The state of the state By DIANE ROSS

Thompson's gamble

HE BIT the bullet — despite the fact that his president wants to lower taxes, despite the fact that his party is at the mercy of Chicago Democrats in the legislature, despite the fact that his record is based on a policy of fiscal prudence. It was hard to believe Big Jim Thompson the politician was really calling for Illinois to raise the income tax. It was hard to believe James Robert Thompson the governor was really asking that Illinois raise a whopping $1,870 billion a year in new tax revenue via a package of tax and fee hike proposals: individual income tax, corporate income tax, liquor taxes, gas tax, license plate fees, truck taxes, truck fees. Hard to believe that in exchange he suggested the state return a mere $112 million a year in new tax relief: raising the personal exemption and expanding the circuit breaker; and a token trade-off or two in new tax reform: wipe out the old sales tax on food and drugs and write in a new sales tax on services, lower property taxes for schools and raise state aid for schools. But Thompson was doing just that.

These are the words he used to announce his solution to Illinois' problem: ". . .it is my duty to tell you. . . that I believe that we can no longer save and cut, stretch and borrow, nor put off until tomorrow the pressing human needs of today. For 14 years this state has gotten by. . .without any increase in statewide taxes. Instead. . . we have had substantial new programs and substantial tax relief. But the same cruel recession which has been punishing so many of our citizens has taken its toll on the ability of your state government to maintain a standard of decency in the delivery of some human services, a standard of excellence in education and a new standard of achievement in economic development.

"Throughout seven years. . . I have always promised you that if the day ever came when I believed that we could not maintain adequate services without an increase in taxes I would come to you and openly and plainly tell you so. That day has come. For a number of urgent and compelling reasons, I believe we ought to raise the income tax. . . ."

Keeping that old promise forced him to make a new, more ominous one, Thompson said. When Illinois begins fiscal 1984 July 1, the governor said, the problem will no longer be revenue "shortfalls," but what he called spending "obligations," obligations Illinois must meet on top of all the services it must deliver. These amount to $650 million in bills the state was able to put off in fiscal 1982 and 1983, but will no longer be able to put off in fiscal 1984:

• $202 million to repay a loan Thompson plans to borrow to make ends meet in fiscal 1983;
• $200 million to make income tax refunds to corporations because Illinois has decided it will no longer tax conglomerates unfairly on the income from foreign subsidiaries;
• $118 million to "accelerate" payments of state aid to schools to offset the "delay" Thompson began in fiscal 1982;
• $50 million to pay the interest due on the $2.1 billion state loan from the federal government to help cover the cost of paying unemployment insurance benefits;
• $40 million to pay more interest on bonds already sold;
• $40 million to pay the salaries of state troopers, which can no longer be paid from the Road Fund and which must now be paid from the general funds.

Thompson told the General Assembly the budget he unveils in March will call for spending in fiscal 1984 to be cut $800 million below spending in fiscal 1983, since he cannot assume revenue will be raised. The governor said the legislature can accept his package of tax hike proposals, or they can reject it, replacing it with one of theirs — but $1.870 billion in new tax revenue must somehow be raised. If the General Assembly doesn't raise taxes, Thompson promised, he will cut spending — another $800 million in new cuts on top of the $159 million in old cuts.

His words: "The greatest part of our difficulties do not arise from the unavoidable press of old obligations from recession woes, or changes in state or federal policy. . . . The most painful dilemma is that caused by the necessity next year to choose between a tax increase or massive, new budget cuts that would risk the health and safety of the people of Illinois, and which would seriously threaten our ability not only to recover from recession, but to move the economy of this state forward. . . .

"I do not pretend that paying taxes — especially paying more taxes — is popular. But I do not believe we have a choice. . . .

"In short, we cannot meet our obligations next year, let alone consider restoring some prior budget cuts or preventing new and massive ones, without some kind of tax increase. . . .

"Although the budget for next year will not be presented until March 2, it is my duty to warn you tonight. . . . more than $800 million. . . . of cuts would have to be made next year if no tax increase is passed."

The state-of-the-state-in-1983 speech was, as many in the media said, Thompson at his best and his boldest — the quintessential one-man show. Ironically, the governor's first such televised speech was marked by hundreds of the poor protesting the state's current cuts in spending. Organized by the Illinois Public Action Council, they packed the halls outside the House, chanting "We want Thompson," and, at one point, pounding on the massive chamber doors. Inside, on the floor of the House, Thompson's oratory had

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Gov. James R. Thompson delivers his grimmest State of the State Address before a joint session of the Illinois General Assembly on February 8. He started his third term and seventh year as governor with a call for major tax increases. Flanking the governor are, at left, House Speaker Michael J. Madigan and Senate President Philip J. Rock, both Democrats, who have the majority in both chambers.

never been better. But there was no standing ovation, no curtain call, no roses. Indeed, there was not a single interruption for applause. The governor could harldy have gotten a colder reception if he'd asked the legislators to serve without pay.

Because the news was leaked to the Rockford Register-Star on February 3 and the media had been briefed by the governor's budget director Robert Mandeville on February 6 and 7, everyone, already knew the gist and the grit of what Thompson was going to say. They were just waiting for him to say it. Consummate maker of speeches that he is, Thompson kept the General Assembly waiting while he took the time to once again intone the litany of The Thompson Record — the fiscal monument he's raised during six years in the mansion: his "unprecedented" record on granting tax relief; his record on improving the delivery of services, which "matches" the one on tax relief; his record on balancing the budget in good times; his record of salvaging solvency in the bad times. The capstone on the fiscal monument is his claim that up to now he's done it all without raising taxes. The governor implied that any blame — or credit — for raising taxes now belongs to the legislature as much as to him. He listed the warnings he has given during fiscal 1983, punctuating each by saying "the legislature agreed."

Thompson saved the passion in this speech — a speech rumor says he wrote himself — for the defense of his proposal to raise the income tax. And it was a passionate, perhaps painful, defense of his personal decision to seek the first increase in the income tax in the 14 years since Illinois put it on the books. "It is my duty," he said.

At the beginning of the speech he boasted, "Since 1818, the year we became a state, you can look at any comparable period in our history and you will not find one administration that has simply abolished or reduced state taxes while raising none of them. Every other administration in this state's history has raised taxes, traded one tax for another or simply been content to collect the taxes in force."

After he finally called for Illinois to raise the income tax he said, "I do not ask for an increase in revenue because I believe that all problems are solved by spending taxpayers' money. To the contrary, I believe that the principal reason why the people have elected me to this office three times is that I have been careful with their money. I am proud of this record. You should be too." Later he added, "In short, taxes are the price we pay for living in a decent, compassionate and educated society, the goal of which is the spiritual and economic progress for all. I am asking only that we pay enough to accomplish this, and no more."

At the end of the speech he insisted: "I believe this program to be right, to be sound and to be necessary. I will fight for it throughout Illinois. I hope I will have your help, and in the end, your consent. Upon this, the future of our great state and its people depend." Thompson's delivery was slow-paced for emphasis, repetitious for drama (it never worked better), rising and falling with emotion — perfect right down to the edge in his voice everytime he looked the television cameras in the lens and said "the legislature agreed."

The legislature, however, was not convinced, much less intimidated. Indeed, Rep. Lee Daniels and Sen. James "Pate" Philip, the leaders of Thompson's own Republican minorities, chose to sit on the floor amid their rank and file rather than stand with the governor behind the podium. So did the members of the Thompson "team," Lieutenant Governor George H. Ryan and Secretary of State Jim Edgar. That left only the Democrats to flank Thompson: House Speaker Michael J. Madigan and Senate President Philip J. Rock, who as presiding officers were required to stand behind the governor. Nobody bothered to call the traditional news conference afterward to speak for the loyal opposition.

The lobbyists, however, didn't waste any time flooding the Statehouse pressroom with news releases. Against the tax hike was business, which faces large increases in the taxes employers pay to support unemployment insurance. Business said raising the income tax would mean closing plants and laying off workers. For the tax hike was education — facing equally large cuts

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in state spending. Elementary and secondary education supporters said failure to raise the income tax would mean closing schools and laying off teachers. Higher education advocates said it would mean eliminating programs, laying off faculty and eliminating scholarships.

As is usual with proposals of such major proportions, there is no chance the legislature will enact the governor's plan intact. Thompson's plan, designed to take effect July 1, 1983, would generate a total of $1.870 billion a year in new tax revenue.

Of the $1,870 billion, the tax hikes would yield another $1,550 billion a year for the general funds:

• $1.5 billion by raising the individual state income tax rate 60 percent, from 2.5 to 4.0 percent; and by raising the corporate state income tax rate 25 percent, from 4.0 to 5.6 percent (The corporate personal property tax replacement, which operates as a surtax on the corporate income tax, would remain at 2.5 percent; thus, the total corporate income tax rate would rise from 6.5 to 8.1 percent.);
• $50 million by raising state liquor taxes across the board 60 to 70 percent.

The plan would also generate another $320 million a year for the Road Fund:

• by raising the state gas tax rate 47 percent, from 7 1/2 to 11 cents a gallon;
• raise license plate fees 60 percent for large cars, from $30 to $48 in calendar 1984; and 166 percent for small cars, from $18 to $36 in 1984, from $36 to $48 in 1985;
• raise state truck taxes and fees across the board 18-28 percent.

Only if taxes are hiked, would Thompson dull the pain with a little tax relief, which would cost the state a total of $112 million a year, all from the general funds. The lost revenue would run:

• $92 million by raising the personal income tax exemption 20 percent, from $1,000 to $1,100 in calendar 1984, from $1,100 to $1,200 in 1985; and
• $20 million by expanding circuit breaker property tax relief for senior citizens and disabled persons.

Suppose the General Assembly somehow raises $1,870 billion in new tax revenue for fiscal 1984. After allowing for $112 million in new tax relief, $650 million for the one-time obligations, $159 million to the spending cuts made in fiscal 1983, even adding the $78 million to restore the budget cuts made in fiscal 1982, that would still leave a net increase of $551 million in the general funds (and $320 million in the Road Fund). What would Thompson do with it? He won't say. The obvious answer is to give it to the biggest spenders, education and public aid, which have borne the biggest cuts. (Transportation, another big spender, is handled via the Road Fund, and the additional $320 million would be enough to take advantage of the recent rise in federal gas taxes.) In addition, Illinois has been forced to close some of its mental health institutions and it still needs more prisons.

Thompson's critics credit him with doing a good job of managing the state's fiscal affairs. They even admit the state's solvency may have something to do with his strategy of cutting spending. But raising the income tax marks a radical departure in the state's fiscal policy, an about-face in Thompson's six-year-old strategy. It's the gamble of his career.□

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