How Illinois pried open the federal coffers
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The setting is Washington; the year is 1970, and Illinois needed more money than its new income tax could provide to fund public aid programs in the state. This is the story of how Gov. Ogilvie's staff got the money and opened the way for higher and higher federal support of public aid programs administered by the states |
Copyright® 1975 by The Brookings
Institution, Washington, D.C.
THE STATE that touched off the spending explosion of 1972 was Illinois, which advanced a bold interpretation of federal regulations on the purchase of services and precipitated a fresh and permissive statement of federal policy. With the actions of Illinois, social services spending emerged as an issue of high politics. The Illinois demands engaged the personal attention of the President, involved the governor's office in a confrontation with the Office of Management and Budget, and culminated in a victory for the state on the floor of the Senate.
Illinois was one of many states in which budgets were badly strained by rising welfare costs. In a typical report, one news magazine declared early in 1971 that welfare spending was threatening to bankrupt the states and cities. "Many Governors and mayors," according to U.S. News and World Report, "regard the soaring costs of the public-assistance and medical programs as the most crucial domestic problem in the nation today." Governors cracked down at home and called on Washington to help.
In Illinois, coping with the welfare and fiscal crisis was up to a progressive Republican governor, Richard B. Ogilvie, who had been elected simultaneously with President Nixon in 1968, and to the very able, well-educated young men whom he had attracted to his staff. Most of this staff was located in the newly formed, eighty-man Bureau of the Budget, patterned after the federal one and, like it, designed to assist the chief executive with program and fiscal planning. The director of the Illinois bureau was John W. McCarter, Jr., a graduate of the Harvard Business School who had been with the management consulting firm of Booz, Allen and Hamilton before being named a White House fellow in 1966-67. As a White House fellow, he was assigned to a assist Budget Director Charles L. Schultze. He occupied the connecting office between Schultze and Deputy Director Phillip S. Hughes — not a bad vantage point from which to learn the workings of the federal executive branch. McCarter's deputy, John F. Cotton, likewise had Washington experience. A physicist turned systems analyst, he had worked in the Office of the Secretary of Defense, collaborate with the economist Selma Mushkin no introducing planning, programming and budgeting systems into state governments, and had briefly been in Vermont in the Democratic administration of Governor Philip Hoff. The budget staff specialist on public assistance, Ogilvie's principal adviser on the subject, was George A. Ranney, Jr., member of a wealthy and public-spirited Chicago family who had worked in a legal services agency as well as a private law firm after getting his bachelor's degree from Harvard and a law degree from the University of Chicago. (After his service to Ogilvie was over, Ranney became general counsel of the family firm, Inland Steel.)
In the fall of 1970, as McCarter Cotton, and their staff prepared the budget for fiscal year 1972, they foresaw a sizable deficit, on the order of $140 million, as the result mainly of rising welfare costs. The governor and his staff were determined not to make up this deficit at the expense of the poor by cutting welfare grants. They decided not to let such grants fall below the state-defined standard of need and not to cancel automatic adjustments for the rise in the cost of living. (If state employees got such increases, the Ogilvie administration reasoned, so should welfare recipients.) There was "a terrific
20 /April 1977/ Illinois Issues
At about the time that Illinois budget officials were making their plans for fiscal year 1972 — that is, in the fall of 1970 - they discovered the possibilities in social services grants, and on December 30, 1970, they submitted several major amendments to the Illinois plan for social services to Donald F. Simpson, the regional commissioner of the Social and Rehabilitation Service (SRS)in Chicago. They then proceeded to base their 1972 budget on the assumption that the Department of Health, Education, and Welfare (HEW) would approve and fund those proposals, yielding the state an additional $75 million in federal aid. Beyond that, they also assumed that $65 million in new federal funds would come from the Family Assistance Plan (FAP) or some other fresh source, presumably revenue sharing, which Governor Ogilvie had actively supported.
| 'Illinois went well beyond what Caifornia or any other state had done' |
Illinois proposed that its Department of Public Aid should make substantial purchases of service from other state agencies, including Mental Health and Corrections. These purchases would cover part of the cost of state programs dealing with drug abuse, alcoholism, mental illness, mental retardation, and juvenile and adult corrections. Purchase, of course, was not new, but in the main it was being used for day care, consistent with the federal intent expressed in 1967. Booz, Alien and Hamilton, an SRS consultant, concluded early in 1971 that the great bulk of purchased service was for that purpose — $63.3 million out of $79.9 million in the three states studied (California, Pennsylvania, and Wisconsin, which were the leading practitioners of purchase). Indeed, $48 million of the $63 million was accounted for by three contracts — two in California, for the preschool compensatory program and for the children's centers, and one in Pennsylvania, for a day-care program for which the state public welfare department had contracted with the Philadelphia schools. The contracts that were not for day care were mostly small (under $100,000), localized, and tailored to the offerings of particular private agencies and the needs of particular recipients. They covered, for example, services for unwed parents, family counseling, foster care and adoptions, emergency shelter and protection, and homemakers — all traditionally provided by private sources. By contrast, Illinois was proposing to purchase from other state agencies, in large amounts, for a number of purposes other than day care, including purposes that were long established responsibilities of the state governments.
The specter that had troubled veteran public assistance administrators — that the states would exploit the open end for the purpose of fiscal relief, simply to transfer ongoing costs to the federal government — was raised by the Illinois plan. That the proposals were initiated by the Budget Bureau substantiated this interpretation. Technically, the proposals were submitted by the director of the Department of Public Aid, Harold 0. Swank, but he was a reluctant collaborator in what he regarded as a dubious venture; Ogilvie would soon seek to replace him.
Some of the language in the Illinois proposals seemed to suggest that state programs would expand with federal services funds. The Ogilvie administration was trying in general to enlarge social programs in what was traditionally a low-spending state. (The very strength of their commitment to reform and their confidence in their own liberalism increased the assurance of Ogilvie's staff that what they were doing in regard to services was right.) But there was no promise in the Illinois submission that state effort would increase, nor was there any reason to make such a promise. Neither federal law nor the 1969 regulations required it. Besides citing the broad language of federal laws and rules in regard to the definition of services, former and potential recipients, and group eligibility, Illinois officials did try to establish a logical connection between their proposals and reducing welfare dependency, but they did this in a way that would have further enlarged the loophole. They argued, for example, that those in the correctional system or in hospitals for the mentally ill were potentially recipients of public assistance (i.e., if released they might become recipients), and "if such groups are to be kept off the rolls, then preventive services must be begun at the stage before they enter the rolls." Expenditures on behalf of adult prison inmates were justified on the grounds that their incarceration was "responsible for family breakup which results in the family remaining outside needing to go on the AFDC (Aid to Families with Dependent Children) rolls." This line of argument would have led the federal
April 1977/ Illinois Issues /21
| 'Here again . . . Illinois was profoundly challenging traditional public assistance administration' |
government far down the path of paying for state mental health programs and prisons, at a potential cost that would have been large indeed and way beyond the explicit intent of the 1967 amendments. Measured by operating expenditures, Mental Health was the biggest state agency in Illinois.
Besides enlarging the scope of purchased services and concentrating on state agencies, Illinois proposed a procedural breakthrough, complementary to its substantive proposals and highly important even if technical. It asked for a waiver of the single-state- agency requirement — several waivers, actually, one for each of the departments from which the Department of Public Aid would make purchases. (These included Children and Family Services and, eventually. Labor, as well as Mental Health and Corrections.) The Intergovernmental Cooperation Act of 1968 provided for waivers at the discretion of federal department heads. Because this law came after the initiation of California's preschool compensatory program, it could not have applied there, but by the time Illinois came along with its social service proposals in 1970, the secretary of HEW 'had granted several waivers, thus creating a precedent that Illinois could cite, although none of these earlier waivers, including one granted to Illinois itself, had applied to the use of social service funds. Here again, as with the purposes of expenditure, Illinois was profoundly challenging traditional public assistance administration. The single-state-agency requirement had been used by the Bureau of Family Services (BFS) to hold state welfare departments directly accountable for the use of federal grants. If the purposes of spending could be broadened and if the single-state-agency requirement could be bypassed, the states could easily turn services grants into a form of shared revenues, transferring federal public assistance funds to other state agencies more or less at will and using appropriations to other state agencies as matching funds in the federal public assistance program.
Alert, enterprising, and knowledgeable as the budget officials of Illinois certainly were, the inspiration for their bold proposals came largely from outsiders. They took cues from two sources primarily — Simpson, the SRS regional commissioner and William Copeland, the consultant and professional promoter of services expenditures. After becoming commissioner in 1969, Simpson had worked hard at starting child development programs in his region. He had urged Illinois and other states to do something about day care, and when the Illinois Department of Public Aid submitted a modest proposal late in September 1970 as an amendment to the state's social services plan, Simpson urged Swank to expand it. Simpson was particularly interested in setting up child-care centers in Chicago's public-housing projects, and he pointed out the possibilities of using services grants and model cities funds. For all this exhortation, which helped to galvanize state budget officials. Simpson's suggestions nevertheless remained within the bounds of the 1967 amendments and subsequent SRS regulations. They encouraged day care for poor and deprived children, and so did he. He was in touch with Jule Sugarman at HEW headquarters about this.
It was Copeland who, as one Illinois official outside the Budget Bureau said, really "expanded their minds." A magazine article by Copeland, fortuitously spotted by a budget staff member, brought the possibilities in services grants sharply to attention at a critical time. As a consequence, Illinois officials took a field trip to California and brought Copeland in for a briefing, which preceded their submission of plan amendments. Beginning in January, they employed him as a consultant. He turned out to be less helpful on the specifics of planning administration. A Budget Bureau examiner was assigned full time to that, and contracts worth nearly a million dollars were let to a major public accounting firm, Arthur Young and Company. Nevertheless, as one budget official later said, "We really do have to thank him. We would never have tried anything so outlandish except for him."
It became clear to Illinois officials after they made their proposals that HEW would not soon or lightly approve. Illinois had stepped into an area where rules were unclear and stakes were high. Technically, Simpson could have given approval. Under SRS rules, regional commissioners can approve state plan amendments but must refer disapproval to headquarters. Yet Simpson drew back once the plan was submitted, choosing instead to insist that officials in Washington decide. No neophyte, Simpson was a career federal official who had been assistant secretary of HEW for management in the Johnson administration. He fully recognized the national implications of the Illinois proposals. If national policy was in the making, he declared, it was up to officials in Washington to make it. Moreover, he was soon in a situation that limited his freedom to act in favor of the state. In February 1971 Governor Ogilvie announced that he was appointing Simpson director of public aid ip Illinois to succeed Swank. The Chicago Tribune reported that Ogilvie expected Simpson to "be valuable in attempts to shift the entire welfare burden to the federal government." The appointment eventually fell through, but while it was pending and to a degree afterward Simpson as SRS commissioner felt constrained by the conflict of interest For a while he ceased to sign correspondence to Illinois officials.
Of course, if Simpson had been more concerned to avoid committing the federal government, he could have discouraged Illinois from submitting the plan amendments in the first place Once the plan had been formally trans mitted to him with his informal acquiescence, HEW's choices began to narrow. It would be hard for the SRS to repudiate what its regional commissioner had received without objection had even, in some respects, solicited Some of the SRS regional staff in Chicago thought that it was precised the national implications of the case that drew Simpson so deeply into it. He had operated in the national sphere before As regional commissioner, that seemed still to be his inclination. As assistant secretary of HEW, he had collaborated with John Gardner, Wilbur Cohen, and Lisle Carter, assistant secretary for
22/ April 1977/ Illinois Issues
Simpson had tried to take the lead in program development for child care and more or less as the accidental consequence of that effort, found himself to be taking a lead on social services grants. He was on friendly terms with McCarter, whom he had known in Washington, and was drawn to the milieu of the Ogilvie administration — the bright young men, quick, progressive, doers. He had the air of a doer himself and, though a career bureaucrat, was overtly impatient with bureaucratic ways — the delays, the tedium, the hair-splitting phrases, the cautious evasions, the forms, the words, the paperwork to no seeming purpose. Public assistance administration in particular exasperated him. His manner was forceful, clear, and crisp, which made him effective in meetings. Later it would be said that he took the side of the state. But he was not an advocate for the he said. He was an advocate for clarity.
Simpson's demand for guidance brought no response from the SRS headquarters. (As time passed without action, he would promise Illinois and threaten the SRS that he would approve the plan himself if necessary — but he didn't.) Simpson saw the national implications; so did officials at the SRS headquarters. As he shrank from taking responsibility, so, with less justification, did they, and this reluctance deepened after the decision was taken and the magnitude of the costs became apparent. Following is the sworn testimony of James A. Bax, who replaced Stephen Simonds as commissioner of the Community Services Administration (CSA) in June 1971 and thus was the head of the responsible administrative unit of HEW when the Illinois plan was acted on:
Q. Who made the decision to approve the Illinois proposal?
A. I think the signature on the plans would be that of Don Simpson, who was the Regional Administrator or the Regional Commissioner of SRS, Region 5.
Q. That wasn't my question to you. If you know, who made the decision to approve the Illinois arrangement?
A. I presume it was a joint decision.
Q. Did you make it?
A. That decision was not mine to make.
Q. Would Mr. Twiname have made it?
A. I don't know if Mr. Twiname made it or someone else made that decision.
Q. Could it have been possibly Secretary Richardson, I believe he was the Secretary at that time, did he make that decision?
A. I have no knowledge of whether Simpson or Richardson did or not.
Q. What is your best knowledge as to who made that particular decision?
A. Again, I think there were many actors in the making of that decision and I have no direct knowledge and it would be hearsay if I were — there were some rumors how it was made and I have no direct knowledge of who made the decision that HEW would approve that state plan.
Bax's testimony was not as evasive and disingenuous as it probably seems. The decision to approve the Illinois plan, like most important decisions in government, was not taken at one point by one identifiable official. It was the outcome of a complicated stream of events in which HEW's commitments evolved and choices narrowed as time passed. Approval came in three steps. The first was a memorandum issued to SRS regional commissioners on June 17, 1971, which set forth guidance on the purchase of services from public agencies. The policy stated in this memorandum was highly favorable to Illinois. The second came at the end of September 1971, when the SRS formally approved the plan submissions — that is, the responsible federal official, Simpson, signed them. The last came in February 1972, when HEW Secretary Elliot Richardson granted Illinois four waivers of the single-state-agency requirement.
At each of these three steps, Ogilvie's staff put as much pressure on the federal administration as they could. Assuming that Simpson had already done all he could for them, they concentrated on officials in Washington. Illinois had an office in Washington, which the Ogilvie administration had upgraded. Formerly part of an executive department and devoted to securing new industry, under Ogilvie it was made part of the governor's office, staffed with yet more bright young men, and charged to serve the full range of state interests in Washington. Lobbying for the Illinois plan amendments, however, was not left to this office alone. It received reinforcements from Springfield. Budget officials traveled to Washington repeatedly to press their case, and the governor himself was active. He too came to Washington, and got on the telephone to urge the Nixon administration to help. In repeated meetings with federal officials, Illinois officials advanced political, fiscal, and legal arguments, mixing these according to the audience. Politically, they argued their own weakness. Ogilvie was in danger of losing the 1972 election and might drag the President down with him in Illinois. They described their fiscal situation in dire terms and argued that their claims for services funds were within the law; HEW had no grounds for refusing. Finally, they cited the California precedent, insisting that they were entitled to equal treatment, an argument that Tom Joe in particular was in no position to rebut.* By all accounts, they bargained very hard, and not just for services funds. Meetings were not confined to that subject; they were looking for any and all relief that they might find in HEW, with its vast and varied stock of federal benefits. During the first and crucial round of lobbying in the spring of 1971, Illinois met resistance from the Office of Management and Budget
* In the eyes of Illinois officials, they were not doing anything that California had not done. Joe, however, would later insist that the cases were dissimilar — that California had used federal funds to expand programs, whereas Illinois was proposing in large part to substitute federal for state funds. That there was a sizable amount of substitution in Illinois seems clear. Whether the order of magnitude was significantly less in California would be hard to establish. In its first big use of the purchase technique, California did create a new program of preschool compensatory education for low-income children. In interviews, HEW officials who remarked on California's extreme acquisitiveness would often remark also on the superior use it made of federal funds.
April 1977/Illinois Issues /23
| 'Illinois officials were cultivating the impressionof highly placed political support' |
(0MB) and from career officials and program specialists in HEW. The Illinois officials' success came with appointive, policy-level officials in HEW — Tom Joe and John Twiname.
At first, Illinois officials concentrated on political appointees in the 0MB. In May they stated their case to Assistant Director Richard P. Nathan. They "got no friendly counsel from Nathan," one of them recalled. Nathan asked skeptical questions about their fiscal situation and then repeated "the party line" that the Family Assistance Plan and revenue sharing would pass, obviating the state's need for other help. Next, Governor Ogilvie and McCarter saw Budget Director George Shultz, who happened to be from Illinois. He had been a professor at the University of Chicago. Shultz kept them waiting for forty minutes and then dominated the conversation, telling them that their estimates of gross national product were wrong — they would have more state revenue than they thought. They had no chance to state their case. McCarter thought it discourteous treatment of the governor of a major state.
Turned away by the 0MB, Illinois officials proceeded to concentrate on the administering agency, the SRS. There too, the agency director, Twiname, was from Illinois. He was a friend of Donald Rumsfeld, a former congressman whom President Nixon had appointed director of the Office of Economic Opportunity and then a counselor to the President. "We were going with Twiname," an Illinois official later recalled of this period of the negotiations. "We nearly wore out our welcome with Twiname."
In meetings with Twiname's subordinates — the career officials in the Community Services Administration (CSA) who were technical and program specialists — Illinois officials could get no firm answers to anything. Even John Cotton, a phlegmatic man, lost his temper. It was like a Catch-22 scene, he later said. Simpson too would remark on how very frustrating it was, trying to get the program people in the CSA to say something definite. Those veteran program specialists who remained in the central and regional offices after the general depletion of their ranks in the late 1960s appear to have had deep misgivings about the Illinois proposals. This was true specifically of those whose experience had been in the BFS. Yet they did not put up much resistance. On the whole, their misgivings were muted. To exert restraint they needed signs from policy-level, appointive officials that restraint was wanted. For some time, however, all the signs had pointed toward expansion.
Then, too, the role of program specialists was being deliberately reduced by reorganization. Within the developing organization of the SRS, Simpson's channel of communication to headquarters was a director of field operations, conceived as a generalist office. (The first incumbent was William J. Page, Jr., like Simpson a career official who thought of himself as a public administrator.) Within the regional office, Simpson did not rely heavily on the staff specialists in services; in the negotiations with Illinois, his principal assistant was the deputy commissioner in charge of relations with Illinois.
Finally, a sense that politics was involved — that is, the interest of a Republican administration in helping a Republican governor to retain his office — contributed to the caution of career officials. They knew, of course, what every school child knows — that Illinois is a big state — and what every beginning student of American government knows — that its electoral votes are very important in a presidential election. The bald facts of the case made it political. Beyond that, some in the SRS sensed that there had been signals from above — the White House, presumably. On their rounds of HEW, Illinois officials were cultivating the impression of highly placed political support. "If that impression was left, I'm glad," one later said. They would drop the fact that they had just come from the 0MB, omitting to add, of course, that its director had rebuffed them. (The feeling in Illinois was quite the reverse of that in HEW. Their anger rising, Ogilvie's staff believed that the President and his staff "weren't doing a goddamn thing for us," one recalled.) Within HEW, McCarter relied on old school ties to open doors, not on the intercession of the Nixon White House. In securing appointments, he had help from his friend Bob Patricelli, the deputy under secretary for policy, who had been a White House fellow the year before McCarter. Later, at the end of the summer. Governor Ogilvie would succeed in engaging the personal attention of the President, but in the spring he and his men were "going with Twiname."
Twiname's reaction was that he would do what he could within the bounds of law and regulations. Everyone should sit down and talk the matter, over to see what that might be. As early as February, McCarter had seen Twiname in Washington in a meeting in the office of HEW Comptroller Bruce Cardwell, given him copies of the state's plan submissions to Simpson, and told him that the governor's budget was based on the assumption that HEW would approve. Ogilvie himself pressed the state's case with Twiname, calling on him in Washington and making the appeal a very personal one, though their, acquaintance had been casual, not close, Twiname felt constrained by his Illinois connection. Later he would recall that he had to bend over backward to avoid favoring his home state. Those who observed him at the time thought he was in a very difficult spot.
In the end it was Tom Joe who tool matters in hand. With the assistance of Joel Cohen, HEW's assistant general counsel for the SRS, he drafted the memorandum of June 17, 1971, that gave regional offices guidance on the purchase of services from public agencies. Though cast in general terms, this memorandum was a response to the Illinois case. Indeed, according to Joe, it began as a position paper for Twiname's use in a forthcoming meeting with Illinois officials. Joe and Cohen put the first draft together in a matter of hours so that Twiname would not have to confront the Illinois delegation ernpty handed. Before being issued, the memorandum was reviewed with Simpson who suggested some changes in word ing, and it was worked on by a few officials in the CSA, including the outgoing commissioner, Simonds, who signed it four days after Bax had replaced him. Twiname approved it.
Continued next month
24/ April 1977/ Illinois Issues