A WHITE PAPER TO SUPPORT INCREASING REVENUE

*The Right Thing To Do*

Proposed Budget Cuts Will Irreversibly Damage Community Human Services

January 23, 2002

PENNY-WISE…POUND FOOLISH

Illinois is currently faced with the enormous pressures of trimming $500 to $750 million from its budget. Budgets can be balanced in two ways: cutting costs or increasing revenues. The Illinois Association of Rehabilitation Facilities believes that increasing revenues would resolve the state's temporary revenue shortfall, whereas, cutting the budget will cause serious problems for the most vulnerable citizens of Illinois - persons with persistent and/or lifelong disabilities.

Illinois has a revenue problem. The Illinois Association of Rehabilitation Facilities will not accept that the best way to resolve the state's temporary budget crisis is to take money and services away from Illinois' most vulnerable citizens. Human services were an essential provision in Illinois yesterday, and should be an essential priority for Illinois citizens tomorrow. The responsible way for Illinois to deal with the shortfall is to produce additional revenue. IARF supports and will work for such a solution.

People with disabilities across the state and those who provide services and supports to them will feel the pain of the proposed cuts in significant - perhaps life- and system-changing ways. The cuts will hurt human services, specifically community based-service providers serving individuals with mental retardation, autism, cerebral palsy, schizophrenia, addictions, and other developmental and mental disabilities. Illinois has yet to decide if serving individuals with disabilities in less restrictive, closer to home, community-based settings is a priority. That fact is substantiated by Illinois' ranking in its spending for persons with developmental disabilities - 48th in the nation.

For many years, community-based service providers have worked hard to subsidize the cost of providing services to their clientele. This is due in part because they realize the responsibility of a community to support individuals who live and work there. It is also due to the sad fact that the cost of providing the services and supports far exceeds reimbursement from the State. Years of "keeping their thumbs jammed in the dam" has kept Illinois from having to face the reality that community-based services are not a priority in good times and not affordable in bad.

This paper will show the real impact of proposed and enacted budget cuts. It also offers some ideas for increasing revenues - our solution to the situation with Illinois' budget.

*DO THE RIGHT THING* SYSTEM FOUNDATION SHOWS STRAIN - PROPOSED CUTS INCREASE CHANCE OF REDUCED SERVICES TO THE MENTALLY RETARDED AND MENTALLY ILL

IMPACT: According to a survey by the Illinois Association of Rehabilitation Facilities, community disability service agencies are strained to the breaking point. It is a system that was barely maintaining itself, and the proposed cuts are likely to cause a serious decline in the availability of services to persons with disabilities and their families in community settings. Nearly every agency has used or maxed out its line of credit with local banks. Over 75% of agencies responded that they would have no choice but to reduce service levels, leave positions vacant, and/or lay-off staff. An alarming number of responders indicated they would discontinue providing services affected by the cuts, a significant number reported they would close their programs altogether. Over the last 3 years, for instance, 15 early intervention programs have closed, discontinuing services to babies and toddlers with disabilities. In some of those locales, other service providers are not available. The long-term effect of such closures is an increased need for special education funding to serve these children in schools because the developmental effects of their disability were not addressed early on.

IMPACT: If the 2% cost of doing business that was to take affect April 1, 2002 is cut, over 85% of agencies responding to the IARF survey indicate they would not be able to give raises to staff not affected by the

$1/hour initiative. A significant number of agencies will delay merit and incentive programs, compromising Recent efforts to reduce turnover rates and improve the ability of disability service agencies to compete with retail chains and fast food restaurants for staff. The inability to give promised raises or increase the base pay of incoming staff will only escalate existing staffing problems in community agencies. Numerous national studies haven proven the detrimental effects of staff turnover on persons with disabilities.

In addition, a 2% cost of doing business increase - compared to a guaranteed minimum 18% increase over four years to state operated facilities - is unmanageable when you consider the rising costs of insurance, utilities, and other general operating costs. Now, the State of Illinois is asking community agencies to do without that as well.

IMPACT: Most community agencies depend on local fundraising efforts and United Way dollars to subsidize the actual costs of providing services and supports. The September 11th tragedy has not only affected revenues to the State of Illinois, but it has significantly reduced the amount of charitable contributions that come to organizations serving persons with disabilities. The combination of budget cuts, decreases in local fundraising, and that fact that many of these agencies have been precariously balanced financially for years will result in agencies reducing and/or eliminating services that have supported persons with disabilities and their families for years.

IMPACT: Access to services will be reduced - and perhaps never reinstated - if the cuts are imposed. As some agencies are forced out of business (a fact acknowledged by the Department of Human Services), the inter-relatedness of the system will become immediately apparent. One agency providing residential services that closes will directly affect a sister agency providing developmental training services to those same customers, which in turn will likely cause that agency to reduce service capacity, and the cycle continues. Like a line of dominos, if the first one falls the chain reaction is inevitable.

*DO THE RIGHT THING* DISPARITY IN FUNDING LEVELS WILL COST STATE MORE

Providing support in the community is a life enhancing way of providing quality care and services to the citizens of Illinois who are disabled. Illinois currently spends three times as much to house individuals with mental retardation and developmental disabilities in state operated developmental centers as it does in community settings. The level of disparate funding at the community level does not reflect "cheaper" or "lesser quality" care. It is simply the difference in funding between a state institution with years of state support, virtually guaranteed step and merit increases for staff, and a system where costs are flexible and fluid and designed around individual needs versus institutional needs. The cuts jeopardize the community system, and if it begins to turn persons with disabilities away or reduces existing capacity, the state will be responsible for providing care in the only alternative - state operated facilities where the care is more expensive.

The state's reimbursement for community integrated living arrangements (CILAs) is narrowly adequate already. The average state reimbursement for CILA services in $42,891 while the average cost of serving an individual is $45,715, guaranteeing a $2,824 loss each year, per individual served on average. Agencies have spent many years subsidizing these residential programs.

*DO THE RIGHT THING* INCREASE REVENUE - DO NOT DENY SERVICES TO PEOPLE WITH DISABILITIES

As initially stated, the Illinois Association of Rehabilitation Facilities believes the temporary shortfall in revenue should be dealt with by finding additional revenue sources, not asking citizens of Illinois - particularly citizens with disabilities and their families - to shoulder this burden. We therefore urge elected officials to work

*DO THE RIGHT THING* INCREASE TAXES ON CIGARETTES AND RIVERBOATS

The Illinois Association of Rehabilitation Facilities supports a 75-cent increase in the cigarette tax that would yield $537 million in new revenue. Smokers and the tobacco industry would oppose such a tax increase. Although controversial, taxes on tobacco products have been increased before. In addition to supplying additional revenue, we support this because it potentially reduces the use of tobacco products, especially among young people.

IARF also supports increasing taxes on riverboat operations. Revenues are up and boats no longer have to leave their docks. This allows for more gaming. Currently, there is a $2 admission charge for every person who boards a riverboat. Fifty percent of that money goes to local government and fifty percent goes to the state. By raising the admission fee $1, an additional $9.5 million in new revenue would be generated for the state and a like amount for local governments.

Riverboats are also taxed on receipts. The top rate is currently 35% for adjusted gross receipts (AGRs) over $100 million. The lowest rate is 15% for AGRs up to $25 million. All but one boat is in the highest tax bracket with four of the state's nine boats having an AGR of well over $200 million. Increasing the top rates for riverboat taxes would increase revenue.

*DO THE RIGHT THING* INCREASE ILLINOIS MEDICAID MATCH

Illinois is one of twelve states receiving federal Medicaid matching of 50% - the lowest rate. For every dollar spent on Medicaid services, the federal government gives the state another 50 cents. By comparison, Ohio gets a 58.83% match and Michigan gets 55.42%. An increase in the federal Medicaid match would greatly improve Illinois' bleak budget picture. For every 1% increase in the matching rate, Illinois would see $83,264,000 in additional revenue. IARF is working hard to support the need for this equitable, and much needed, revenue enhancement. Many of the services provided in community settings are Medicaid reimbursable - many more could be.

CONCLUSION

PROJECTIONS OF PROPOSED INCREASES TO ILLINOIS REVENUE New GRF Cigarette Tax Increase $537 million Riverboat Tax Increase $9.5 million Illinois Medicaid Match 5% Increase $416 million Total $962.5 million

Illinois has a revenue problem. The Illinois Association of Rehabilitation Facilities will not accept that the best way to resolve the state's temporary budget crisis is to take money and services away from Illinois' most vulnerable citizens. The responsible way for Illinois to deal with the shortfall is to produce additional revenue. IARF supports and will work for such a solution.