SPECIAL STAFF REPORT

Fiscal 1976 state budget: Vetoes, vetoes, more vetoes

Gov. Walker told the legislature in June to cut general fund appropriations by 6%. They gave him an impoundment bill—which he vetoed. Then he began making his cuts, over half a billion dollars. These reduced the budget total to $9.8 billion. That is a tenth above 1975 budget

Table 1.
Action on fiscal 1976 appropriations (all funds) in millions of dollars

Function	Budget recommendation	Passed by legislature	Approved by governor
Elementary and secondary education	$ 1,907.4	$ 1,957.7	$1,787.1
Higher education	828.4	835.4	774.9
Public-aid	1,821.7	1,815.2	1,764.7
Mental health	399.1	391.5	376.5
Children & family services	114.6	120.8	109.9
Corrections	96.6	94.7	94.7
All other	5,582.8	5,206.2	4,944.6
	$10,750.6	$10,421.5*	$9,852.4

Source: Bureau of the Budget as on July 31, 1975
* Includes $72 million not then acted on by the governor.

WHEN THE legislature returns to Springfield on October 22, it will have nearly $550 million in vetoes by Gov. Dan Walker to consider. Even if the legislature allows all the vetoes to stand, Illinois for its 1976 fiscal year will still have the largest budget total in its history, $9.8 billion. The budget will be about one-tenth higher than the total $8.7 billion appropriated for fiscal 1975, which included supplemental amounts passed in the spring session to finish out the last fiscal year.

Veto actions
Table 1 summarizes action on the budget to the early part of August when the governor still had to act on bills totaling $72 million. Thus far, vetoes amount to about 5 per cent of sums appropriated. Table 1 pertains to all funds, including bond funds.

However, it was the general fund that particularly concerned the governor in early June when he called on the legislature to cut spending levels in that fund to 6 per cent below the amounts he had recommended in March. Walker's June recommendation was made in the face of predicted declines in general revenue for the state. When the legislature failed to follow his recommendation, the governor began using his veto power to reduce or strike appropriation items. The legislature had, however, authorized the governor to impound up to 8 per cent of general fund spending, but the governor vetoed this impoundment bill, saying it was unconstitutional. "We have had enough of impoundment in this country," he said. "1 want no part of it."

Figures prepared by the Bureau of the Budget showed that the governor cut more than $300 million—approximately 6 per cent—from appropriations financed by the general revenue fund and the common school fund. (In early August, appropriations from these funds involving $35 million were yet to be acted on.) The vetoes that attracted the most attention—and are most likely to result in legislative attempts to override them—concern Public aid and elementary and secondary education. Table 2 shows action on general fund appropriations.

Public aid cuts
By reducing public aid's $1.8 billion appropriation by $50.5 million, the governor made a reduction of about 3 per cent. Most of this cut was made in the medicaid category, including medical assistance grants reduced from $827.7 million to $778.0 million. The governor emphasized that he had made no reductions in the money designated for public aid grants: "In view of current economic conditions, it would be inappropriate to reduce amounts appropriated for grants to recipients."

Cuts in education funds
The governor's cuts in funds for elementary and secondary education amounted to 6 per cent from his original recommendations. Amounts vetoed were $49.5 million in Office of Education operations and grants, $81 million in distributive (state aid) funds, and $20.9 million in teacher retirement funds. However, $9.7 million of the retirement fund was a duplicate of a sum already approved in a different bill. The governor also vetoed three bills that contained revisions of the state school aid formula and authorizations for increased local property taxes (H.B. 534, S.B. 209, and S.B. 1493). He said the revised formulas do not solve inequities that hurt downstate urban areas and would lead to future increased property taxes without referenda. He said the bills would also have cost the state more than it could afford in fiscal 1976 Walker said he would call a special session of the legislature in the

October 1975 / Illinois Issues / 291

Both state comptroller and business group say cutting money bills isn't enough. It's also necessary to hold down pace of spending

fall, coinciding with the regular session, to consider an administration bill which would protect downstate urban school districts from losing state aid in the coming year.

"Under the present formula—even with full funding-—a large number of districts, including Rock ford, Bloomington, Peoria, Springfield, Champaign and Urbana all would receive less money than in the school year Just completed, even without any reduction," he said. "Decatur, Moline and Rock Island would be right on the line of losing money.'"

The Office of Education's distributive fund, after reduction, is $1.173 billion, which is a level that will place Illinois ahead of California, Michigan, New York, and Ohio in state share of education support, according to the governor. And among the five largest cities, Chicago will be second among Philadelphia, Detroit, Los Angeles, and New York in state aid per pupil, he said.

The extent of state aid for local schools has an important relationship to property taxes since state aid is the only significant alternative revenue source for local school districts.

Higher education
The governor's vetoes in funding for higher education amounted to about 7 per cent of the appropriations made by the legislature for this purpose. Major amounts vetoed were University of Illinois, $14.2 million; community colleges, $11.1 million; scholarship commission, $10.3 million; Board of Higher Education, $7.4 million; Board of Governors (Chicago State, Eastern Illinois, Governors State, Northeastern Illinois, and Western Illinois), $6.3 million; Southern Illinois University, $5.5 million; and Board of Regents (Illinois State, Northern Illinois, and Sangamon State), $5.4 million. When Walker announced these cuts, he pointed out that if capital appropriations are counted in, the higher education budget still totals over $1 billion for the first time in Illinois' history.

The governor said he worked closely with the Board of Higher Education in selecting areas for cuts, and the board in turn worked with university officials. The governor said that 7 per cent pay raises could still be granted higher education employees. He said an additional $4.1 million (an increase of 5.4 per cent over 1975) will be available for scholarships. Although the governor's announcement said that no tuition increase would be necessary to fund higher education programs for the 1976 fiscal year. University of Illinois officials and a Board of Higher Education advisory committee have pointed to a tuition increase as a source for additional funding.

Other reductions
The governor cut $174 million from the Department of Transportation budget. The veto was used principally against items added on by the legislature, particularly specified local projects. His announcement said that despite the cuts, the road program was increased by $150 million over fiscal 1975.

Cuts were made also in the budgets of the state executive officers and the legislature and its agencies. Reductions were: attorney general, $360,800; comptroller, $135,900; lieutenant governor, $175,300; secretary of state, $2,000,000; and state treasurer, $124,600. Cuts in the legislative branch totaled $8.6 million in general fund appropriations.

Broad veto power
As the foregoing illustrates, the governor of Illinois has extremely broad veto powers which can be exercised with considerable precision. He can veto an appropriation in its entirety or can single out items in appropriations. For the General Assembly to override a full or item veto, a three-fifths vote of the members elected to each house—36 votes in the Senate, 107 in the House of Representatives—is required. However, a simple majority—30 votes in the Senate, 89 in the House—can override a reduction veto which is the precision cutting tool the governor used for the most part. to achieve his goal of reducing general fund spending by 6 percent The reduction veto was established by the Constitution of 1970 to permit the governor to reduce the amount of any item in an appropriation bill. If the legislature overrides such vetoes, it will be openly substituting its judgment for that of the governor on the fiscal outlook for the state in the months ahead.

Holding the line
From state Comptroller George W. Lindberg and the State Chamber of Commerce came separate warnings that reducing appropriations by the veto route is not enough. It will also be necessary, they said, to hold down the pace of state spending.

"Spending cuts now will be to no avail if state departments and agencies return to the legislature later for deficiency appropriations, which has become an all too common practice," said Lester W. Brann, Jr., president of the State Chamber, in a statement July 17. "This is particularly critical in the area of welfare where the Walker Administration continues to seriously underestimate caseload levels. This alone could cost the state an additional $75 million from state sources during fiscal '76," Brann stated.

During the 1975 spring session, deficiency appropriations passed by the legislature for fiscal 1975 totaled $339 million, including $197 million for public aid. But, the major portion of this money comes from federal funds,

Brann's statement asserted that as a result of legislative appropriations, the state would face a possible $412 million deficit in general funds during fiscal 1976, but the governor's veto actions had reduced this projected deficit to about $30 million.

In a statement that accompanied the comptroller's July 1975 monthly fiscal report, Lindberg reported that during fiscal 1975 "the state spent $138 million more from the general funds than it received in taxes and from other sources. The deficit arose as a result of spending $613 million more from the general funds than in the previous fiscal year, This increase is of historic proportions as the largest single year increase previously recorded was in fiscal year 1970 following the enactment of the state income tax."

Lindberg said the state has only three options when spending exceeds

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revenues: (1) cut spending by cutting services and increasing efficiency, (2) increase revenues through increasing taxes, or (3) borrow. "As Comptroller, it is my position that the only viable alternative is to reduce spending." But borrowing is possible.

State borrowing
The administration and the legislature have resorted to borrowing in order to fund capital improvements. In addition, the Constitution permits the state to borrow an amount up to 5 per cent of the state's appropriations for a fiscal year "in anticipation of revenues" or up to 15 per cent "to meet deficit caused by emergencies or failures of revenue." Such borrowings must be repaid in one year. This type of borrowing may be authorized by either (1) three-fifths vote of the members elected to each house of the legislature or (2) approval by a statewide referendum. Lindberg is the only public official so far to mention this funding route to meet possible deficits. During the

Table 2.
Action on fiscal 1976 appropriations from general revenue and common school funds in millions of dollars

Function	Budget recommendation	Passed by legislature	Approved by governor
Elementary and secondary education	$1,677.7	$1,727.6	$ 1,556,9
Higher education	724.8	740.3	679.9
Public aid	1,821.7	1,814.0	1,763.6
Mental health	369.7	360.8	345.8
Children & family
services	109.2	114.9	104.0
Corrections	93.1	91.2	91.2
All other	606.4	678.1	630.8
	$5,402.6	$5,526.5*	$5,172.2

Source: Bureau of the Budget as of July 31, 1975
* Includes $35 million not then acted on by the governor.

Table 3.

Fiscal 1976 appropriations from bond lands in millions of dollars

Fund Capital development	Requested $ 802			Passed $ 508	Approved $ 504
Antipollution			346	398	398
School construction			552	329	329
Transportation
Series A (highways)			508	588	544
Transportation
Series B (other
than highways)			148	141	123
Transportation Series C (highways)			561	—	—
Coal development			10	10	10
			$2,926	$1,975*	$1.908

Source: Bureau of the Budget as of July 31. 1975
* Includes amounts not then acted on by the governor.

depression of the 1930's, the state did issue $50 million in long-term bonds to underwrite emergency relief needs.

The fiscal outlook
While the state supposedly can control large elements of its spending, two major factors in the state's fiscal equation are beyond the control of the administration; welfare spending and revenue from state taxes at existing set rates. Both reflect economic conditions. Welfare costs go up as joblessness rises, and Illinois' two principal general taxes, the sales tax and the income tax, are adversely affected by downturns in economic conditions.

Up to now, however, inflation has automatically increased state tax revenues, and state revenues grew 11 per cent in fiscal 1975, according to the comptroller's report for July. Lindberg's report explains, "For example, the state sales tax is collected on the dollar cost of consumer purchases. As the prices of goods purchased by Illinois taxpayers rise, the state collects more in tax dollars." In fiscal 1975, this was $112 million more than the previous year. Other increases in fiscal 1975 compared to 1974 were income tax revenue up $ 167 million, state corporate income tax up about 16 per cent, and the individual income tax up 10 per cent.

On the expenditure side, however, comparing fiscal 1975 to 1974, public aid was up $168 million and common school fund spending was up $189 million—a total increase of $357 million. This expenditure increase is more than the $279 million gain from the state's two principal taxes.

One other element in the equation is the balance with which the state begins a new fiscal year—not cash in the treasury but the "available balance." The comptroller said this' was $315 million at the end of June 1975, $138 million less than the previous year.

The new state lottery figured briefly in the comptroller's report. "This new revenue source yielded a one-time boost in state revenues of $55 million in fiscal 1975," the report said, but added, "Such an increase will not be experienced in future years."

Capital improvement bonds
Almost $2 billion of the spending authorized for fiscal 1976 will come from bond funds to be used for capital projects. Originally, the governor in January had presented an "Accelerated Building Program" to the legislature as a counter-recession device, but the legislature's refusal to give priority consideration to the administration's proposals doomed the accelerated aspect of the program.

The administration requested appropriations payable from bond funds totaling $2,926 million, including $2,028 million in new appropriations and $898 million in reappropriations. (A reappropriation is a continuation of an appropriation which originated in a previous fiscal year for a project not completed in that year.) A reappropriation involves carrying through on a commitment made at a previous session, but nevertheless represents an authorization to spend in the new fiscal year. The legislature approved capital appropriations totaling $1,975 million, including $1,200 million in new appropriations and $774 million in reappropriations. During fiscal 1975 $1,136 million had been appropriated in bond funds, but only a fraction of this amount was actually spent. Table 3 shows the bond funds, the amounts requested, the amounts appropriated, and the amounts approved. New appropriations and reappropriations are merged into totals.

October 1975 / Illinois Issues / 293

The Constitution directs the governor and legislature that appropriations shall not exceed funds estimated to be available. The Walker administration is confident that vetoes have brought the budget into balance

Budgeting for the state government, now on an annual appropriations cycle, is an endless process, with a budget being planned in the summer before the previous budget has been fully approved. The process first "goes public" in March when the governor unveils his recommendations for the next fiscal year beginning July 1 (see Illinois Issues. May 1975, p. 148ff). The legislature tries to complete action on appropriation bills by July 1. The bills must be delivered to the governor within 30 days, and he has 60 days to act. The governor usually completes action on most money bills as soon as possible because they are necessary for the operation of the state government as the new fiscal year begins. But it is possible for 90 days to elapse between passage of a bill and action on it by the governor. In the case of a vetoed bill, the governor returns it to the house of origin if it is in session, and to the secretary of state when the legislature is in recess. The secretary returns the bill and veto message to the legislature when it reconvenes. Once the House or Senate receives a vetoed bill, it has 15 calendar days in which to act. If the originating chamber overrides the veto, the second house also has 15 days to act.

No single budget bill
The budget picture in Illinois is complicated by the fact that usually about 200 appropriation bills—three-fourths new appropriations and one-fourth deficiency appropriations for the old fiscal year—are passed and sent to the governor. There is no single budget bill. After official action on vetoes has been completed, the comptroller's office publishes the text of all appropriation bills. This, however, is usually not available until the fifth month of the fiscal year. At 'about the same time, the comptroller also publishes a report covering appropriations for the old fiscal year, comparing how much was appropriated to how much was spent. Funds appropriated for a particular year do not carry over; they must be spent within that year. The law allows a grace period of 90 days—until September 30—to clear bills for obligations incurred during the old fiscal year. After September 30, appropriations are said to "lapse," and woe be to the state's creditor who has been tardy in presenting his bill for payment. His only recourse is to go to the state court of claims and submit the account; after it is approved by the court, he must wait until the legislature passes an appropriation for his relief.

A balanced budget
The Constitution directs both the governor and the legislature that appropriations shall not exceed funds estimated to be available during the year for which the budget is prepared (Art. VIII, sec. 2). The Walker administration is confident that the governor's vetoes have brought the budget into balance.

Gov. Walker, in announcing his vetoes, called attention to the "financial problems plaguing cities and states across the country . . . walkouts, firing of police and firemen, garbage piling up in the streets," and he added, "I don't want chaos in Illinois and I do not want a tax increase. To avoid both chaos and a tax increase, we must cut spending."

One way it's a 'tax cut'
He said his reductions in general revenue spending were equivalent to an increase from 2 1/2 per cent to 3 1/2 per cent in the income tax or a one cent increase in the sales tax. And he vetoed seven bills that would have reduced revenues by decreasing the income tax and the inheritance tax (H.B. 141, 182, 364, 1146, 2125, 2313 and S.B. 506). 

294 / Illinois Issues / October 1975