Tag: bruce rauner
To Balance Budgets, Governors Seek Higher Education Cuts

To Balance Budgets, Governors Seek Higher Education Cuts

By Elaine S. Povich, Stateline.org (TNS)

WASHINGTON — Governors in nearly a half-dozen states want to cut state spending on colleges and universities to help close budget shortfalls, often sparking vehement opposition among state lawmakers of both parties.

Republican governors in Arizona, Kansas, Louisiana, and Wisconsin, and Connecticut’s Democratic governor have proposed higher education cuts for the coming fiscal year. Higher education spending traditionally is a juicy target for budget cutters because schools can make up the lost revenue by raising tuition.

But students and their families already are being squeezed by steadily rising college costs. In fiscal year 2013, schools got about 47 percent of their revenue from tuition, up from about 24 percent in fiscal year 1988, according to the State Higher Education Executive Officers Association. Democratic Governor Dannel Malloy of Connecticut has suggested a tuition hike to compensate for the cuts, but the Republican governors are urging the schools in their states to find the necessary savings by trimming bureaucracy and consolidating campuses.

University officials argue that past budget cuts have pushed them to the breaking point, forcing them, for example, to rely heavily on adjunct professors and teaching assistants instead of full professors. During the recession, 48 states cut higher education spending. Alaska and North Dakota didn’t. They are the only two states spending as much or more on higher education than they did before the recession, when the numbers are adjusted for inflation, according to the Center on Budget and Policy Priorities (CBPP), a Washington, D.C.-based research group.

Some critics have urged the Republican governors to roll back recent tax cuts to spare the colleges and universities. But so far the governors have balked, arguing that lower taxes have helped working families and attracted businesses.

Nowhere is the controversy greater than in Louisiana, which has a complicated higher education system and a Republican governor who is considering running for president.

Governor Bobby Jindal proposed a budget that would reduce higher education spending by $141 million in fiscal 2016. In recent weeks, he has proposed offsetting some of the cuts by getting rid of some refundable business tax credits, which have a total value of $526 million. But the business community is strongly opposing that idea. That leaves the Republican-dominated legislature in a bind, forcing members to choose between education and low taxes, two priorities they generally support.

State Senator Conrad Appel, a Republican, said in an interview that if the higher education cuts Jindal proposed all go into effect “it would be really serious” and a big blow to colleges and universities. He said he wants to scale back the proposed cuts, but wasn’t prepared to say exactly how.

“If we vote to replenish, some of the cuts will be mitigated to some extent,” he said. But, he noted that the Louisiana public university system has “structural inefficiencies” that will mean more budget cuts in the future. He said he told college administrators last week that they should take steps to cut their budgets, whether that means consolidation of campuses or other methods.

“What I don’t recommend is for higher education to ignore the opportunity to fix the problem,” he said. “Either they are going to fix it or we are going to fix it for them and they won’t like it.”

Robert Scott, president of the Public Affairs Research Council of Louisiana, said that since Jindal became governor in 2008, the number of full-time employees at state colleges and universities has decreased 23 percent due to budget cuts, and that schools have been raising tuition along the way. But now, he said, “they are about to price themselves out of the market.” He said the flagship school, Louisiana State University, “still has some headroom” to continue tuition increases, but most of the small schools in the state system don’t have that luxury.

John Griswold, a fine arts professor at McNeese State University in Lake Charles, said his state is a test case for cuts to higher education.

“The conditions in Louisiana were perfect for testing an assault on state-funded higher education,” Griswold said. He noted the state has a conservative governor, legislative rules that preclude cuts in most spending except for higher education and health care, and an economic downturn prompted by the drop in oil prices.

“Similar conditions exist in other states, so conservative politicians elsewhere can also demand deep cuts to higher ed, based on populist appeals to ‘good business’ and an end to ‘welfare mentality,'” he said.

Republican Wisconsin Governor Scott Walker, a potential presidential candidate who has cut state income and property taxes by $541 million during his tenure, has proposed cutting $300 million from the University of Wisconsin system.

According to Walker, that amounts to a 2.5 percent cut, but other analysts have put the figure as high as 13 percent. The fact-checking service PolitiFact split the difference, assessing the reduction at about 6 percent. The cut would be exacerbated by the fact that there is a tuition freeze in place.

“Through flexibility and empowering current leaders from across the system, (University of Wisconsin) System and campus leadership will have the tools necessary to deliver a high quality education in a strategic manner while saving taxpayers $150 million a year,” Walker’s spokeswoman, Laurel Patrick, said.

Meanwhile, two Republican state lawmakers have called for changes in the governor’s budget that would lessen the cut, including raising out-of-state tuition and requiring the university to spend down reserve funds.

“We will work toward a smaller, more manageable cut instead of the $300 million cut proposed in the governor’s budget,” the two, Reps. Dean Knudson and John Nygren, said in a press release last week.

In Illinois, Republican Governor Bruce Rauner recommended a reduction of nearly 6 percent in direct spending on state colleges and universities. Despite the cut, Rauner argues that “this budget proposal continues to offer state support to our public universities” through contributions to the universities’ retirement system and insurance benefits for university employees.

But Rauner faces strong opposition from the Democratic-controlled legislature and from the state’s universities.

Senate President John Cullerton said on his Facebook page that the governor’s budget cuts will “undermine access to health services, child care, affordable college and retirement security for working- and middle-class families” and vowed that the legislature will amend it. While Rauner has proposed cuts in a range of areas, the education chunk is drawing the most attention.

In Arizona, the Republican-led legislature went further than Republican Governor Doug Ducey in cutting higher education, agreeing to a $99 million cut, down from an earlier legislative proposal of $104 million. Ducey had proposed a $75 million reduction as a way to pay for business tax cuts. Universities and proponents of higher education fought the governor’s cuts so doggedly that they prompted a backlash in the legislature, which upped them.

Arizona State University President Michael Crow called the action a “drastic remedy to the state’s budget troubles” and one that will come back to haunt the state when it has fewer college graduates contributing to the state’s economy.

In Connecticut, Democratic Governor Dannel Malloy proposed cutting $10.6 million from the University of Connecticut system and an additional $20.6 million from the state’s regional universities. Malloy has expressed support for tuition hikes, after several years of urging that tuition merely keep pace with inflation.

In Kansas, Republican Governor Sam Brownback since 2011 has pushed through a 25 percent reduction in the state’s top income tax rate, lowered sales taxes and eliminated a tax on small-business income. As a result, state revenue has declined by $685 million. Brownback now is looking to make cuts in education and elsewhere in an effort to balance the books.

Walter McMahon, professor emeritus of economics and education at the University of Illinois said cutting higher education to close budget gaps is “very, very shortsighted.”

“Spending on education is really an investment,” McMahon said. “As money is invested in human capital formation, each graduate is in the labor force for over 45 years and contributes increased earnings and tax revenue to state coffers.”

He added that statistics show that more educated people live longer, healthier lives and commit fewer crimes, allowing states to spend less on health care and prison costs.

Photo: Gage Skidmore via Flickr

Reclaiming Our State Budgets

Reclaiming Our State Budgets

I live in Chicago, a city of dramatic skylines and gleaming office towers for titans of business and finance. My state of Illinois is home to 17 billionaires, and our downstate farmers are the country’s second-largest corn and soybean producers.

And yet new Illinois governor Bruce Rauner says we’re so broke that we must slash $6 billion from our state budget this year — nearly all of it in programs for the poor and middle class. We’re so broke, he says, that there are no other options but to make deep cuts to basic services like mental health programs, drug treatment, and bus subsidies for the elderly.

He also wants to cut housing support programs for people who’ve experienced homelessness and eliminate dental and podiatry services for folks on Medicaid — all programs and services that have actually reduced the state’s overall costs.

Similar budget battles are happening in many states across the country.

Wisconsin governor Scott Walker, for example, aims to cut $300 million from public universities over the next two years. Kansas governor Sam Brownback wants to slash classroom funding by $127 million. And even in Maryland, the country’s third-richest state, Governor Larry Hogan has proposed cutting Medicaid and state employee salaries.

Despite the growing signs of a national economic recovery, these and many other state officials are whipping up budget hysteria and claiming that the only solution is to crack down on overspending.

I don’t see signs of overspending. When I look away from the skyline and the lakefront, I see young people with nothing to do after school. I see overfilled waiting lists for affordable housing. I see the rusty underbelly of our deteriorating elevated train tracks. I see social services agencies struggling to do more with less.

Draconian budget cuts on the backs of hardworking families and the most vulnerable aren’t the solution. We need more revenue from those most able to pay.

If you’ve ever walked along Chicago’s “Magnificent Mile” — an upscale stretch of skyscrapers and high-end shops along Michigan Avenue — you know we have no shortage of wealthy people.

What’s shocking is that the strip’s luxury store customers pay the same individual income tax rate as struggling working families. Illinois is one of eight states that apply such “flat taxes,” which favor the wealthy.

Many profitable corporations also get away without paying their fair share. In fact, two-thirds of corporations operating in Illinois pay no state corporate income taxes whatsoever.

A network of grassroots organizations called National People’s Action is connecting ordinary folks around the country who are fighting similarly senseless and painful budget cuts. In Illinois, I’ve joined up with ONE Northside and Fair Economy Illinois, two organizations that are bringing together social justice, labor, and faith-based groups to develop detailed proposals for an alternative approach to state budgeting.

The goal is to ensure that our thriving financial sector, our wealthiest residents, and our most profitable corporations pay their fair share of taxes so we can make the investments we need for a healthy economy — one that works for everyone.

Remember, we live in the richest country in the world. We’re not broke — we’re just keeping too much of our wealth in too few pockets.

Susan Gries is the Chief Financial Officer for a nonprofit provider of supportive housing and services in Chicago and co-chair of Fair Economy Illinois.

Cross-posted fromOther Words

Photo of Governor Bruce Rauner: Metropolitan Planning Council via Flickr

In Some States, Tax Cut Promises Collide With Budget Realities

In Some States, Tax Cut Promises Collide With Budget Realities

By Elaine S. Povich, Stateline.org (TNS)

WASHINGTON — Many newly elected and re-elected Republican governors stormed into office pledging to cut taxes. Now, in the face of lower-than-expected revenues, some are in a predicament that might remind movie buffs of the 1972 film The Candidate, in which Robert Redford’s character won a U.S. Senate seat only to ask, “What do we do now?”

Some governors are being forced to reconsider their tax cut promises, while others are contemplating budget cuts to bring state balance sheets into equilibrium. Most states are in better fiscal shape this year than in the recent past, but in 20 of them, revenues for the current fiscal year are coming in under projections, according to the National Association of State Budget Officers (NASBO).

Overall, state revenues are projected to be $748.3 billion in fiscal 2015, a roughly 3 percent increase over the $726.1 billion states collected in fiscal 2014. But when those numbers are adjusted for inflation, state revenues still are 2 percent below the pre-recession peak, according to NASBO Executive Director Scott Pattison.

“There’s stability, growth, but overall a lackluster picture,” Pattison said. “We are not seeing significant growth.”

There are now 31 Republican governors, up from 29. Seven of them are new: Asa Hutchinson in Arkansas, Doug Ducey in Arizona, Bruce Rauner in Illinois, Charlie Baker in Massachusetts, Larry Hogan in Maryland, Pete Ricketts in Nebraska, and Greg Abbott in Texas. Hutchinson, Hogan, Rauner and Baker seized governors’ offices previously held by Democrats.

During their campaigns, all of the new Republican governors made some kind of “no taxes” pledge, either promising to freeze taxes or cut them. But those promises are bumping up against budget realities, including looming deficits and unmet needs stemming from the recession. When adjusted for inflation, states’ fiscal 2015 spending will be about 2.7 percent lower than it was in fiscal 2008, according to NASBO.

Education spending, which is a large chunk of state budgets, is a vivid example. Per student, at least 30 states are spending less in inflation-adjusted dollars than they did before the recession hit, according to the Center on Budget and Policy Priorities, a left-leaning think tank. CBPP said most states are spending more per student than they did a year ago, but not enough to make up for the cuts in past years. Many governors, including some who have promised lower taxes, are proposing increases to education spending.

“It makes it difficult to contemplate additional tax cuts when your state is struggling to pay for past ones,” said Michael Leachman, director of state fiscal research at CBPP. “In a state like Arizona, they cut the heck out of their educational system. If they are going to compete in the future, they need to invest. It’s a very difficult situation.”

Ducey, Arizona’s new Republican governor, swept to victory on a platform of tax cuts, economic growth and an overhaul of education funding. But the former CEO of Cold Stone Creamery now faces a possible $520 million deficit this fiscal year and a $1 billion shortfall in the coming year. The state’s fiscal 2015 budget totals $9.2 billion.

David Burton, an economic policy fellow at the conservative Heritage Foundation, said lower taxes usually mean lower spending — a good thing, in his estimation. “Can spending hypothetically go so low that essential services aren’t being provided? Sure, but we’re nowhere near that in any state I’m aware of,” Burton said.

In traditionally “blue” states, combining tax cuts with spending cuts will be a tough sell for newly elected Republican governors.

During his successful campaign, Maryland Gov. Hogan pledged to cut taxes, particularly income taxes, and to get rid of what Republicans call the “rain tax,” a wildly unpopular tax on runoff and wastewater to fund the Chesapeake Bay cleanup. But those promises will be difficult to keep in light of new budget projections showing a deficit of about $1.2 billion in fiscal 2015, out of about a $16 billion general fund budget.

Hogan got an assist from outgoing Democratic Gov. Martin O’Malley. Shortly before leaving office, O’Malley required state agencies to absorb a 2 percent cut over the next six months, part of a plan to cut $400 million from this year’s budget to bring it into balance. However, Hogan will still have to deal with the projected fiscal 2015 deficit. He said he is still planning tax cuts, but did not provide details in his first news conference as governor.

Hogan “always said that we need to get spending under control first, before we begin trying to roll back taxes,” said spokeswoman Erin Montgomery. “He acknowledges that the current budget deficit is a huge factor in accomplishing this goal, but he stands by his promise to make Maryland more affordable for people to live, work and retire. And that still means cutting taxes as soon as he possibly can.”

State Sen. Richard Madaleno, Jr. is skeptical. “While I think there’s a desire to cut taxes, I don’t think there is room to cut taxes and I think the new governor knows that,” the Democrat said. A fight in the Democratic-controlled legislature is looming.

In Massachusetts, new Republican Gov. Baker rode into office on a pledge to lure more businesses to the state by lowering corporate income taxes. But after the election, outgoing Democratic Gov. Deval Patrick identified a $329 million gap in the state’s $36.5 billion budget, though some analysts pegged the figure higher.

Baker has not said where he will find the money to plug that hole. During his campaign, Baker promised not to cut aid to cities and localities and not to raise taxes. He continued this theme in his inaugural address, but did not provide specifics.

“We will hold the line on taxes — we’re already demanding enough from hard-working people. And we will protect cities and towns and fulfill our promise to end the cuts to local aid. Otherwise, every line item will be looked at,” Baker said.

The situation in Illinois, where there is a deficit of about $5 billion in the state’s $36 billion budget, is particularly complicated and dire. Former Democratic Gov. Pat Quinn late last year proposed making permanent a “temporary” income tax increase, but the legislature refused to go along, so the tax reverted to 3.75 percent on Jan 1.

During the campaign, Rauner hammered Quinn over the tax increase. More recently, Rauner has said he would “work with” the 3.75 percent rate, but refused to be specific about what he might cut or how he might redraw to the state’s tax system to balance the roughly $36 billion budget. He also did not rule out hiking taxes in the future.

The budget trouble is especially stark in Kansas, but Republican Gov. Sam Brownback, who has pushed through $1 billion in tax cuts since 2011, is not backing away from his tax-cutting philosophy. In November, Brownback defeated Democrat Paul Davis by 3 percentage points in an election widely viewed as a referendum on his fiscal policies.

Last month, Brownback was forced to cut funding for most state agencies by 4 percent and take $95 million from the state’s highway fund and $40 million from the public employees’ retirement fund to address a projected $279 million shortfall in the budget for the fiscal year that began in July. State revenue is expected to decline by another $436 million next fiscal year. Kansas’ total budget is about $5.9 billion.

“I think that Gov. Brownback does consider that … he has the approval of the voters to push ahead here,” said Burdett Loomis, a political science professor at the University of Kansas. “More tax cuts will go into place in January and there will certainly be substantial cuts in spending.”

Loomis said exit polls showed that by a 53 percent to 41 percent margin, Kansas voters thought that Brownback’s tax cuts were harmful to the state, but they re-elected him anyway. “Tax cuts were not popular but Obama was less popular,” Loomis said. The latest deficit numbers were released a few days after the election.

GOP successes in November suggest voters around the country want lower taxes, Loomis said. “Kansas is distinctive but not alone,” he said. “Kansas may be a slightly cautionary tale, with voters saying ‘we don’t want to go that far that quick,’ but everyone is looking at it. We have a potential train wreck here.”

In some states, however, it will be far easier for GOP governors to keep their tax-cut promises.

Arkansas, for example, had a nearly $300 million surplus in the last fiscal year. Democrats would like to spend more money on education, but Hutchinson wants to lower the income tax rate for “middle-class” Arkansans (defined as those earning between $34,000 and $75,000 annually) from 7 percent to 6 percent. Hutchinson wants to take the rate for those making between $20,400 and $34,000 even lower, to 5 percent.

In Oklahoma, where Republican Gov. Mary Fallin was easily re-elected to a second term, most taxpayers will see a cut in their state income taxes in 2016, because revenues have hit a preset target. State Secretary of Finance Preston Doerflinger said the tax will drop to 5 percent, while most agencies will see small cuts in appropriations.

And in Florida, GOP Gov. Rick Scott’s pledge to cut taxes and fees got easier when state economists said in December that the budget has a surplus of $958 million. Scott narrowly won re-election in November. “I look forward to working with the Legislature to cut taxes by $1 billion over the next two years and increase K-12 per-pupil funding to the highest level in our state’s history this coming year,” Scott said in a statement.

On Jan. 12, he set that figure at $7,176 per student in 2015-16, the highest amount ever.

Photo: Secretary Arne Duncan meets with Governor Sam Brownback at the Capitol Building in Topeka, Kansas. (Official White House Photo by Chuck Kennedy)

 

Judge Says Illinois Governor Elect’s Former Company Not Responsible For Nursing Home Fraud

Judge Says Illinois Governor Elect’s Former Company Not Responsible For Nursing Home Fraud

By David Heinzmann, Chicago Tribune (TNS)

CHICAGO — A federal bankruptcy judge said Tuesday that Illinois Gov.-elect Bruce Rauner’s former investment company won’t be held responsible for a scheme to avoid liability in costly nursing home death lawsuits.

In a tentative ruling in the case designed to prod the parties involved to reach a settlement through mediation, the judge painted Rauner’s former company, GTCR, as an unwitting participant in a deal concocted by the business’s former New York-based partners in the nursing home business.

The judge found that those partners, headed by New York businessmen Murray Forman and Leonard Grunstein, were responsible for a ruse to hide assets after the 2006 purchase of a nursing home company from a GTCR-controlled business.

Judge Michael G. Williamson said he would rule that Forman and Grunstein-controlled companies are responsible for the liabilities of a subsidiary they bought from GTCR, including more than $1 billion in wrongful death judgments for the plaintiffs who forced the bankruptcy case to trial.

Their end of the deal had “all the hallmarks of fraud,” he said in his Tampa, Fla., courtroom Tuesday.

Williamson called GTCR’s investment in the nursing home business “a financial disaster” triggered by misstated earnings that made the business vulnerable to its creditors and landlords starting in 2002.

While Rauner was involved in forming and managing the nursing home company, Trans Healthcare Inc., in 1998, he argued that he was not directly involved in the management of the business by the time GTCR was forced into sale negotiations with the New York investors in late 2005. The deal was executed in early 2006.

The judge found that GTCR’s front man in the nursing home business, former principal Edgar D. Jannotta Jr., did not breach his fiduciary duties to the company’s creditors, as had been alleged by the lawyers for six families whose loved ones died in the nursing homes.

Williamson said he believed Jannotta’s contention that was “duped” by Forman and Grunstein, and said Jannotta had no way of understanding the circumstances around the New York investors’ move to place the liability-ridden subsidiary of the company under the ownership of an elderly graphic artist who had no knowledge of the company.

“I will not order the GTCR (parties) to participate in mediation,” Williamson said.

Spokesmen for Rauner and lawyers for GTCR did not immediately respond to requests for comment.

The judge stressed that his remarks Tuesday were preliminary and not binding, but that they conveyed how he sees the facts of the case, which has been before him for several years.

In laying out his interpretation of the case Tuesday, Williamson said that the partnership between GTCR and the New York investors was a marriage of convenience that resulted from a dispute over who would control a bankrupt chain of nursing homes that both companies sought in 2002. The New York investors outbid GTCR, but they had no nursing home operating company, so they entered into a lease agreement with the Chicago private equity company, the judge said.

GTCR had gotten into the nursing home business in 1998 when Rauner helped formed Trans Healthcare as a vehicle to buy nursing homes. Although he was one of the original directors of the company, Rauner said he stepped aside from the daily operations of the business after about a year. However, court records revealed that four years later in 2002 he signed a loan agreement as a director of Trans Healthcare.

In 2003, new executives at the company discovered that GTCR’s former management team had misstated earnings, presenting a $29 million loss as a $6 million profit, according to court records. That revelation got the company into trouble with its lenders, and created financial troubles that led to Forman forcing GTCR to sell the business to himself and Grunstein amid claims of default on the lease agreement.

That sale, which resulted in a critical subsidiary of Trans Healthcare being stripped of its assets and transferred to a shell company headed by an elderly graphic artist named Barry Saacks, was at the crux of the fraud allegations. Plaintiffs’ lawyers claimed GTCR officials knew that Forman and Grunstein were creating a sham company and sold them their company anyway. The judge disagreed.

Attorney Jim Wilkes, whose firm represented all the families in the wrongful death cases, said it was hard to say what would come of mediation, but he was gratified that the judge said he believed fraud took place.

“The sale to this poor man, Barry Saacks, was a sham and the real liable parties are a couple of billionaires from New York,” Wilkes said. “I believe that the judge’s tentative finding supports that.”

Photo: Scott* via Flickr