IF YOU mingled with the lobbyists in May, strolling around the rail that rings the rotunda on the third floor of the Statehouse, you heard the sighs. You saw the shoulders shrugging, the heads shaking, the palms turned up in surrender. Illinois was facing a very tough chapter in its history: recovering from a recession that had changed its economy forever.

It appeared everyone was promoting economic development plans. Four succinct proposals were on the table by mid-May.

Senate President Philip J. Rock came out in mid-April with the first master plan for economic development, an insurance program for job training. In late April House Speaker Michael J. Madigan — and Gov. James R. Thompson — each announced his own. Madigan's was an insured industrial revenue bond program for capital formation.—Thompson's was a statewide network of local offices for coordination of all government services to small business. By mid-May the legislature's Commission for Economic Development had released still another one: regional offices for consolidation of efforts by business, labor, education and finance, as well as government.

It was impossible in May to predict what would happen on economic development this legislative session. Indeed, business, labor and other interests like banks were still being briefed on the four master plans. Republican leaders Lee A. Daniels in the House and James "Pate" Philip in the Senate were still studying the Democratic plans. Madigan and Rock were awaiting developments in the governor's and the commission's plans. Thompson and everybody else was caught up in the tax question as the third-reading deadline approached on all bills in their house of origin.

All four plans claim to answer the question: How much can state government do to speed the recovery of the state economy — without spending huge amounts of general funds?

Under Rock's program for job training, the public sector would help the private sector "create. . . opportunities."

Under Madigan's program for capital formation, the public sector would "supplement, not supplant" the private sector.

Thompson's statewide network of local offices (which also involves job training and capital formation) would continue to build on the "partnership" between the public and private sectors.

While Rock, Madigan and Thompson were arguing over how much state government could do, the commission suggested how little state government should do. Under the commission's scenario (which includes job training but not capital formation) local agencies organized at the regional level around four centers at public universities would do the real work of economic development, while the state would coordinate services the government delivers.

The four plans are in agreement on one basic premise: State policy on economic development should focus on small business. Curiously, the commission — headed by a Republican, Sen. Stanley B. Weaver of Urbana — joined Rock and Madigan in damning the governor for failure to establish any state policy on economic development during his six years in office. Thompson said that he has, in fact, established state policy, that it focused on retaining old, traditional industry until fiscal 1982 when the focus shifted to the attraction of new, high tech industry. Thompson maintains that the focus had already shifted in his administration to expanding small business and that his plan is merely a redefining of this latest shift.

Despite their differences on who is setting policy, and when, the four plans agree that policy should be defined now by the greatest needs of small business, which are venture capital skilled labor and a bureaucracy streamlined that the thousands of employers shopping for such government services need make only one stop.

Rock, Thompson and the commision all stress job training. While Rod would set up a massive trust fund a la unemployment insurance, the commission and Thompson plans would rely on state programs (basically federally funded).

Rock, Madigan and Thompson all stress capital formation, although to widely varying degrees. In all, Rock would provide $650 million in loans plus another $45 million in venture capital. Madigan would provide $27 million in loans and another $10 million in venture capital. Thompson would provide $20 million in loans to small businesses in designated, high unemployment cities, and $1 million in venture capital.

As for coordination of government services for small business, Thompson and the commission have more comprehensive plans: the commission would use four regional offices and a single state center for small business, while Thompson would use 26 local, Department of Commerce and Community Affairs (DCCA) offices.

Rock would create one new program, the Small Business Development Program under the Illinois Industrial Development Authority (IDA); create one new agency, the Illinois Municipal Finance Authority; and expand an existing agency, the Illinois Farm Development Authority.

Madigan would create a single economic development umbrella, the Illinois Development Finance Authority (IDFA), consolidating two agencies, IDA and the Illinois Environmental Facilities Finance Authority, and bringing in three new programs, the Insured Industrial Revenue Bonds program, the Venture Investment Fund and the Land Bank.

While the four plans agree somewhat on programs, they disagree sharply along party lines on funding: Rock and Madigan against Thompson and the Republican-chaired commission. Although all four are designed to use as little of the state's general revenue funds as possible, the Democratic leaders want state government to take a more active role — both in financing and fostering economic development. Both Thompson and the commission minimize direct financing by state government and rely instead on federal funding, but they take opposite views on the role of state government in directing economic development.

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Rock and Madigan went to the state pension funds to partly finance their programs. (Thompson has set the stage for this, since he has insisted the pension funds are healthy enough to operate without the full state contribution for three consecutive years, and the General Assembly has grudgingly consented in order to balance the budget.) Both Rock and Madigan would also rely on revenue bonds for their loan programs to small business and to create venture capital.

Thompson and the commission went to a convenient new source of federal aid: the funds available to Illinois under the new U.S. Job Training Partnership Act (JTPA), which are estimated at $117 million in fiscal 1984. Rock, however, would also use about $10 million of that federal JTPA money. This is perhaps the only place where the plans clash head on. Thompson wants control over the new federal aid; Rock appears determined the General Assembly shall hold at least some of the purse strings. The onus is on Rock since the federal JTPA money will apparently flow straight to DCCA, where it would automatically come under Thompson's control, unless the General Assembly specifically appropriates it.

If only economic development weren't such a complex issue — or such a political one — then it could have two sides, not four, or six, or eight. From the perspective of small business, evidently there are only two sides: government and small business. "Small business is not asking for financial help," said Mike Donahue, the National Federation of Independent Business' director of government relations in Illinois, "basically they just want to be left alone." Small business always views government programs suspiciously, he said, and never more than when they result in spending.

"I don't think any of these plans. . . is going to be the panacea for small business," Donahue said. "You've heard of dueling banjos? This sounds like dueling economic development plans. If they'd just unite, and put the best of each package together, we'd have a helluva deal."

President Rock's plan Prairie 2000 Fund and job training insurance

BY MID-MAY there was still no way to know how much the No. 1 component in Senate President Philip J. Rock's plan — job training — would generate in benefits for workers. Under his insurance program for job training, employers would voluntarily pay premiums — with a healthy deduction from their income tax — and workers would draw vouchers good for job training at community colleges, universities or vocational schools. The vouchers are designed to provide up to $1,000 each for training workers who had lost their jobs, up to $500 each for retraining workers who had not lost their jobs. But Rock had no estimate of how many workers would want training — or how many employers would be willing to participate.

Under three other components of Rock's plan, which all deal with capital formation, independent state agencies would sell a total of $650 million in revenue bonds. The bonds would be sold to provide low-interest, long-term loans for small business and agribusiness. In one case, the agency would consolidate small bond issues by local governments into single, large issues at better rates to provide financing for infrastructure projects.

While the start-up cost of the job training insurance (JTI) program was estimated at $5 million, the total cost of the other six components — helping education with job training, developing business and tourism, providing incentives for investment, reorganizing state government, helping local government, and developing agriculture and natural resources — ran as high as $657 million.

Rock would fund most of his plan via $600 million in new revenue bonding power; $47 million would come from state funds ($45 million from the state pension funds, the rest from general revenue funds); and $10 million would come from federal funds ($7.7 million from the $117 million available to Illinois in fiscal 1984 under the new U.S. Job Training Partnership Act and $1.6 million from the federal Community Development Services block grant).

Rock said his seven-part proposal was designed to be a comprehensive plan for "aggressive economic survival." He released his plan in stages on April 11, 13 and 14, presenting the 61-page proposal in a loose-leaf notebook under the title "Prairie State 2000/Investing in the Future of Illinois: A Comprehensive Economic Development Plan by the Illinois State Senate Democratic Caucus." Rock's plan was encompassed in a package of 40 bills, S.B. 238 and S.B. 1000 through 1038.

The key to Rock's program was job training insurance (JTI), which he called the "G.I. Bill for Illinois Workers." Like unemployment insurance, job training insurance would operate via a trust fund. In the long run, the Prairie 2000 Fund would be financed from premiums employers would voluntarily pay. As an incentive they could deduct the cost from their corporate income tax base for federal taxes, which in effect would translate into another 25 percent deduction on state taxes, since the state income tax is based on the federal. The fund would also be authorized to sell revenue bonds, which would be retired by the voluntary employer premiums. In the short-run, however, the state would cover the start-up cost, using state pension funds to buy stock in the Prairie 2000 Fund. Rock said the use of pension funds would be "guaranteed against any loss."

To be eligible for JTI benefits, employees would have to meet certain criteria. For example, they would have to work for an insured employer. Vouchers for job training would be sent directly to public schools, private schools that met state standards and accredited vocational schools.

To generate capital, Rock would create two new state programs and would also expand an old one. For small business, the Illinois Industrial Development Authority (IDA) would create a new Small Business Development Program to provide low-interest, long-term loans. The program would be financed by $350 million in revenue bonding power. IDA, one of the state's two major finance development authorities, currently carries $1 billion in bonding power. For local government, the Illinois Municipal Finance Agency would be created to help finance infrastructure projects. The agency, which would buy small bond issues from local governments and sell them in a larger single issue, would be funded by $300 million in revenue bonding power. For agribusiness, the Illinois Farm Development Authority would be granted another $50 million in revenue bonding power.

In addition, Rock's plan would call for the use of state pension funds to create $45 million in venture capital by authorizing the state's five systems to invest up to 1 percent of their assets in venture capital firms.

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Speaker Madigan's plan new finance authority and insured industrial revenue bonds

REQUIRING "no immediate state cash and minimum state credit," House Speaker Michael J. Madigan's three-part plan would generate $285 million in capital for small business by fiscal 1986, at a cost to the state of about $5 million a year for 20 years. The plan was designed to create the greatest number of jobs from the least amount of money invested, chiefly by selling state-backed industrial revenue bonds to finance low-interest, long-term loans to small businesses.

Madigan said that under his plan the state would face "no general obligation bonds and no moral obligation bonds." Entitled "House Speaker Michael J. Madigan's Proposal for Economic Recovery in Illinois" when it was released April 26, it was embodied in a single bill, H.B. 2290.

Under Madigan's plan, a new state agency, the Illinois Development Finance Authority (IDFA), would be created as a "comprehensive statewide network" for all the services government delivers to business. Madigan said such a clearinghouse would result in a "unified state direction" for economic growth. The IDFA would be "located in but independent of" the Illinois Department of Commerce and Community Affairs (DCCA), and would be staffed by DCCA personnel, which would mean yet another reorganization of that cabinet level agency.

IDFA, Madigan's umbrella agency within DCCA, would be created by consolidating two major development finance authorities, the Illinois Industrial Development Authority (IDA), which carries $1 billion in revenue bonding power, and the Illinois Environmental Facilities Finance Authority (EFFA), which carries $1.5 billion. Both would continue to serve medium-sized and large businesses.

The IDFA umbrella would also cover Madigan's three new programs. The major program, called the Insured Industrial Revenue Bond (IIRB) Program, would have $225 million in new revenue bonding power to provide loans to small and medium-sized business. The other programs include the Illinois Venture Investment Program with $10 million in new funding (geared to small business and new business) and the Illinois Land Bank Program with $50 million in new revenue bonding power (geared to business and local government).

Madigan's new IIRB program is designed to provide low-interest, long-term loans to a business or pool of businesses that are the best risks — those that already have substantial financial backing in the private sector. The maximum loan would be $2.5 million; interest would be tax exempt and at non-variable rates. Funding for the loans would come from industrial revenue bonds, to be sold over three years: $70 million in fiscal 1984, $75 million in 1985 and $80 million in 1986.

Madigan has built into his plan three guarantees against default by small

businesses who receive the loans from the bond revenue. First, the state would have access to business' assets in event of default. Second, the state would purchase insurance from commercial credit companies to cover those receiving loans (the state would pass on part of the cost of the insurance to those receiving loans). Third, and most significant, the state would back the bonds with $30 million in cash from the state's three largest pension funds (downstate teachers, universities and state employees). This transfer from the state pension funds to the new insurance fund would be made at the rate of $10 million a year in fiscal 1984, 1985 and 1986. The pension funds would be reimbursed from the state's general revenue funds at 10 percent interest over 20 years.

Madigan said these guarantees would "create the conditions to encourage the financial community to participate."

In the long run Madigan said, his IIRB program would cost the state nothing. The economic growth resulting from the loans to small business would generate enough in additional revenue from income and sales taxes to offset the loss of the general revenue funds.

Using the same scheme of transferring from the state pension funds, Madigan would also create a $10 million Illinois Venture Investment Fund designed to provide seed and venture, capital for small business in three categories, with limits for each. A project seeking seed capital could get up to $75,000; a project needing venture capital, of which private investors were ready to finance three-quarters, could get the remainder; a project sponsored by a Small Business Investment Corporation (SBIC) or a minority enterprise SBIC licensed by the U.S. Small Business Administration could get up to $1.5 million.

Designed to complement the enter prise zone program the legislature created last year and using the same revenue bonding power, the Illinois Land Bank Program would also be created under Madigan's plan. It would make land which local agencies have targeted for urban renewal more readily available to developers by paying 60 percent of the cost of the land, plus relocation fees of up to $25,000 per business or family.

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Funding for the Land Bank Program would come from the Illinois Industrial Development Finance Authority's existing $1 billion in bonding power; some $100 million is already earmarked for enterprise zones; another $50 million would be set aside for the land bank.

Gov. Thompson's plan two new services and a statewide coordinating network

UNDER Gov. James R. Thompson's five-part plan — which was still in the process of development in mid-May — the Illinois Department of Commerce and Community Affairs (DCCA) would coordinate government services to small business. Coordination would be accomplished administratively by putting existing services into a statewide network of local offices and by adding two new services.

For funding, Thompson would apparently rely on federal aid, specifically the $117 million available to Illinois in fiscal 1984 under the new U.S. Job Training Partnership Act (JTPA). Coordination of government services accounts for three parts of Thompson's plan. Under the other two, small business would get $20 million in loans and $1 million in venture capital. Funding would again come from federal aid.

Thompson called his proposal the "Illinois Plan" when he released it April 26 (the same day House Speaker Michael J. Madigan released his proposal for economic development). The governor's plan does not require legislative approval.

The major part of DCCA's coordination of government services would be the statewide network of local offices, called Small Business Development Centers, which would synchronize existing federal, state and local services to small business and add two new services. Patterned after the agricultural extension service, the network would eventually include 26 local offices located at community colleges and universities.

DCCA began to set up the network last spring to help capture the new federal JTPA money, as did agencies in other states. Thompson boasted Illinois' network would be a national model because it would be the first to coordinate government services for small business.

Thompson said the network would cost Illinois $400,000 in fiscal 1984, but he was vague about the funding. Half would apparently come from state funds; half would apparently come from some combination of federal and local funds.

The two new services Thompson would add via the network would be: the Small Business Procurement Assistance Program, which would help small business get its share of government contracts; and the Small Business Incubator Facilities Program, which in mid-May was nothing but a long title. The procurement service would be federally funded by the U.S. Small Business Administration (SBA).

Thompson would use publicly subsidized private funds to provide the loans to small business via a new Illinois Designated Cities Program, and he would provide venture capital to small business via a new Illinois Growth Investment Fund. Under the funding scheme for these new programs, DCCA would apparently organize contributions from financial institutions across the state into a single pool of funds, to which DCCA would contribute federal funds, including those from its federal Community Services Development block grant. Thompson didn't say how much would be needed in federal funds.

For the loans, DCCA would organize a pool of $20 million to provide federally insured (U.S. SBA) low-interest, long-term loans to small businesses in designated, high unemployment cities like Decatur, Kankakee, Peoria and Rockford. DCCA apparently began to make such loans on a limited basis last year via its Small Business Growth Corporation. Thompson said his Illinois Designated Cities Program would be another national model.

For the venture capital, DCCA would organize a pool of $1 million for entrepreneurs without traditional credit. DCCA wants the U.S. SBA to license the new Illinois Growth Investment Fund as a Small Business Investment Corporation.

UNDER the Illinois Commission for Economic Development's plan — which did not estimate costs — local, not state agencies, would be the key for economic development using a regional approach. The state government's role would be one of coordination and support, with a new center for small business to be established; universities would also have a supporting role with new regional centers for economic development.

Once all this is done, the state's chief responsibility would apparently lie in controlling the new federal funds for economic development under the new U.S. Job Training Partnership Act (JTPA).

The commission's plan was released May 15 in its "Report and Recommendations to Gov. James R. Thompson and the 83rd General Assembly." A permanent legislative agency, the commission is chaired by Sen. Stanley B. Weaver (R-51, Urbana).

The commission's top recommendation was pointed at the Department of Commerce and Community Affairs (DCCA): "It should direct their efforts to supporting economic development rather than initiating. Initiation should be at the local level and all departments of the state should be prepared to back them up."

The commission recommended that the General Assembly authorize the University of Illinois, Southern Illinois University and Northern Illinois University to set up four regional centers for economic development in Chicago, Champaign-Urbana, Carbondale and DeKalb. These centers would be patterned after a model which NIU has designed and is now operating in DeKalb. "These regional economic development centers would provide the maximum collaboration of commerce, industry, labor, education and government," the commission said. Funding would come from federal aid available under the U.S. JTPA, which earmarks aid for regional economic development.

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The single state center for small business recommended by the commission would be, like those in about 20 other states, a clearinghouse for all services government delivers to small business. The preferred source of funding for the state center was not mentioned, although the obvious source is the new federal aid.

Illinois expects to get $117 million in new federal aid under the JTPA in fiscal 1984. After funding the regional centers for economic development and the state center for small business, the commission's apparent priority would be job training, specifically the expansion of two existing state programs run in conjunction with each other at community colleges. One is DCCA's Industrial Training Program. The other is the State Board of Education's High Impact Training Service.

However the new federal funding is used, the commission recommended that the state "should carefully monitor the distribution of these [JTPA] funds." The commission also noted that "DCCA should insist local communities utilize the Illinois Labor Market Service and the Illinois Occupation and Information Coordinating Committee in order to qualify for [these] funds. . . . These services are currently available, but are not as widely used as they should be."

The Illinois Commission for Economic Development has 21 members: 14 legislators, split evenly between Republicans and Democrats, and seven representatives from the private sector, all of whom serve without pay. The commission's staff is headed by a representative from the private sector who takes a leave of absence from his or her job to serve as executive director. Currently, the executive director is James A. Anderson of Illinois Bell Telephone. □

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