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Life without a tax increase

Gov. James R. Thompson's proposal to extend the sales tax to services was pronounced dead by most of the players by early May, but his tax increase drive continued. On May 4 Thompson made a pitch to senators, convened as a committee of the whole: "We are blessed with low taxes. The issue is whether we will be wise enough to prevent that blessing from becoming a curse," he told them. But plenty of doubters remained, as the administration and interest groups prepared to detail what fiscal year 1988 would be like without a tax increase.

Among the unconvinced was Douglas L. Whitley, president of the Taxpayers' Federation of Illinois. Before Thompson addressed the Senate, Whitley unveiled a study that showed Illinois' tax burden as modest and declining. The biennial Illinois Tax Climate put Illinois' 1985 state and local tax burden per $1,000 of personal income 33rd among the 50 states. But that does not justify a tax hike, Whitley argued. "Just because the statistics show room for an increased tax burden, doesn't necessarily mean we deserve a heavier tax burden."

Whitley contrasted the stalled Thompson tax reform package — that's how he terms the reduction in the sales tax rate and hikes in the personal exemptions — with the succesful federal reform initiative. Gov. Thompson has no legislative champion, Whitley says, and Illinois rates are so low that it is hard to trade base broadening for lower rates, as was done on the federal level.

Among the groups searching for an answer to the tax hike question is the House Republican Policy Committee. Testimony from interests as diverse as the General Assembly's Economic and Fiscal Commission, Deputy Gov. James Reilly and the Taxpayers' Federation made it clear the state has been living beyond its means, said Rep. Tom Ryder (R-97, Jersey ville), chairman of the group.

Ryder sees three choices. Cut spending and allow natural revenue growth to restore the balance; pass new taxes to bring revenues up to spending levels; or repeal tax relief measures. The answer, Ryder says, will depend on what legislators hear from constituents. "May is the month," he says.

Ryder talks of a structural imbalance. Thompson used the same term in addressing the Senate. The phrase appears on page four of Thompson's proposed budget. It means simply that the state has been spending more than it has been taking in. Thompson's budget director, Robert L. Mandeville, said that the governor's tax increase and spending plan "makes us structurally sound again in the first year."

But digging the state out of that hole does not have a lot of appeal. Money spent for catching up is not available for new programs or projects that would sell lawmakers and their constituents on the tax hike. Returning the state to sound financial footing is not cheap. Illinois needs to:

• Repay, with interest, $100 million borrowed this year.

• Make up the $69 million it spent in excess of revenues this year.

• Shorten the payment cycle for doctors, hospitals and nursing homes that serve the poor to 30 days — an $100 million item. The delays have pushed payments from this fiscal year into 1988.

• Spend $46 million to restore state funding for universities, similarly pushed from this fiscal year into 1988.

• Make up for the loss of one-time out-of-state telephone call taxes. Although still blocked by court action, Illinois anticipates receiving $160 million by the end of the fiscal year from taxes paid under protest for the last two years. One-year's receipts, for 1988, are pegged at $105 million.

• Pay negotiated salary increases to employees, a $45 million cost that could result in elimination of 1,900 positions by attrition.

• Pay full-year costs of facilities that opened part way through the current year, like the new Galesburg prison, and of programs, like mental health cuts restored late in the year.

And then there's the biggie, education reform. Illinois is entering the third year of its five-year, $1.3 billion dollar commitment to the state's elementary and secondary schools. With his tax increase, Thompson proposes to spend nearly $200 million on the state's public schools. It is education reform that caused the structural imbalance, Deputy Budget Director Richard Kolhauser maintains. From 1970 to 1987 the state got by without permanent tax increases because revenue growth covered spending increases, he says. The commitment to schools threw that out of balance.

Deputy Gov. Reilly summed it up for Ryder's committee: "The first, almost $600 million of revenue that we get, if we get our package, doesn't go to increased spending, doesn't buy anything new. It just buys what we've already got and what we're mandated by law to give, which leaves us something like $580 million for program growth."

Even if developments have not been dramatic, the tax and revenue question is marching toward a conclusion. Appropriations committees in the House and Senate finished their first crack at the state budget for fiscal 1988. Their budget stood at $10.61 billion, an increase of $40 million from the current level, but far less than Thompson's $11.42 billion spending plan proposed in March. The administration seized upon the committee figures to produce a list of painful cuts, saying the action proved a budget without new taxes would be painful.

Reilly had said a week earlier that appropriations committee cuts would make the case for a tax hike. "The no-tax budget and the pain that it would impose is not a fantasy. There's pain from passing a tax increase, politically. There's pain from passing a no-tax increase budget. And in some sense the choice is going to be pretty clear which pain is greater and which is the right thing to do," he told Ryder's committee.

Then again, the decision could be delayed. There is talk in the Capitol corridors of waiting until the fall veto session to deal with the tax hike, allowing state-funded programs to "bleed" over the summer. Thompson hinted at that possibility while addressing the Senate: "I suspect that if we do not attend to the needs of the people of this state by the first week in July, we will be back here in the fall to repair some very grievous wounds."                   

Michael D. Klemens

June 1987/Illinois Issues/25



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