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The State of the State


Edgar's spending: fiscal integrity

Michael D. Klemens

By MICHAEL D. KLEMENS

Gov. Jim Edgar's first budget was an austere proposal that would end what he called a "spending binge" by making cuts in most agencies and deep cuts in welfare spending. Edgar's budget would correct the overspending that followed the 1989 temporary income tax increase. "It is time we tear up our credit cards," he told lawmakers in his March 6 budget address.

Edgar's budget had something for Republicans: human service cuts and restrained spending. It had something for Democrats: the continuation of the income tax surcharge they passed in 1989, although Edgar wants to trim local governments' share of receipts roughly from half to a quarter.

Edgar contended that he showed leadership by opting for outright elimination of specific programs instead of more expedient across-the-board cuts. He identified priorities in education, prevention programs and financial integrity. Financial integrity got nearly all the money.

Edgar's proposed budget for fiscal year 1992, the year that will begin July 1, calls for spending $14.178 billion in the general funds, the accounts available for general spending and not dedicated to specific purposes like roads or debt service. General funds spending would be up $430 million (3.1 percent) over the current year. In all funds, spending would increase by $755 million (3.7 percent) to $21.345 billion for the year beginning July 1.

Edgar's budget proposed the layoff of 1,380 state workers and the elimination of another 3,000 vacant positions. No employee raises were included. Program cuts in the Department of Public Aid would produce savings of more than $700 million in the coming fiscal year. And Edgar diverted to state use about half the income tax surcharge money that would otherwise have gone to local governments.

Edgar said his budget was based upon four principles: (1) making the 1989 income tax surcharge permanent; (2) rebuilding the June 30 balance that had fallen to $100 million; (3) maintaining expenditures within revenues; and (4) no other new taxes.

Republican lawmakers, accustomed to dealing with a governor less conservative than they, applauded the budget. "The special interests will hate this budget, but I would encourage my colleagues to listen to the only interest group that counts -- taxpayers," said Senate Minority Leader James "Pate" Philip (R-23, Wood Dale). House Minority Leader Lee A. Daniels (R-46, Elmhurst) predicted controversy but praised Edgar for paying bills and maintaining the state's bond rating.

The Democratic leadership saw shades of Ronald Reagan. "This is reminiscent of Reaganomics. He is attempting to balance the state's budget on the backs of the poor and those who are unable to fend for themselves; at the same time he is sending programs back to the cities, with little or additional money," said Senate Presid Philip J. Rock (D-8, Oak Park).

House Speaker Michael J. Madigan (D-30, Chicago) cited failed fiscal policies in Springfield and Washington. Madigan said Edgar's cuts targeted the wrong programs; "The budget in my judgment is not fair because it does not in my judgment provide help to people in our society who need help the most." Madigan also maintained that

Five years of general funds revenues and spending (12 months)
(dollars in millions)

Fiscal year

1988

1989

1990

1991

1992

Beginning balance

$ 154

$ 246

$ 541

$ 395

$ 100

Revenues

$11,620

$12,133

$12,841

$13,453

$14,278

Spending

$11,528

$11,838

$12,987

$13,748

$14,178

Ending balance

$ 246

$ 541

$ 395

$ 100

$ 200

Source: Comptroller reports. 1991 amounts estimated by the Bureau of the Budget. 1992 proposed in governor's budget.


6/April 1991/Illinois Issues


the Edgar budget was unfair to older cities, like Chicago.

Both Rock and Madigan predicted drastic changes in the budget. Rock said that senators would look elsewhere for cuts. Madigan suggested that the state could consider taking three or four years to work itself out of the hole.

Educators embraced Edgar's budget, more for what they would lose without the $400 million that the income tax surcharge provides for schools, colleges and universities than for new spending. Elementary and secondary education saw a $50 million increase in state funding. Robert Leininger, state superintendent of education, said that difficult financial times make priorities obvious: "I think this budget signals an intensified state commitment to strengthening our schools." Richard D. Wagner, executive director of the Illinois Board of Higher Education, offered thanks for the priority: "In the context of an austere fiscal year 1992 budget, I want to thank Gov. Edgar for the funding priority given education.''

Although spending would rise between fiscal year 1991 and fiscal year 1992, all of that money, and more, must go to pay old bills. Most of the $627 million in old bills are payments for medical care to poor people. The Department of Public Aid will enter fiscal year 1992 with $370 million in bills that it cannot pay. Another $185 million is needed to keep the state from falling behind again in fiscal year 1992. The state also owes $48 million in state employee medical payments and $24 million in circuit breaker payments for property tax relief to low-income senior citizens.

There are other spending demands besides the $627 million needed for old bills. First, fiscal year 1991 spending has exceeded revenues by $295 million. The deficit revenues of $13.453 billion versus spending of $13.748 billion has forced a drawdown of the end-of-year balance from $395 million to $100 million.

The deficit-driven drawdown has devastated Illinois' cash reserves. The $100 million projected for the June 30 cash balance represents less than two days spending and causes delays in paying bills when tax receipts are slow. And it makes the agencies that rate state bonds nervous. Standard & Poor's has threatened to reduce the state's bond rating unless state finances are improved.

Edgar says that he wants to raise the cash balance to $200 million on June 30, 1992. To do that, spending must be held $100 million below revenues for fiscal year 1992. And he says that in future budgets he will propose to boost the balance further.

That's $1 billion, but there are still more demands. Not repeating the $41 million borrowing from the Road Fund and beginning to end the practice of pushing off bills into the July-August-September "lapse period" will cost another $300 million. All told, the obligations are $1.3 billion before spending new money for any program.

Edgar's financial plan will not take care of the state's fiscal problems in one year. He has only enough money in the budget to reduce the payment cycle for medical providers from 82 to 60 days. Bringing that down futher say, to 35 days would take another $200 million. And he pledged to rebuild year-end balance by

Edgar's budget cuts

The deepest cuts in Gov. Jim Edgar's proposed budget came in services for the poor. Edgar's budget reduces or eliminates programs in the Department of Public Aid to cut spending by more than $700 million in fiscal year 1992.

Key among the proposals is the restructuring of the General Assistance (GA) program, a state/local program for those who do not qualify for other benefits. Most of the 87,000 Chicago recipients and the 17,000 downstate are single men, and many of them are homeless. Currently the program provides $165 per month in payments and some medical help.

Edgar proposed to break GA into two programs. Families with children would be eligible for the State Family and Children Assistance Program. Adult GA recipients would participate in the State Transitional Assistance Program, a program that would provide benefits for six months in any 12-month period. Edgar says the revised program would give clients time to find work or to get into suitable training or treatment programs.

The new programs require increased local spending. Increased costs were projected at $17 million for Chicago and $3 million for the 71 downstate townships that run the program. The state savings would be approximately $200 million.

Other savings come from reduced spending for health care for the poor. The state will begin the next fiscal year $555 million in the hole, partly because of deliberate underfunding of medical service lines and partly because of higher utilization than anticipated. Contributing to the problem are higher rates and new programs that were started following passage of the 1989 income tax surcharge.

Edgar's budget includes more than $400 million in cuts to programs that provide medical services to the poor. The federal government would reimburse half of that spending. Cuts included:

$181.5 million from a 5 percent reduction in rates paid doctors, hospitals and nursing homes that serve the poor.

$82.4 million by eliminating optional services, optometrists, dental care, wheel chairs, etc., from the state medical plan. Prescription drugs, also optional, would be retained.

$45.5 million from rate increases guaranteed nursing homes to pay nursing costs.

$40 million by reducing extra funding given hospitals that care for high numbers of poor people.

$22.3 million in incentives for nursing homes that meet certain standards.

$9.6 million by reducing drug and alcohol treatment and prevention programs.

$5.7 million by limiting the dental program to children.

$27.2 million by expanding restrictions on choice of physicians for high-volume users.

Two other programs were also cut. Edgar proposed elimination of Aid for the Medically Indigent, a $54.8 million program that provides health care for working poor ineligible for Aid to Families with Dependent Children. There is no federal reimbursement for that spending.

Finally, the governor eliminated $54.2 million in funding through the Department of Public Aid for the Residential Energy Affordable Partnership Program that paid heating bills for the poor. The program is to be replaced with a federally funded effort that targets the most needy.

Douglas Dobmeyer, executive director of the Illinois Public Welfare Coalition, called the cuts simplistic and suggested that Edgar was just posturing. He predicted that the cuts, particularly the elimination of GA funding, would prove unacceptable to most Illinoisans. "I think Jim Edgar has tried to play a role beyond being governor. We didn't elect him God, we elected him governor."

Michael D. Klemens

April 1991/Illinois Issues/7


The State of the State


$200 million in fiscal year 1993, to $400 million.

It will take $1.3 billion to pay the bills and get Illinois in the black again, but general funds revenues are projected to increase only $825 million. That includes $396 million in "natural revenue growth," the inflation-related growth in revenues. Another $156 million would come from reducing the extra income tax surcharge money given local governments from 5.9 percent to 3.0 percent of net income tax collections. Finally, Edgar proposes a $273 million increase in federal aid. Some comes as the matching share of old medical bills, but $122 million is dependent upon reconfiguring programs to attract more federal dollars.

The difference between $1.3 billion in demands and the $825 million in new revenues left Edgar to cut $509 million in spending. And that is before figuring the increased costs of existing services or annualization of programs begun part way through the current year.

Faced with the dilemma, Edgar chose selective modest spending increases for certain programs and outright elimination for others. Education saw a modest increase in money. So did prevention programs like the state's effort to cut infant mortality rates.

Education is presumably the big winner in fiscal year 1992, a title that it holds by virtue of not losing money. Edgar proposes $50 million in new elementary and secondary education spending, the new money coming from the state general funds' "recapture" of $156 million that had gone to local governments.

Within elementary and secondary education Edgar proposed two initiatives. First, he proposed to increase by 43 percent spending on preschool programs for children judged to be in danger of failing in school. Funding would rise from $63 million to $90 million; the number of children served would increase from 25,500 to 30,000. The estimates of the number who need such services are three times that at more than 100,000.

Edgar's second education priority was the general state aid formula, which he recommended receive $30 million in new funding. He contended the money would close the gap between the haves and the have-nots. It will not close it much, raising the foundation level only from $2,501 to $2,557 per student.

Higher education was also a winner because it did not lose money. Illinois public colleges and universities would see no increase in general funds spending under Edgar's budget but would receive new money from the 5 percent tuition hike that the Illinois Board of Higher Education has proposed. That will raise $14 million for public universities. Edgar has also suggested a business internship program for juniors and seniors and strengthened minority recruitment.

Among the winners was the Department of Rehabilitation Services, which would have its general funds budget increased $18.6 million (23 percent). Projected growth in the home services program, which provides services to keep individuals out of nursing homes, is estimated at 10 percent, from 10,100 to 11,100.

Another winner was the Department of Children and Family Services with a 12 percent increase, from $367.6 million to $412.1 million in its general funds budget. The department projects an increase of more than 4 percent in its foster care caseload and is proposing a January 1 rate increase for service providers. The department will add 17 caseworkers and seven child abuse hotline personnel. Two of three state-run children's shelters in Chicago will be closed, the services replaced with contracts to private agencies.

The other department to be classified a winner in fiscal year 1992 general funds spending is the Department of Corrections, which saw a 2 percent increase in spending authority. But, after Illinois built 14 prisons in 14 years, Edgar proposed that the state build no new facilities in fiscal year 1992 and instead delay opening the Big Muddy River medium security prison near Mount Vernon and four downstate work camps until fiscal year 1993. He proposed closure of juvenile centers at Pere Marquette and Kankakee. "Illinois cannot afford to continue the past decade's rate of prison expansion," Edgar's budget book said.

The department will open a 200-bed community correctional center in Chicago. And it will increase staffing levels as new inmates move into new prisons at Robinson and Taylorville. At the end of the fiscal year the prison system will be at 161 percent of its designed capacity, up from 147 percent at the current time.

The other major change proposed is the elimination of 176 parole officers, as the department shrinks parole from a three-year post-release period to a six-month program. The 19,000 inmates to be released next year will take classes on finding jobs and have access to substance abuse therapy before and after their release. The revamped system will be run by 39 officers.

The embattled Department of Commerce and Community Affairs (DCCA) took one of the deepest cuts, with its general funds appropriations reduced $27.4 million, to $113.5 million. (DCCA's total appropriations from all funds dropped from $813.8 million to $645.1 million.) Nearly half of that results from completion of the Sears relocation from Chicago to Hoffman Estates. Edgar also proposed to eliminate the Large Business Attraction, Loan Program, through which the state had made low-interest loans to companies locating in Illinois. Elimination of new civic centers saves $31 million. Restructuring of heating aid for poor people to target only the most needy will contribute to a $64 million reduction in energy program spending.

Other changes included:

The Department of Mental Health and Developmental Disabilities would slow the move of patients from nursing homes into community facilities and would see a 270-person reduction in personnel at facilities, based on reduced numbers of patients.

The circuit-breaker program that provides assistance to low-income elderly persons would be revamped and pharmaceutical assistance capped, saving $69 million per year.

Historic sites, including Lincoln's Tomb, would be closed two days per week.

State police would forgo a class of recruits at its training academy.

The Department of Transportation would cut $38.5 million in subsidies for public transit fares for the elderly, handicapped and senior citizens.

Edgar has stressed fiscal responsibility; that is something new. The governor is acting like a Republican, holding the line and cutting human services; that is something new. Edgar's budget has House Speaker Madigan talking like a Democrat; that is really new.

8/April 1991/Illinois Issues


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