Thompson cuts budget

Legistlative Action

Thompson cuts budget in a Sea of Recession

By DIANE ROSS

SO MUCH for the bon voyage party in March. Capt. James R. Thompson recharted the S.S. Illinois' fiscal 1982 course in April. He said the recession — and Reaganomics — forced him to cut $222 million from his budget now and he said Reaganomics may force him to cut another $200 million later.

Recharts are nothing new (even for the flagship of the midwestern flotilla); Capt. Thompson recharted the S.S. Illinois' fiscal 1981 course mid-voyage. But this is the first time he's cut the budget before the fiscal year started. And these cuts came only four weeks after the good captain had unveiled, amid the usual hoopla, the budget he said would cut the ship of state to half speed but still keep it on course.

For fiscal 1982, though, it's not a question of what the General Assembly will do, but what it can do, given reapportionment, the recession and Reaganomics. So it wasn't surprising that the ponderous appropriations process came to an abrupt halt April 10 when Thompson announced he planned to cut the budget by at least $200 million. Republicans and Democrats alike, already hearing budget bills in committee, balked at further consideration until April 28, when Robert Mandeville, director of Thompson's Bureau of the Budget (BOB), unveiled the last of the cuts.

Indeed, action on the session's other big issues, reapportionment and transportation, also seemed to stop in April. If legislators were doing anything with reapportionment, they were doing it in the back rooms, behind a smoke screen of public hearings, and not on the floor of the House or Senate. And if they were doing anything with transportation, they were doing it on the second floor of the Statehouse, not the third. Thompson's transportation plan (the oil tax), tabled in the House April 2, remained untouched a month later, although Senate President Phil Rock's package began to move out of committee the first of May (see "The state of the State," p. 2),

The General Assembly had seemed to accept Thompson's premise, when he unveiled the budget in March, that Illinois would really have five budgets in fiscal 1982. But legislators were apparently as surprised as the governor when the recession — plus Reagan and Congress — wrote the next budget in April. Hadn't Thompson boasted in March that his budget was "tighter than the president's?" And wasn't he still boasting in April that Mandeville had "out-Stockman-ed Stockman" (David Stockman, the president's budget director) from the start? Was no budget recession-proof?

Republicans as well as Democrats, however, were predictably critical of the resulting Thompsonomics budget cuts. The Senate-controlling Democrats threatened to out-Mandeville Mandeville. But only time will tell if the General Assembly comes up with an alternative to Thompsonomics. And, as usual, time is something the General Assembly doesn't have.

Recharting the course
The $221,967,500 Thompson cut from his March budget, however substantial it sounds, actually represents less than 1 percent of the $14,934 billion he had originally recommended the General Assembly appropriate for fiscal 1982. And it's less than 1 percent of the $12,518 billion he had projected the state would spend. The April cuts lower his appropriations recommendation to $14,712 billion, only $38.9 million, or less than 1 percent over the $14,673 billion actually appropriated for fiscal 1981.

But $219.2 million (all but $2.7 million) of the cuts were in the crucial general revenue funds, which account for half the state's revenue and spending. Still, the $219.2 million represents only 3 percent of the $8.342 billion in general funds that Thompson had recommended the General Assembly appropriate for fiscal 1982; it's only 2 percent of the $8,803 billion he had projected the state would spend. The cuts lower his general funds appropriation recommendation to $8,123 billion, only $328 million, or 4 percent over the $7,795 billion actually appropriated for fiscal 1981.

Why rechart in April — and by a mere one or two degrees overall — when the ship won't sail 'til July? Purser Mandeville explained that it's the same old balance-the-budget story — only worse. In April the BOB projected that in fiscal 1982, sales tax relief will pull revenue down another $50 million; public aid will push spending up another $67 million; and Illinois will lose another $112 million in federal aid — all of this in excess of what the BOB had projected only a month earlier, when Thompson unveiled the budget on March 4.

On the revenue side, the recession continues to stunt the growth of sales tax revenue, which, during the first two quarters of fiscal 1981 alone, fell from one-fourth to one-fifth of all revenue. At the same time, the recession continues to spur the loss of revenue through sales tax relief. The most alarming drain continues to be business sales tax relief in the form of the manufacturers' machinery exemption. In April the BOB projected that the manufacturers' exemption would cost Illinois about $50 million more in fiscal 1982 than they had projected in March.

The BOB's April projections for revenue are still based, however, on Thompson's assumptions that the General Assembly will roll back the manufacturers' exemption and not remove the third penny of the state sales tax on food and nonprescription medicine.

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And in April Thompson added a new assumption: the General Assembly will roll back the sales tax exemption for farmers' machinery. One-half of the 4 percent sales tax on farmers' machinery went off September 1, 1980, and the other half is scheduled to go off September 1, 1981. Thompson wants the tax left where it is — half on and half off — to prevent Illinois from losing another $19 million in sales tax revenue in fiscal 1982.

On the spending side, the recession continues to drive up public aid costs. Overall, public aid spending has jumped 300 percent in the last 10 years. During the first five, it was unemployment's effect on the caseload that drove up spending. But during the last five years it was inflation's effect on medical costs that drove up spending. Inflation is still driving up medical costs, but, suddenly, in the third quarter of fiscal 1981, unemployment began to drive up the caseload again, dumping 4,000 new recipients on the rolls in March alone, the single largest monthly increase since the 1974-1975 recession. In April the BOB projected overall public aid spending would run $67 million more in fiscal 1982 than they had projected in March.

This revenue drop and spending climb apparently has little real impact on the loosely balanced overall state budget for fiscal 1982. The BOB says the overall budget is still relatively balanced with revenue at $12,506 billion and spending at $12,518 billion. But any change in revenue and/or spending has a dramatic impact on the tightly balanced general revenue funds budget for fiscal 1982. The relatively small decrease in revenue, coupled with the relatively small increase in spending, was enough to force Thompson to cut the general funds budget to keep it balanced. The increase/decrease means general funds revenue for fiscal 1982 drops $50 million, from $8,803 billion to $8,753 billion, while general funds spending for fiscal 1982 climbs $67 million, from $8,803 billion to $8,870 billion — unbalancing the general funds budget by $117 million. Thompson, however, is determined to leave a $225 million balance in the general funds at the end of fiscal 1982. He was forced to make more than half the $221.9 million in cuts just to avoid the $117 million drain on the year-end balance in the general funds. If he hadn't, the drain would have left only $108 million in the funds, and that level could seriously jeopardize Illinois' triple-A credit rating.

So much for Purser Mandeville's revenue/spending picture. What about this attack by the Great White Whale of Washington? The BOB is now sure Illinois will lose another $112 million in federal reimbursement in fiscal 1982. Some $75 to $80 million will be lost in Medicaid reimbursement to the Department of Public Aid because of congressional support for Reagan's plan to

hold down the increase in Medicaid spending by capping fiscal 1982 reimbursement to the states at 5 percent above fiscal 1981 reimbursement. The normal annual increase would be 13-15 percent, the BOB said. And $33 million will be lost in so-called "Title XX" (of the federal Social Services Act) reimbursement to the departments of Public Aid (DPA), Public Health (DPH) and Children and Family Services (DCFS) because of support for the Reaganomics of decreasing social services spending in general. That means a 25 percent drop in Title XX reimbursement to Illinois in fiscal 1982, according to the BOB.

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Public aid cuts: by the program

THE DEPARTMENT of Public Aid operates three major programs, Income Assistance, Social Services and Medical Assistance. To understand the public aid cuts, the complex state welfare programs must be explained.

The Income Assistance program offers four kinds of benefits -- income, food, medical and energy — to three kinds of recipients: Aid to Families with Dependent Children (AFDC), Aid to the Aged. Blind and Disabled (AABD), and General Assistance (GA).

Social Service program benefits, which are day care, self support and relocation, are available to those eligible for Income Assistance,

The Medical Assistance program offers five kinds of benefits — hospital inpatient, physician-surgeon, hospital outpatient and clinic, prescription drugs, and group care — to four kinds oi recipients: General Assistance Medical (GAM), those receiving GA Income Assistance; Medical Assistance-Grant (MAG), those receiving AFDC or AABD Income Assistance; Medical Assistance-No Gram (MANG), those who do not qualify for Income Assistance but who can't pay their medical bills, and Aid to the Medically Indigent (AMI), those who do not qualify for Income Assistance or Medical Assistance, but who can not pay their medical bills.

Of the total $98 million cut in the Department of Public Aid budget. $72 million came from Medical Assistance, $18 million from Income Assistance and $8 million from Social Services.

The $72 million in Medical Assistance cuts would come from both the amount and the kind of benefit, by

1. Eliminating the so-called "Cadillac" benefits for GAM, MANG and AMI Medical Assistance recipients, which are hospital outpatient and clinic: appliances; non-emergency dentist; and podiatrist, chiropractor and optometrist. Total cut: $14.250 million.

2. Eliminating the "Cadillac" benefits for the foun!) group, MAG recipients; which are non-emergency dentist, podiatrist, and chiropractor. Total cut: $13.600 million.

3. Requiring all Medical Assistance recipients to pay the first $1 per drug prescription and per visit to physicians, and the first $3 per visit to hospital outpatient or emergency services and to clinic. Total cut: $26,100 million.

4. Capping per diem reimbursement for inpatient hospital care at $400. (The BOB says the cost ranges from $298 to $403, but the average is $385.) Total cut: $8.600 million.

5. Capping reimbursement for births and tonsillectomies. Total cut: $5.600 million.

6. Requiring MANG recipients (those who don't qualify for Income Assistance but do qualify for Medical Assistance) to prove that they have paid all the medical bills they can before they receive medical welfare. Total cut: $3.200 million.

The $18 million in Income Assistance cuts would come, chiefly, from the amount, rather than the kind of benefit.

1. Income earned by stepparents would be included when figuring AFDC benefits. Total cut: $5.200 million.

2. The first $30 and one-third of the remainder earned by parents is already deducted when figuring AFDC benefits. Some $4 million would be cut by the following changes: limit the deduction from all 12 to only four months of the year; figure the deduction from net income after deducting work expenses, not gross income; standardize work expenses at $75 per month; and count federal Earned Income Tax Credits as income.

3. Force employable General Assistance recipients to work by setting limits on the length of time they can receive benefits. (The BOB estimates 75 to 85 percent of all GA recipients are employable.) Total cut: $3.500 million.

4. No longer count 18-21-year-old college students as dependents when figuring AFDC benefits. Total cut: $3.100) million.

5. Allow the state to recoup overpayments and make up underpayments from future payments. Total cut: $2.500 million.

Regarding the Social Services cuts, the state now shares federal Title XX (of the federal Social Services Act) reimbursement with local public and private social service agencies. The local agencies pay 25 percent of the cost of their programs and the state pays the remaining 75 percent through the federal Title XX reimbursement. Title XX reimbursement to Illinois will decrease by about $33 million, or 25 percent, in fiscal 1982. A total of $8,3 million in state Title XX spending would be cut by phasing out the 75 percent state share of these local social service programs. Only about $1 million of the cut shows up in the budget for the Department of Public Aid; the rest shows in the budgets for the departments of Public Health and Children and Family Services.

Federal approval is necessary before some of the public aid cuts are made, but the BOB believes it will be granted in light of the support for Reagan's plan to decrease welfare spending.

Thompson intends for Illinois to make up $102 million of this loss by replacing federal reimbursement with general revenue funds spending. That's where the other $102 million of the $219.2 million in budget cuts comes in. Thompson wants to subtract $102 million in general revenue funds from the budgets of a number of agencies and add it to the budgets of DPA, DPH and DCFS. That's not cutting general revenue funds spending per se, but that is cutting spending for those other agencies.

Cutting the budget
Cuts from four relatively costly programs — public aid, revenue sharing, education and mental health — accounted for $157.1 million or about three-quarters of the total $221.9 million cut. Those cuts include:

Public aid. The Department of Public Aid was budgeted at nearly $3 billion in March, but was cut by nearly $98 million. (For details, see box.)

Revenue sharing. The state shares one-twelfth of its income tax revenue with local governments. Revenue sharing was budgeted at $232.5 million in March, but was cut $24 million by capping fiscal 1982 payments at the fiscal 1981 level of $208.5 million, thus eliminating any increases. (The cut actually shows up in the budget of the Department of Revenue, since that agency oversees the program.)

Elementary education. The cuts would not affect general state aid. Instead they would affect the special, so-called categorical grants, which are reimbursement for special education and transportation; and grants for gifted, bilingual, vocational and adult education, and for textbooks and food. Categorical grants were budgeted at $419.5 million in March, but were cut $21 million.

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Thompson also wants the General Assembly to de-mandate state-required programs, when they do not conflict with federally required programs. That would untie the strings on how each district spends the special categorical grants. It would allow the state to lump the series of categorical grants awarded to each district into a single block grant, which would allow each school district to spend the money as it wishes. In effect, de-mandating the programs would bring more of the state money in school district budgets under local control.

Mental health. The Department of Mental Health and Developmental Disabilities was budgeted at $571 million in March, but was cut $14.4 million.

The biggest cut came in staff, at $7 million. About 250 positions are affected including the elimination of new positions that would have been added in fiscal 1982 in the Regional 2 and 3 offices and at the Singer, Howe, Ludeman and Waukegan Mental Health Centers. And with the cut, there would be a decrease in current positions at the regional field and central offices, and an overall reduction in current positions at institutions.

The next biggest mental health cut came in the deinstitutionalization programs, a $3.5 million cut. That would involve the elimination of new projects designed to encourage local mental health facilities to gradually absorb patients from state facilities and patients from state programs in crisis intervention, alternative residence and demonstration in-home care.

Other mental health cuts mean the closing of the Adler Mental Health Center in Champaign ($1.5 million) and the closing of the alcohol rehabilitation unit at the Elgin Mental Health Center ($50,000). The mentally ill and developmentally disabled children now cared for at Adler would be transferred

to the Meyer Mental Health Center in Decatur, effective September 1, 1981. The patients at the alcohol unit at Elgin, the last of the state-run units to be phased out, would be transferred to local rehabilitation facilities, effective October 1, 1981.

Thompson also cut $65 million spread generally among all agencies:

• $3 million in capital projects,

• $10 million due to a freeze Thompson put on buying new equipment, and

• $10 million due to a similar freeze on hiring consultants.

Why cut public aid, revenue sharing, education and mental health? "These [programs] are good ideas ... if you can afford them," Thompson argued when he told the Illinois State Chamber of Commerce about his budget cuts in April. "We're going to cut as deeply as we have to without hurting people," he told the business lobby, referring to his No. 1 budget priority as stated in his budget message to the General Assembly in March: "[We] must make sure that no resident of our state goes without food, clothing, shelter, or essential medical services." He told the state chamber, "We may bruise [people] a little bit, but we won't hurt them."

But as legislators, not to speak of lobbyists, were quick to point out, the number of state jobs the budget would have allowed in fiscal 1982 will drop by 450 as a result of the cuts. That, the legislators and lobbyists argued, will just dump another 450 recipients on the public aid rolls.

Not necessarily, Mandeville retorted. The 450 include new jobs that had been budgeted for fiscal 1982 and would have taken affect sometime after July 1 (despite Thompson's freeze on general hiring), but which now will not be filled. And the 450 include current jobs that will probably be vacated for one reason or another during fiscal 1982, but which will be left vacant.

In all, Mandeville pointed to only 135 jobs, all in mental health, that may be eliminated as a result of the budget cuts. And those workers, he insisted, would be transferred to replace workers who leave during the year, if possible.

Fiscal 1982 marks Illinois' third year under recession. But because it takes state government longer than the state in general to feel the effect, this is the first year Illinois must consider substantial budget cuts.

In March, Thompson was willing to cut the increase in spending in fiscal 1982 to half of what it was in fiscal 1981. In April he seemed willing to cut out the increase in spending altogether, if not decrease spending. Thompson told the Chamber of Commerce, though, that, "We're trying to spread the pain as equally as possible, so that it's not pain so much as a momentary interruption." And Mandeville describes the budget cuts as a "one-year deferral."

Fiscal 1982, however, probably won't be the last year Illinois has to consider substantial budget cuts. Not only will Illinois state government, with its higher-than-average public aid spending, take longer to recover from the recession, but the state in general, with its higher-than-average unemployment, will take longer.

If these budget cuts are more than a "momentary interruption" or "a one-year deferral," how long can Capt. Thompson keep the S.S. Illinois on course without really hurting people, going bankrupt or raising general taxes? (If that choice must be made, would the good captain go down with the ship of state or would he walk the political plank?)

But of immediate importance is what the General Assembly crew will do now. The legislature, during the Thompson administration, has always appropriated more than the governor has recommended. Will the General Assembly reject Thompson's cuts? Accept them? Cut more? We won't know, dear readers, until July 1. And by then the S.S. Illinois will already have set sail.

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