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The state of the State

Thompson's precariously balanced final budget

By MICHAEL D. KLEMENS

"We're going back to the old days. By that, I mean we 're going to stand for fiscal integrity once more in Illinois. Without any questions. Without any caveats. Without any maybes. Without any promises that can't be fulfilled."

Gov. James R. Thompson, June 29,
1987, acknowledging defeat
of his tax increase package. Three
weeks later he slashed $363 million
from the state budget.

"I just thought that was the right thing at that time. . . . All these choices aren't clean and neat.''

Gov. James R. Thompson,
March 6, 1990, explaining why
he chose budget cuts in 1987 and one-time fixes in 1990.

Major appropriations increases by agency, fiscal years 1990 and 1991 ($ millions)

fiscal year 1990

 

fiscal year 1991

 

Education

$767.7

Public aid

$185.5

Public aid

251.5

Education

107.1

Mental health

94.6

Corrections

75.2

Corrections

57.7

DCFS

53.8

DCPS

46.4

Mental health

31.2

DASA

23.7

DORS

12.5

Aging

18.1

Public health

12.4

Source: Bureau of the Budget.

It was no state secret that spending would be tight in the fiscal year that begins on July 1. Gov. James R. Thompson and his aides had been warning since fall that in fiscal year 1991 state government would be on a maintenance budget. But Thompson surprised many by including in his budget $230 million in new taxes and another $345 million in one-time fixes.

On March 7 Thompson unveiled a budget for fiscal year 1991 that would set both general funds revenues and general funds spending at $13,770 million. That level of spending represents a $495 million increase over current year spending, a 3.7 percent boost. Revenue would increase $761 million, or 5.8 percent. In all funds, total spending for fiscal 1991 was set at $20,952 million, an increase of $1,607 million, or 8.3 percent.

Thompson identified two initiatives, neither of which requires large general funds spending. He proposed to expand his current year Drug Free Illinois program by adding 80 new troopers to patrol highways between 11 p.m. and 7 a.m. in 72 counties that do not have night patrols at a cost of $6 million. "It's like hanging a 'gone fishin' sign at the borders of 72 counties," Thompson quipped in his budget message. Other components are $1.5 million fora computerized fingerprint system, $1.2 million for troopers to present drug abuse prevention programs in schools and $1.2 million to train troopers to identify drug couriers.

His other initiative was the Environmental Challenge Program. Its largest component assists local governments in building landfills, incinerators and transfer stations. Only $11 million of the $536 million program comes from general funds.

Thompson had no more than proposed his budget than it was under attack on three fronts. Lawmakers bipartisanly and near universally decried his tax increases. Democrats attacked his fiscal chicanery. Others challenged his revenue estimates.

Senate President Philip J. Rock (D-8, Oak Park) termed Thompson's budget "dead on arrival" because of the tax increases and "one-time" fixes. "We're going to have to start from scratch and put it back together," Rock suggested.

House Speaker Michael J. Madigan(D-30, Chicago) put one-time fixes in the

10/April 1990/Illinois Issues


budget at $500 million and called it "a blueprint for bankruptcy for the next govemor of the state of Illinois." Madigan said that House Democrats would identify excess spending and move money to education and human services: "Our bottom line will be an effort to provide for a balanced budget."

Republicans were equally critical of the tax increases but were kinder to Thompson. "No one can criticize the governor's vision. . . . We simply cannot ask the people of Illinois to shoulder new taxes when we should instead be looking at property tax relief and tightening the belt of state spending," said House Minority Leader Lee A. Daniels (R-46, Elmhurst). Senate Minority Leader James "Pate" Philip (R-23, Wood Dale) simply said there were no votes in his caucus for the budget with its tax increases.

Lawmakers can eliminate one-time fixes. They can hold the line on taxes and premise spending on more conservative legislative revenue estimates. If they do, they will have to make significant spending cuts, cuts likely to be painful.

The first dispute is over taxes. Thompson has proposed two major general funds tax increases and one small acceleration of receipts that would together raise $230 million. The governor wants to boost the cigarette tax from 30 cents to 38 cents per pack. A year ago he had tried to raise cigarette taxes from 20 cents to 38 cents per pack, but lawmakers approved only the increase to 30 cents. The additional 8-cent increase, along with a 20 percent tax on tobacco products like cigars, pipe tobacco, chewing tobacco and snuff, would raise $80 million.

Thompson also wants to increase the tax on long distance phone calls, both within and outside of Illinois, from 5 percent to 8 percent. This messages tax increase would raise $135 million. Finally, Thompson proposed a one-time increase in revenues by speeding collections of sales taxes on beer and liquor. Changing the transaction that is taxed from that between retailer and consumer to that between distributor and retailer would increase revenues by $15 million in fiscal year 1991.

The second dispute between lawmakers and the governor is over one-time fixes. New spending premised on payment delays or supplanting general funds spending with one-time revenue hikes totals $345 million. (Speaker Madigan used $500 million by including the liquor sales tax acceleration and adding another $140 million that Illinois would have to spend to fully comply with a new law that requires increased state pension funding.)

One-time fixes include:

A $30 million reduction in general funds pension spending, money that is to be replaced by non-general funds money generated via speedup in collections of inactive and unclaimed bank accounts.

A $195 million reduction in spending by stretching out from 30 days to 56 days the amount of time the state takes to pay nursing homes, hospitals and doctors that care for the poor, thus postponing some payments into fiscal year 1992.

A $20 million reduction in spending by similarly stretching out payments for low-income senior citizens who qualify for state circuit breaker payments.

A $30 million reduction in spending by providing only 10 1/2 months payments for state employees' health insurance, postponing spending into fiscal 1992.

A $70 million reduction in general funds spending by establishing a tax amnesty program that would allow businesses and individuals to pay overdue taxes without penalty and with reduced interest between September 1, 1990, and October 31, 1990. The estimated $70 million raised by the amnesty program would be spent for mental health programs that would otherwise be paid with general funds.

The third dispute is over Thompson's revenue estimates. The governor's budget assumes growth of 6.1 percent in individual income taxes, 11.7 percent in corporate income taxes and 5.2 percent in sales taxes. Robert L. Mandeville, the governor's budget bureau director, maintains the revenue estimates are reasonable and that, if high, cuts can be made in June. Without the tax increase, the bureau estimates fiscal year 1991 revenues at $13,540 million.

Legislative revenue forecasters at the Illinois Economic and Fiscal Commission are far less optimistic. Their projection for fiscal year 1991 revenues is $13,215 million, a $325 million difference. Of that difference, $150 million is in federal aid, a number dependent upon state welfare program spending that the federal govern-

Overspending crunch

Illinois' one-year spending euphoria came to a screeching halt on March 7 when Gov. James R. Thompson proposed his budget for the 1991 fiscal year that will begin July 1. "Coming off a stupendous spending year, there are great expectations out there," Thompson acknowledged. Those expectations were not met. He held spending increases to maintenance levels only by counting on unpopular tax increases and one-time bookkeeping fixes.

To understand what is happening with fiscal year 1991 requires review of fiscal years 1989 and 1990. General funds revenues were $12,133 million in fiscal 1989 (the year that ended June 30, 1989). For fiscal year 1990 (ending June 30, 1990), they are projected at $13,009 million, an increase of $876 million or 7.2 percent. For fiscal 1991 (the year that will end June 30, 1991), Thompson's budget sets general funds revenues at $13,770 million, an increase of $761 million, or 5.8 percent.

It would seem that Illinois ought to be able to get along comfortably with 5.8 percent more money. But the problem is spending not revenues. State general funds spending in fiscal 1989 was $11,838 million. In fiscal 1990 it will rise to $13,275 million, an increase of $1,437 million or 12.1 percent. Therein lies the problem. Revenues were up $761 million while spending rose nearly twice that to $1,437 million.

With revenues at $13,009 million in fiscal 1990 and spending at $13,275 million, the state has a $266 million operating deficit. It is not just an operating deficit, it is the largest state operating deficit in the history of the general funds. For the record, that spending was authorized by lawmakers and signed into law by Thompson.

Thompson's fiscal 1991 budget proposes general funds revenues and spending of both $13,770 million. Because of the fiscal 1990 deficit the state can spend only $495 million of the $761 million revenue increase. At $495 million the spending increase is 3.7 percent and below inflation, which is projected at 4 percent.

Thompson's balanced budget counts on $230 million in new taxes and another $345 million in delayed payments and one-time revenues. If lawmakers maintain their opposition to tax increases or fiscal fixes, either they or Thompson will have to cut spending. The overspending of fiscal 1990 guarantees it.

Michael D. Klemens

April 1990/lllinois Issues/11


The state of the State

ment reimburses. The commission is also $113 million below the administration in corporate income taxes, $103 million lower on sales taxes and $50 million less in lottery revenues. If lawmakers were to accept Mandeville's federal aid number and split the difference between the two forecasters on the others, revenues would come down $100 million from Thompson's estimates.

One final point on the revenue side. If lawmakers "just say no" to extending the Medicaid payment cycle and spend $195 million more in the Department of Public Aid, the state will bring in another $97.5 million (call it $100 million) in federal reimbursement.

Let's plug in the numbers. The governor's budget was balanced with $13,770 million in both revenues and spending. Take lawmakers at their word that one-time fixes are unacceptable, and $345 million must be added to the budget's spending side, bringing total spending to $14,115. Likewise, take lawmakers at their word that no tax increase is acceptable, and $230 million must be taken from the budget's revenue side. Differences on revenue estimates would be offset by increased federal aid if lawmakers do not delay Medicaid payments.

That puts "tax increaseless" revenues at $13,540 million and "no one-time fix" spending at $14,115, an imbalance of $575 million. The imbalance is more than the $495 million in total new spending that Thompson included in his budget. To keep revenues within spending lawmakers would have to eliminate every increase that Thompson proposed and more.

Making cuts will be complicated by actions in the current fiscal year that have locked the state into spending increases. New prisons that were built must now be opened. Welfare payment increases on January 1, 1990, require six months of higher payments in the current year. They will require 12-month increases next year. Also needed:

$75 million to the Department of Mental Health and Developmental Disabilities to pay full-year salaries for institutional staff added in fiscal 1990 and to pay for federal mandates to serve clients now warehoused in nursing homes.

$125 million in the Department of Public Aid to pay the full year costs of mid-year increases in both welfare payments and rates paid hospitals, doctors and nursing homes.

$65 million in the Department of Corrections to maintain existing operations under higher inmate population levels and to open newly constructed prisons at Taylorville and Robinson.

$40 million to pay negotiated salary increases to unionized workers.

The imbalance and the commitments bode badly for other programs. Elementary and secondary education asked for $272 million in new spending and received $84 million, Educators have vowed to battle for more money, but it will be a tough campaign.

In his final budget proposal Thompson maintained new spending below the level of inflation only through new taxes and one-time fixes that he had foresworn three years before. Lawmakers have objected to both. The alternative is to cut spending below the current level. Do not be surprised if the hard realities of crafting a budget temper resistance to some of Thompson's proposals.

12/April 1990/Illinois Issues


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