Big State, Big Cuts, Little Room

Illinois Agency Has to Pare Hundreds of Millions, but Mandates Restrict Fall of the Ax

Saturday, June 12, 2010

As the new head of the Illinois Department of Human Services, Michelle R.B. Saddler knew she would confront tough choices in preparing a budget that juggled rising needs for services with tumbling state revenue.
But she wasn't prepared for the long list of mandates and governor's priorities that tied her hands. She wasn't supposed to eliminate services required by law or court order. She was to spare Medicaid-eligible services and food-stamp benefits. And she couldn't jeopardize residents' safety or well-being.
"What's left?" she said.
State-agency heads nationwide face similar dilemmas as they confront gaping budget deficits. Last month, Illinois lawmakers cobbled together partial remedies to a $13 billion deficit—nearly 50% of its expected general-fund revenue of $27.44 billion for the fiscal year beginning July 1.
Illinois agencies are bracing for deep spending cuts, and the cutting falls largely to people like Ms. Saddler, a cheerful 49-year-old who, in October, took over a department with 13,500 employees and a general-fund budget of about $4 billion.
Her agency serves two million Illinois residents, coordinating everything from drug and alcohol treatment to home aides for disabled people to food stamps. The state provides about a quarter of the services itself and contracts with private businesses for the rest.
Ms. Saddler estimated that budget shortfalls would cost the state a total of 6,220 private-sector jobs and some or all services for 178,500 people. "I'm concerned that we will see a real public-health crisis and a real public-safety crisis with these cuts," she said.

Across the U.S., state legislatures are cutting spending on mental-health services and programs for the elderly and disabled. In California, Republican Gov. Arnold Schwarzenegger has proposed eliminating the state's welfare program to help close a $19 billion deficit.
In Illinois, Comptroller Daniel Hynes said the state's backlog of overdue bills could hit $5.5 billion by the end of June. Outside social-service providers, some of whom have gone months without being paid by the state, are struggling to survive.
Last month, Illinois lawmakers adjourned after voting to give Gov. Patrick Quinn, a Democrat, more power to control spending cuts. But they didn't approve borrowing to make a coming pension contribution of nearly $4 billion. Illinois borrowed $3.5 billion last year to make its pension payment, and legislators may yet decide to borrow again.
The state's debt exploded in 2003, when Democratic then-Gov. Rod Blagojevich pushed through a plan to borrow $10 billion. From fiscal 2002 to fiscal 2003, Illinois's debt more than doubled, from $9.54 billion to nearly $21 billion. After Mr. Blagojevich was removed from office last year amid corruption allegations, which he denies, Mr. Quinn became governor.
States in the Red
Most states have addressed or still face gaps in their budgets, while tax revenue declined in the final quarter of 2009.

A financial overhaul probably won't happen until after the November elections, in which Mr. Quinn is running to keep his job. His opponent, Republican state Sen. Bill Brady, opposes raising taxes and has advocated major spending cuts.
"It is a fiscal nightmare and an embarrassment to the state," says Laurence Msall, president of the Civic Federation, a nonpartisan research group in Chicago.
Ms. Saddler has run an investment pool for local governments, overseen international adoptions for a large nonprofit and served on civic boards. She knew Mr. Quinn from his stint as state treasurer in the 1990s, when she worked as his investment director. He named Ms. Saddler his policy director, then appointed her secretary of the Human Services department.
Her agency is squeezed between heightened demand for services and rising costs. Illinois's welfare caseload is growing for the first time in more than five years, and waiting lists for substance-abuse and mental-illness treatments are increasing. Meanwhile, costs for labor and building leases are rising.
As Ms. Saddler and her staff prepared the budget, they knew that even if their agency added no services, costs for the coming fiscal year would increase $250 million. Yet Mr. Quinn's office had ordered the budget held flat. Employee training, research, and plans to expand programs had to be scrapped.
But as in many states, Illinois's tax revenue continued to lag behind forecasts. In February, the state budget office told Ms. Saddler to cut $150 million, on top of the $250 million. Her staff responded with "tears and outrage," she said. Large groups of people, especially single adults without children, would have no access to services, she said.
She submitted a revised budget with deep reductions in non-Medicaid services—the few areas her agency seemed permitted to cut. Those were cut even further by the governor's office when it presented its overall budget plan in March.
There is financial logic to preserving Medicaid, the joint federal-state health-care program for the poor and disabled. Cutting Medicaid-eligible services causes the state to lose federal matching funds.
Yet even some cost-effective Medicaid services have had to be trimmed. Ms. Saddler's budget further reduces state Medicaid payment rates for small-housing arrangements for people with developmental disabilities.
That change could drive the operators of homes for people with disabilities out of business, forcing their residents into state-run institutions, according to Ms. Saddler and advocates for the disabled. But it costs Illinois $53,000 a year to provide care for one person in a small community setting, versus $135,000 for institutional care.
Illinois plans to cut its mental-health services by $91 million, eliminating all non-Medicaid funding for community-based mental-health programs and reducing such services by 32%. However in March the state agreed in a court settlement to move 4,500 people with severe mental illness out of nursing homes, after a series of rapes and assaults of elderly residents.
Ms. Saddler said implementing the settlement would cost more than $45 million in the first year, and she has been given no money for it.
She is gathering data to determine which programs are most effective. For the coming budget year, she is placing limits on some Medicaid-funded services, such as the number of psychiatrist visits allowed. Her office is requesting new bids from outside service providers for every contract over $1 million.
"We do have resources aimed at eliminating fraud and abuse, but I think that the need, by leaps and bounds, exceeds the level of so-called fraud in the system," Ms. Saddler said.