vise as state funding has dried up. Schools have received the equivalent of 10 or 11 months of state dollars in the past two years, leading to credit downgrades to junk status. Most state universities typically get more than 20 percent of their annual funding from Springfield.

Now they face another risk, albeit a more remote one. If the state universities are forced to start a third straight school year with no state funding, their accreditation could be at risk.

The president of the Higher Learning Commission, which oversees colleges and universities in 19 states, recently told Illinois leaders that universities still must meet rigorous academic and financial standards to remain accredited, no matter what the legislature is doing.

Schools that continue to lose enrollment, eliminate faculty and staff, empty their cash reserves and cut programs — as is the case with many Illinois state universities — could face sanctions.

The financial struggles could also make it more difficult for universities to fill key jobs. One candidate for chancellor at Southern Illinois University Carbondale recently withdrew from consideration, citing “fiscal concerns at both the state and campus level.”

Illinois has already cut off sales of Powerball lottery tickets and is set Friday night to end sales of its other multistate game: Mega Millions.

The games are popular because Illinois bands together with other states to offer bigger jackpots than just one state could. But, to be part of the games, each state government needs to pass a basic budget authorization to ensure its share of prize money gets paid, and Illinois’ authorization expires Friday night.

The Illinois Lottery estimates both games bring in profit of $90 million a year — or roughly $250,000 a day — to state coffers, nearly all used to supplement tax money sent to schools.

Even without an authorization, the lottery will continue selling the rest of its draw and scratch-off games, but big winners of those games will have to wait for their paydays. That’s because, without the formal authorization, the state comptroller can’t cut checks to winners of more than $25,000. Those winning less than that should still get paid without delay, the lottery has said.

Illinois pavers and bridge builders are shutting down projects to prepare for a possible cutoff of state funds starting this Saturday. If the state cannot pass a roadwork appropriation this week, it will halt about 700 projects valued at $2.3 billion now underway and throw up to 25,000 people out of work, according to the Illinois Department of Transportation.

For the past two weeks, contractors have been holding off on “destructive” work like tearing up old asphalt because they may not be able to finish the job.

Contractors also are starting to move equipment off of job sites, cover up exposed dirt against erosion and put up traffic controls to secure areas while workers are away, said Mike Sturino, president and chief executive of the Illinois Road and Transportation Builders Association. …

With the next school year fast approaching, the stalemate has cast a dark cloud of uncertainty over public schools’ ability to operate.

Everything, from paying the teachers and janitors, to funding extracurriculars, to getting children to and from school, depends in some way on state funding. And without a budget agreement, those plans cannot be made.

Mayor Rahm Emanuel and Chicago Public Schools CEO Forrest Claypool have assured Chicago residents that the city’s schools will be ready to welcome students. Emanuel has said that local officials will “meet our responsibility” to open schools on time this fall, and Claypool has said they’ll “do whatever is necessary.”

But they won’t get more specific than that, pending the outcome in Springfield. The mayor, after all, has said that spilling the city’s plans while lawmakers negotiate an education budget “would be the dumbest thing you could do.”

On a more practical level, budget plans that schools must make for the coming year are also stuck in a holding pattern. Principals won’t see potential spending plans, for example, which delays needed decisions on hiring or laying off staff members and setting up class schedules.

Nowhere has the impact of the state budget stalemate been felt more acutely than in the myriad social service agencies and nonprofits that are so dependent on state funding.

Andrea Durbin, chief executive of the Illinois Collaboration on Youth, had a stern warning Thursday before a state House of Representatives hearing. “In order for services to flow to the community, people have to be paid,” she said, “and for that to happen, we need a budget.”

Durbin is also chairwoman of the Illinois Pay Now Coalition, which filed two lawsuits against the state seeking payment for services. One suit was dismissed, and one is pending.

It’s among hundreds of Illinois social service agencies, nonprofits, treatment clinics and outreach providers whose services to poor, sick or otherwise vulnerable people are at risk if no budget deal is reached.

Durbin cited the case of a downstate domestic violence shelter, Courage Connection, which faces closure without a budget.

Chicago’s Haymarket Center, a drug treatment program that treats a mostly low-income clientele, cut its caseload by more than a fifth as the state budget crisis caused payments to dry up.

A spokesman, Jeffrey Collord, said that the decline would continue if the stalemate goes on, and could accelerate if the state fails to set aside matching funds needed to secure a federal grant.

Readers will recall that 2011 Act 10 was delayed in passage because of the Fleeting Fourteen, the 14 Democratic state senators (including Sen. Kathleen Vinehout (D–Alma), now starting to run for governor) who ran to Illinois to prevent a quorum and a vote. Apparently Illinois is where politicians with bad fiscal skills go to hide, or live.

 

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