Bill Brady's questionable budget math

Tuesday, October 05, 2010

One of the better questions GOP gubernatorial hopeful Bill Brady hasn't answered is exactly how he'd fill a staggering hole in the state's budget without raising taxes or utterly kneecapping vital services.

In an appearance before Crain's editorial board late last week, the Bloomington businessman finally put a few leaves on that tree. At the same time, he admitted for the first time that overall cuts might have to be more than the 10% average he's been promising.

In fact, outside financial experts and even, reportedly, sources in Mr. Brady's own campaign are saying that to close the gap, the average cut would have to be more like 20% — this, on top of billions in cuts Gov. Pat Quinn claims he's making.

Combined cuts of that magnitude would devastate some programs.

Mr. Brady told us he'd divide state government into five general areas — transportation, education, public safety, human services and health care — and subject each to cuts of "a dime on the dollar."

With the state budget now totaling $53 billion, give or take, that would raise about $5 billion — enough to fill in the annual structural deficit gap of $4 billion and pay for $1 billion in business tax cuts that Mr. Brady says are needed to boost job creation.

He likened such cuts to how a family deals with its spending when times are tough and pointed to other states that have taken similar difficult steps.

But how much of that $53 billion actually is susceptible to 10% cuts? In other words, would the cuts have to be more than 10% after some programs are exempted?

You can't reduce debt service 10%; the state owes the money. Some federal funds are strictly pass-through with little if any state money involved; health insurance has to be paid for state workers, etc.

Mr. Brady says his budget gurus have told him that the base subject to cuts is $45 billion, which would put him close to his goal, assuming a 10% cut.

Areas that would be subject to losing 10% of state funding include elementary and secondary education, Mr. Brady said. Ditto aid to the Chicago Transit Authority, Metra and Pace and even the Department of Corrections — though Mr. Brady says that corrections, for instance, could achieve big savings just by operating more efficiently.

And what's off the table?

Probably the distributive share of income-tax proceeds that local municipalities get.

"I would hope that would be an area we can avoid" cutting, Mr. Brady said.

Road construction? "Administrative ways" exist to cut spending without impacting the amount of mileage actually completed, he said.

High-speed rail? "Those are mostly federal funds that we're capturing."

Pensions — something the state is doing a lousy job of funding now? The state needs to "look at" moving in the direction of 401(k)-style personal retirement accounts, with the size of the state contribution — if any — to be "collectively bargained with employee unions. But, at the end of the day, if we only have (so much) to pay you...."

Transition costs of $50 billion or so to pay for those workers who have already been promised or are drawing benefits could be funded with another large pension-obligation bond issue, Mr. Brady added, taking advantage of the spread between low interest rates and higher investment returns. But unlike former Gov. Rod Blagojevich's POB, all proceeds of such a scheme would stay with pension funds, and the state would make its regular payments, he said.

Does all of that add up to $5 billion or so in cuts —"only" 10% on average?

Mr. Brady says it does. But he got an unusual look on his face when I asked him about something a top GOP insider told me: Mr. Brady's own number guys have told him that so many things like federal programs and debt service would have to be exempt that the remaining programs would have to be cut nearly 20%.

No, he hasn't been told that, he replied. But "it's possible" the average cuts would exceed 10%, depending on how fast his administration could boost income by creating new private-sector jobs.

One outside fiscal watchdog I talked to isn't buying it.

Civic Federation chief Laurence Msall said cutting from $45 billion in base spending "seems high." He added, "Because of federal funds, debt service, special-program trust funds and the like, the number probably is more like $30 billion."

Similar dissent comes from a former state revenue director, Tom Johnson, who now heads the Taxpayers Federation of Illinois.

Once you take things like the $14-billion Medicaid program off the table, which is mostly funded by the federal government, "maybe $30 billion" remains on the table for the 10% cuts. And the real deficit actually is more like $7 billion than $5 billion, he says.

In other words, without new revenues, "you'd need about 20%" in cuts to balance the budget.

Mr. Brady's bottom line: "We can't tax, bounce and spend our way to prosperity."

There is much truth to that. I want to believe him.
But his numbers still aren't adding up in my book. Which makes me believe something else Mr. Brady said: "I've never said these cuts will be easy."