Editor's Note: Desperate Times Take Democrats Two Steps to the Right

Jul 1, 2012

Dana Heupel
Credit WUIS/Illinois Issues
One political party in Illinois is bound and determined to slash health care for poor people and retirees while waging attacks on organized labor and teachers — at the same time giving tax breaks to huge corporations like Sears and CME Group, which operates interests, such as the Chicago Mercantile Exchange and the Chicago Board of Trade.


And then there’s the other political party, the Republicans …

“If you’re not confused, you’re not paying attention,” management guru Tom Peters wrote in Thriving on Chaos. His admonition could well apply to the party in control of the governor’s office and both legislative chambers after this year’s session of the Illinois General Assembly. Without context, the actions of the Democrats would appear to contradict the long-established philosophical traditions held by the party of FDR, JFK, LBJ, William Jefferson Clinton and President Barack Obama.

The context, of course, is that Illinois is in desperate financial straits. And as beat author William S. Burroughs, observed: “Desperation is the raw material of drastic change. Only those who can leave behind everything they have ever believed in can hope to escape.”

So Democratic leaders in the legislature, at the urging of Democratic Gov. Pat Quinn — who declared in April, “I was put on Earth to get this done” — led the charge to cut Illinois’ spending on Medicaid, which provides health care to the poor, by $1.6 billion. They were joined by Republicans, who have called for similar cuts for many years. The primary opposition came from the legislature’s Democratic black and Latino caucuses. Lawmakers from both parties and Quinn also joined forces in a bid to reduce future expenditures on state retiree health care and pensions by billions more.

Massive cuts in Medicaid and retiree benefits were the primary targets that Quinn had laid out earlier in the year to try to free up money to reduce:

  • An estimated $9.2 billion backlog in unpaid bills.
  • An anticipated operating deficit of $5.2 billion, including the accumulated deficits from prior years.
  • An expected 5.8 percent annual increase in the state’s Medicaid costs, which were predicted at $8.6 billion by the June 30 end of Fiscal Year 2012.
  • Unfunded pension obligations of $83 billion, which is the amount needed to pay state employees, teachers, university staff, legislators and judges if they were to retire at the same time.

Quinn said the Medicaid program and the state pension systems were unsustainable at current levels, and the cuts would help ensure their survival.

All of this was in the wake of a 66 percent state income-tax increase that was labeled as temporary and passed entirely with Democratic votes. It took effect in 2011 and is scheduled to begin to phase out in 2015. But the new revenue from the tax hike was offset by major increases in costs for employee pensions — caused primarily by years of underfunding by the state, along with a 1995 program that established a “ramp” that initially kept the state’s pension expenditures low but began to climb dramatically in 2010 — and for Medicaid, caused mostly by heightened demand during the slow economic recovery and increases in eligibility pushed through by the previous Democratic governor, Rod Blagojevich.

Further whipping up this perfect storm was a January downgrade by Moody’s Investors Service in the rating of Illinois’ general obligation bonds to the worst in the nation, a Fitch Ratings downgrade in March and a threatened multiple-notch downgrade by Standard & Poor’s Ratings Services. Quinn and other Democrats — as well as Republicans — trembled mightily at the specter of further downgrades to the state’s credit rating, which could make it more expensive for Illinois government to borrow money.

As the legislative session progressed, the potential ratings downgrades became a rallying call among Democrats and Republicans alike, as well as a diversion from the reality that lawmakers and previous governors had caused this mess. As Republicans refused to budge from their traditional stance of cutting programs instead of increasing revenue, Democrats at the legislative square dance followed the call and took two steps to their right to deal with the budget crisis.

In the end, the cuts to Medicaid, retiree health care and a slew of other state programs such as education passed. Lawmakers also narrowly agreed to a $1 increase in the tax on cigarettes, which is estimated to bring in $700 million when federal matching funds are included, and a gambling expansion, which Quinn has publicly criticized. 

But the pension changes stalled before the spring legislative session ended on May 31, with disagreement over whether public schools, colleges and universities should assume their employees’ pension costs, which have been borne by the state. As of this writing, legislative leaders were meeting with the governor to try to hammer out a consensus on pensions that both parties could live with.

Reaction from the bond raters ranged from bristles to brickbats. A Fitch analyst told the Chicago Tribune that the cuts in Medicaid were a plus “that seemed significant for cost controls” and that any pension reform would be an additional good signal. A Moody’s analyst said it was still looking for action on pensions. But the harshest response came from Standard & Poor’s, which said it considered the fact that pensions weren’t dealt with during the session as “negative, from a credit standpoint,” adding that it would “now be a more significant challenge.”

With the admonitions of the bond rating agencies still hanging over their heads, Quinn continued to demand immediate action on pensions, so as not to risk the state’s credit ratings. And those agencies are likely to remain a driving force for future “reforms,” even if pension changes survive a certain constitutional challenge.

After Standard & Poor’s downgraded the U.S. government’s credit rating last summer, and the others didn’t follow suit, some progressives such as billionaire Warren Buffett and The Nation magazine’s George Zornick accused S&P of having a conservative political agenda, although the ratings agency’s president, Deven Sharma, denied it to CNBC. Others speculated that all the bond evaluators were being overly cautious because they had failed so badly with their high ratings several years earlier of toxic mortgage-backed securities — ratings that some saw as a major cause of the ensuing worldwide economic crisis.

Nonetheless, Quinn’s and the Democratic legislative leaders’ desperate support of massive cuts to Medicaid and retiree health care, along with their stated intention to reduce pension costs, have won them the approval, if not the applause, of traditional adversaries such as the business-oriented Civic Federation and the Illinois Chamber of Commerce. But it came at the cost of inflicting pain on their traditional constituencies of labor, the elderly and the indigent. 

Illinois Issues, July/August 2012