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Illinois Gov. Rauner is grappling with spending crisis ahead of upcoming budget address

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SPRINGFIELD, Illinois — Illinois Gov. Bruce Rauner will lay out his plan on Wednesday to confront an unprecedented fiscal crisis exacerbated by the recent expiration of the state's temporary income tax increase, a multi-billion-dollar revenue loss that could foreshadow big spending cuts and test his campaign pledge to not raise taxes.

By law, Rauner must develop a budget based on currently available funds. But the loss of the additional income tax revenue last month leaves a gaping hole for the remainder of this fiscal year and next year.

Rauner has been tight-lipped about his plan, but the Republican offered some hints in his State of the State address this month and at recent stops around Illinois.

Here's a look at the situation:

THE IMMEDIATE CRISIS

A roughly $2 billion revenue gap is expected by the end of the fiscal year in June because the $35.7 billion budget lawmakers passed last spring didn't allocate enough money for expenses and a decision on extending Illinois' income tax increase wasn't taken up in the fall as lawmakers heeded Rauner's request not to address any "substantive" issues until his January inauguration. As a result, the tax increase rolled back on Jan. 1, from 5 percent to 3.75 percent for individuals, and from 7 percent to 5.25 percent for corporations.

Some state programs and services are rapidly running out of funds. A state-subsidized day care program needs roughly $300 million more to continue helping low-income parents through June. The departments of Corrections and Revenue also are running low on cash, as is the account used to pay court reporters.

Richard Dye, an economist at the University of Illinois' Institute for Government and Public Affairs, called the state of this year's budget "worse than ever."

"The revenue and spending for this year were overly aggressive and no necessary changes were made to restore balance," Dye said. "What has emerged is a cash flow crisis, a payment crisis."

EXPANDED POWERS

Rauner, who has pledged to manage the state's budget crisis without raising taxes, has asked lawmakers for broad powers to move money around within the current budget, and is negotiating with legislative leaders.

"I've got to reallocate money from nonessential government services and move it over into essential services," Rauner told students at Lanphier High School in Springfield on Tuesday.

Some lawmakers suggest that that one way Rauner could plug some holes in the state's general revenue fund — such as for the day care program — is by taking money from Illinois' roughly 500 special funds, which together have a balance of close to $3 billion. These specials funds, established through lobbying efforts of special interest groups over the years, maintain reserves by drawing in money from state services and fees. They include funds for tanning permits, radiation protection and bottled water.

PHOTO: In this Tuesday, Feb. 10, 2015 photo, Illinois Gov. Bruce Rauner speaks to students during a visit to Lamphier High School in Springfield, Ill. Rauner told students he needs to reallocate money from nonessential government services and move it over into essential services, like education. (AP Photo/Seth Perlman)
In this Tuesday, Feb. 10, 2015 photo, Illinois Gov. Bruce Rauner speaks to students during a visit to Lamphier High School in Springfield, Ill. Rauner told students he needs to reallocate money from nonessential government services and move it over into essential services, like education. (AP Photo/Seth Perlman)

Democratic state Sen. Dan Kotowski, a Senate appropriations chair, called management of special funds "vastly different from other areas of the state budget."

"We should be able to have access to these dollars," Kotowski said. "We should collapse these funds."

NEXT YEAR

The budget for Fiscal Year 2016, which starts in July, also faces a huge gap. A $5.7 billion drop in revenues is expected because of the expiration of the tax increase, which means current spending levels for state programs and services are unsustainable unless new revenue is found.

While House and Senate Democrats seek to protect social services, state workers and Medicaid recipients from steep budget cuts, they say they'll let Rauner outline his plans first. That strategy, experts say, allows Rauner to assume responsibility for a healthy share of the financial pain.

"We had a campaign where he (Rauner) seemed to imply that he wanted to lower taxes and spend more money on education," said Senate President John Cullerton. "That seems to be contradictory. We're eagerly waiting on his proposed solutions."

Rep. Greg Harris, a Chicago Democrat leading the House Human Services Appropriations committee, said he fears Rauner will pursue policies to charge Medicaid recipients premiums and higher copays, based on the record of other Republican governors who've used the same advisers that Rauner hired. Harris filed a bill this month requiring legislative approval of Medicaid waiver requests to the federal government, which pays for roughly half the program, and must be consulted on certain structural changes to Medicaid. Harris said any governor needs work with the Legislature rather than acting independently when subtracting services in Medicaid.

BUDGET PREVIEW

Rauner is scheduled to give his address at noon on Wednesday, and his office says details are being finalized. Still, some hints of what the address could contain have emerged in recent weeks.

In addition to Rauner's campaign pledge to increase funding for early childhood and K-12 education, he hinted that higher education may see some cuts. He told a crowd at the University of Illinois last month that he wants school administrators to better manage finances and reduce costs.

Rauner also has proposed a jobs and economic growth package he says must reduce the cost of workers' compensation and unemployment insurance. Rauner also wants to freeze property taxes for two years, and Friday issued an executive order creating a task force aimed at eliminating or consolidating some of Illinois' more than 7,000 units of government.

Time will tell just how much lawmakers — who are responsible for passing a budget by May 31— will take Rauner's budget plan to heart.

"The key thing is how Rauner works with the two (Democratic) leaders," Dye said. "I don't know how pragmatic they're all going to be."


Associated Press Medical Writer Carla K. Johnson contributed to this story.

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