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By DIANE ROSS
WHEN LAST we left the ship of state, dear readers, we waved a fond farewell to Capt. James R. Thompson and the General Assembly crew as they cheerfully set sail under sunny skies for the S.S. Illinois' fiscal 1981 voyage — its second over the treacherous Sea of Recession. The ship of state was in sound fiscal shape. Revenues would support a $1 billion increase in spending. Who cared if more and more passengers were reduced to steerage? If sick bay costs had skyrocketed? Up on deck, first, second, even third class passengers dined on tax relief. The lookouts were posted to scan the horizon for the great storms of inflation and the monsters of the economic deep that could wreck the ship of state. But the S.S. Illinois left port July 1, 1980, with a reassuring $390 million year-end balance in its general funds, enough ballast to last the year-long voyage. So, let us return now, dear readers, as the intrepid Capt. Thompson, and the dauntless General Assembly crew prepare the noble S.S. Illinois for its fiscal 1982 voyage. Wait a minute. Something's wrong. The crew's not cheerful. The sun's not shining. The captain's talking crazy. Whales. Octopi. Shades of Moby Dick. He's serious. Revenues will support only a $456 million increase in spending — half the increase last year. The cost of welfare (especially Medicaid), in additional spending, increased $345 million last year. And it will run another $170 million beyond that this year. The cost of tax relief, in lost revenue, ran $322 million last year. And it will run $420 million this year. There's only a $225 million balance in the general funds. The killer octopus, Giganticus Inflationus, is wrapped around the propellor, and the Great White Whale of Washington could attack the ship at any moment. But Thompson, at the helm, says he can handle the crisis. He says he will cut the engines to half speed and keep the S.S. Illinois on course at all costs. As he unveiled his fiscal 1982 budget March 4 — minus a transportation package — he told the General Assembly crew: "[T]his budget does not cut back. It moves Illinois forward." "With the exception of transportation, this budget will permit us to move ahead on every other of our priority concerns." "In some critical areas on a fast track. In areas of lesser priority, at a slower pace. But everywhere, forward. Not as fast as some might like, not as quickly as some will demand, but forward within the limits of our resources and the tolerance of our taxpayers." There's some applause, but it's muffled. Herman Melville would never believe this fog. Unbalanced budget
In the purser's office, Robert M. Mandeville's ledgers project overall fiscal 1982 revenues at $12,506 billion, only $697 million above overall fiscal 1981 revenues now projected at $11,809 billion. That means revenues will increase only 5 percent, while personal income will increase 11 percent. May 1981/Illinois Issues/9 Bureau of the Budget director Mandeville projects overall fiscal 1982 spending at $12,518 billion, only $434 million above overall fiscal 1981 spending, now projected at $12,084 billion. That means spending will increase by 3.5 percent, well under the cost of living increase of nearly 11.9 percent. Thompson's fiscal 1982 budget calls for the General Assembly to appropriate $14,934 billion. That's only $261 million, or 1.8 percent above the $14,673 billion the legislators appropriated for fiscal 1981. Appropriations figures, however, are misleading to a certain extent in calculating state spending. The General Assembly authorizes, or sets a ceiling on spending via appropriations. Generally, however, any year's appropriations run about 30 percent higher than the previous year's spending. Much of this difference is due to ongoing capital projects completed over a series of years. The general funds, however, put the revenue/spending picture in perspective. This is where the budget is tightly balanced. General funds receive more than half the state revenue, mostly from income and sales taxes, and account for more than half the state's spending, mostly for public aid, education and transportation. Mandeville projects fiscal 1982 general funds revenues at $8,803 billion, up $621 million over fiscal 1981, now projected at $8,182 billion. That's a 7 percent increase, but below the projected 11 percent increase in personal income. He puts fiscal 1982 general funds spending at $8,803 billion, up $456 million over fiscal 1981, now projected at $8,347 billion. That is a 5.5 percent increase, well under the 11.9 percent increase projected in the cost of living increase. The budget shows general funds will begin and end fiscal 1982 with a balance of $225 billion, down from the $390 million balance at the beginning of fiscal 1981 because spending is expected to exceed revenues by $165 million by the end of fiscal 1981. But Mandeville swears that $225 million, as 2.5 percent of overall spending in fiscal 1982, is an acceptable and creditworthy savings account by investment community standards. Under Capt. Thompson's "move forward" budget, the S.S. Illinois has apparently become the flagship of the midwestern flotilla fighting to cross the Sea of Recession in fiscal 1982. And during that crossing, the S.S. Illinois will look like the last of the luxury liners, even when compared to the great California and New York ships of state. Thompson warned the General Assembly on March 4 that Illinois is truly in a vulnerable position this year: "So this is how we begin the new budget year — with lower rates of growth in State resources, increased human needs that drive spending, declining Federal resources and no quick end in sight to recession." The good captain said the fiscal 1982 voyage will be the most treacherous he has undertaken. It is so treacherous, in fact, that the ship of state will carry not one, but five budgets: Thompson's budget of March 4, President Reagan's budget of March 10, General Assembly appropriations by July 1, Congressional appropriations by October 1, and — at any time — the demands of the inflation-driven recession. In other words, the revenue/spending columns in Mandeville's ledgers are written in pencil this crossing, so they can be adjusted to each move of the Great White Washington Whale and Giganticus Inflationus. Thompson spoke of that uncertainty. He told the General Assembly: "Only some of the proposed loss of [federal] transportation funds are assumed in our [budget] book. Additional Federal losses for next year [fiscal 1982] alone could bring the total, as I have said, to over one-half billion dollars — and at this point we just don't plain know where it's coming from .... we will not know the results [in loss of federal aid] until the beginning of the Federal Fiscal Year on October 1st, and perhaps, not until much later. This is March of 1981 and the Congress still hasn't passed the federal fiscal 1981 budget yet, and so we have no solid guarantees. . . .
"How long will we be in recession? I don't know. How long will recovery be? I don't know. . . . Nobody knows the answers to these questions and, I suggest, that we will be lucky to have to consider only five budgets this year." Thompson said his March 4 budget is a "hold-tight, hold-fast budget. . . .nothing is symbolic — everything is real, everything is bottom line survival." And yet the Economic and Fiscal Commission, the General Assembly's revenue forecaster, ominously projected state revenues would be $200 million lower than Thompson's budget. "If they are correct," Thompson said, "spending must be cut yet another $200 million, or taxes must be raised in the same amount, or tax relief of that magnitude must be avoided or we will be bankrupt within the year." For the first time during the Thompson administration, the Economic and Fiscal Commission has estimated lower revenues than the governor. They have reversed roles. Precarious presumptions 1. The General Assembly must roll back the state sales tax exemption for manufacturing machinery. The 4 percent state sales tax was reduced to 2.75 percent for these items on January 1, 1980, and to 1.75 percent January 1, 1981. Thompson wants the exemption rolled back to 2.75 percent. If the General Assembly does not roll it back — and the powerful business lobby intends to fight it — revenues will drop another $140 million, according to Thompson. 2. The General Assembly must not remove the third penny from the state sales tax on food and nonprescription medicine. If the General Assembly does remove the third penny — and the Democrats give every indication of fighting for it — the state sales tax would drop to one cent on these items and revenues would drop another $42 million. 3. There must be sufficient surpluses in six special state funds to allow the transfer of $191 million to the general revenue funds. The six funds include Agricultural Premium; Fair and Exposition; Fire Prevention; Metropolitan Exposition, Auditorium and Office Building; Lottery; and Vehicle Recycling. In past years, Democratic Comptroller Roland Burris has accused Thompson of artificially reducing revenues by failing to transfer these surpluses to the general funds. 10/May 1981 /Illinois Issues 4. Thompson's so-called Medicaid "cost-containment" measures must work in order to hold the overall increase in public aid general funds spending to $170 million. If they do work, $78 million will be saved; if they don't work, spending in some other areas must be cut. 5. The General Assembly must hold general funds appropriations to a 7 percent increase; and the state must hold its actual general funds spending to a 5.5 percent increase, or $456 million. If Illinois again spends more than it receives in the next fiscal year, the year-end balance in the general funds be in jeopardy. Capt. Thompson insists that the S.S. Illinois must maintain $200 million in ballast to stay afloat and remain solvent by investment community standards. And for once, Burris agrees with him. If the year-end balance in the general taxes dips below $200 million, Illinois could face the loss of its AAA credit rating. And if the credit rating drops, the state would earn less in bond sales, it would spend more in bond debt. The S.S. Illinois may need solid bonding power on future crossings. Capt. Thompson would probably rather walk the plank than lose the AAA credit rating. Thompson's fiscal 1982 budget looks like a gamble. It allows for the overall loss of only $13 million of the $3 billion Illinois usually gets in federal aid. If nothing else, Thompson is gambling that the cuts from Washington won't drastically affect state revenue until fiscal 1983. And the budget allows increases for some state agencies and decreases for others. (Some of the decreases undoubtedly pay for some of the increases.) Thompson must be gambling that he can cut spending without actually slashing services. Perhaps, more than anything else, the good captain is betting that the General Assembly will follow his orders and roll back the machinery tax exemption and keep the state sales tax on food and nonprescription medicine at two cents, thereby generating some of the revenue to cover some of the new spending. Last year, Thompson gave the General Assembly three alternatives to his budget: raise taxes, cut spending and/or slash services, or go bankrupt. This year he gave them only two: raise taxes or go bankrupt. Neither of these alternatives will win any votes. First priority And tax relief has gone too far, too, Thompson said; there's no alternative but for the General Assembly to reverse tax relief. "Unless we are prepared to hurt poor people, who have nowhere else to turn, or unless we cut the throat of education, we have no other choice. ..." Thompson had told the Statehouse reporters on the eve of his budget message, "This budget is tighter than the president's and that's what Illinois needs at a time like this." And he did not fail to remind the press and the General Assembly March 4 that he had already saved the state $400 million via the cost controls recommended by his task force, $15-20 million via his hiring freeze and $100 million because of the best possible rates on state bonds sold under the cherished AAA credit rating. May 1981/Illinois Issues/11 The $12.5 billion revenue picture for fiscal 1982 shows increases overall for most sources, but increases were below par because of the recession. Motor fuel tax receipts, interest earned on investments, proceeds from bond sales and federal aid are down a total of $46 million. State sources of revenue still account for three-quarters or about $9 billion of the state's income. Total state tax sources, chiefly the income and sales taxes, are up $640 million or 9 percent. The income tax, which is one-fourth of the state's income, is up $319 million or 12 percent. The sales tax dropped from 25 to 21 percent of the state's income this year due to sales tax relief. The sales tax is up only $237 million or 9 percent; lost to sales tax relief is $403 million, up $89 million or 28 percent since last year. The total cost of all tax relief, in terms of lost revenue to the state, is expected to be $420 million in fiscal 1982, according to the governor's budget book, although he said in his speech it would be closer to $500 million. The loss in revenue from all tax relief for fiscal 1981 is now projected at $322 million. Total state nontax sources, chiefly license plates and drivers' license fees, are up $80 million or 6 percent. Income from interest earned on state investments is down, however, by $11 million or 6 percent, according to the March 4 budget book. Democratic state Treasurer Jerry Cosentino expects a much larger loss. Proceeds from the sale of general obligation bonds are down $10 million or 2 percent. That figure would be lower, according to Mandeville, but some of the $390 million scheduled to be sold during fiscal 1981 was postponed until fiscal 1982, when a total of $380 million is expected to be sold.
Federal sources of revenue, at $3 billion, continue to account for one-fourth of the state's income. According to the budget book, federal aid will decrease only $13 million, or less than 1 percent, in fiscal 1982. How does Capt. Thompson plan to spend another $456 million in new general funds money — if he can get it — on the S.S. Illinois' fiscal 1982 voyage? Public aid, the state's second biggest spender, would get $170 million more. Budgeted at $2,972 billion, public aid accounts for about 20 percent of all spending. Education (lower and higher), the state's top spender, would get $150 million. Budgeted at $3,998 billion, education accounts for about 28 percent of all spending. (None of the new money would go to transportation, the state's third biggest spender, budgeted at $2,809 billion, or about 19 percent of all spending. But then, transportation spending depends on Road Fund, rather than general funds revenue.) In addition, some $70 million would go to operate state government, allowing for an 8 percent pay raise for state workers. Another $30 million would go as state income tax refunds. The remaining $36 million would be distributed among all other programs. Spending increases Overall public aid spending has leaped at quantum 300 percent during the last 10 years. During the first five of those years, unemployment's effect on the case load drove spending higher. But during the last five years, inflation's effect on the cost of welfare, chiefly for medical benefits (one of the two major programs) drove spending skyhigh. Medical benefits spending shot up 500 percent during the last 10 years. (Income benefits spending, the other major program, went up 100 percent.) As a result, welfare has become the state's single most uncontrollable cost. Medical benefits spending, chiefly to reimburse hospitals and nursing homes, jumped $250 million or 20 percent, in fiscal 1981, 8 percent beyond inflation. By far, that was the single biggest increase in a decade; the average had been 15 percent. The rise in hospital rates is expected to push state reimbursement up yet another 13 percent in fiscal 1982; and for nursing home care, another 14 percent increase. Medical benefits spending is therefore expected to jump another $120 million, or 12 percent in fiscal 1982, accounting for most of the extra dollars Thompson would pump into public aid. Income benefits spending for the needy, on the other hand, went up $95 million, or 10 percent in fiscal 1981 and is expected to go up $50 million or 4 percent in fiscal 1982.
Overall public aid spending then, is expected to jump $170 million, or 8 percent in fiscal 1982. The increase would have been $248 million, but Thompson came up with some administrative "cost-containment" measures for Medicaid to save $78 million. These measures include: • finding more claims that can be paid by insurance to save $6 million; • expanding the fight against Medicaid fraud to save $2 million; • defining more clearly how hospitals should report costs when claiming reimbursement to save $1 million; • requiring second opinions before some kinds of surgery to save $2 million; • ceasing payment for nonvital over-the-counter drugs except insulin and birth control to save $18 million; • reimbursing hospitals and clinics on the same basis as doctors and private labs to save $25 million; • capping all reimbursement to save $18 million. 12/May 1981/Illinois Issues Public aid and education are the "big" winners in Thompson's fiscal 1982 budget. Transportation appears to be the "big" loser, but the governor unveiled a separate transportation plan March 24 dependent on a new tax. Who else wins and who else loses in this "hold-fast, hold-tight" budget? "Bureaucracy," says Mandeville. The only other real winners are the Department of Mental Health and Developmental Disabilities whose budget is $571 million, a $43 million or 8 percent increase, and the Department of Revenue whose budget is $1,224 billion, a $47 million or 3 percent increase. There are, however, many real losers whose spending ceilings have been decreased. Thompson himself took a $441,000 or 10 percent cut; Lt. Gov. Dave O'Neal sustained a tiny $3,000 cut (less than 1 percent); but Comptroller Burris took a $2.3 million or 7 percent slash (last year, the comptroller absorbed an $11.3 million chop). Among Thompson's cabinet agencies, the budget for the fledgling Department of Nuclear Safety was severed in two, chopped by $3.8 million or 53 percent, and now stands at $3.3 million. The Department on Aging budgeted at $61.1 million, dropped $9.6 million or 13 percent. The Department of Conservation, budgeted at $89.6 million, was cut $8.6 million or 9 percent. The Department of Public Health budgeted at $109.6 million, dropped $7.4 million or 6 percent. And the Department of Commerce and Community Affairs was budgeted at $281.6 million, which is a decrease of $14 million or 4 percent. Among other state agencies, the Law Enforcement Commission, was cut $17 million or 44 percent, to $22 million. The Institute of Natural Resources was cut $4 million or 9 percent to $42.7 million. The Capital Development Board, which handles construction, renovation and maintenance of state facilities, including universities, was budgeted at $573 million, a drop of $38.6 million or 6 percent. The Environmental Protection Agency's budget was cut 3 percent or $7.8 and stands at $251.6 million. And the Emergency Services and Disaster Agency decreased $429,000 to a budget of $21.2 million. Besides his big three priorities of public aid, education and transportation, Thompson outlined his lesser priorities in his February 3 State of the State address and provided details in his March 4 budget message. He has allocated funds for these priorities: 1. Improve Illinois business climate by budgeting more to the Department of Commerce and Community Affairs to better advertise its efforts to attract new industry and expand markets for Illinois' present industry. 2. Develop coal and other Illinois energy resources by allowing the Capital Development Board to continue to convert state facilities from the use of oil and gas to Illinois coal, and the Illinois Institute of Natural Resources to promote coal gasification and to speed the development of other synfuels. 3. Protect the environment by budgeting funds for the Department of Law Enforcement to crack down on hazardous waste with a special task force to enforce the 1980 law which makes illegal dumping a felony punishable by a prison term and fine. 4. Ease the overcrowding in prisons by budgeting the Department of Corrections with funds to add 1,000 new beds. 5. Continue to fight child abuse by budgeting the Department of Children and Family Services with enough funds to double its efforts to place children in foster homes. 6. Continue to avoid unnecessary institutionalization of the elderly by budgeting funds to allow the Department on Aging to provide in-home care. 7. Continue to crackdown on substandard nursing homes through funds budgeted to the Department of Public Health. 8. Continue to improve long-term care at state institutions under the Department of Mental Health and Developmental Disabilities by transferring short-term patients to local facilities. But spending priorities need the revenues to support them. The good captain may have to jettison some of these worthy programs if not strip the S.S. Illinois to the hulk to survive the stormy seas ahead. Capt. Thompson may face mutiny from passengers as well as crew, as he charts the course of the ship of state through the suburban shoals, the downstate islands and onto the vast open sea of farmland. Though not as strong as in other years, the dockhands controlling the Port of Chicago are still a threat to his carefully charted fiscal 1982 course. Even if the captain convinces everyone to join him to fend off attacks by Giganticus Inflationus and the Great White Whale of Washington, he'll still need a lot of luck to survive the fiscal 1982 crossing. A year from now, as that fiscal 1983 voyage is about to begin, Thompson will still be at the helm, but a reapportionment rebellion may have set in. The 1982 March primary will be over and some House members will already be lameducks; others will be fighting viciously to win one of the precious 118 House seats left. The narrow party majorities in the House and Senate may be blurred as incumbents may vote along personal, not party lines. But first, Thompson must get the General Assembly to pass his fiscal 1982 budget. Meanwhile, somewhere on the bridge or deep in the holds — the legislative mapmakers are already redrawing the geography of the land for those 1982 legislation elections. □ May 1981/Illinois Issues/13 |
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