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Copyright® 1975 by The Brookings Institution, Washington, D.C.
DID FORMER Gov. Richard B. Ogilvie leave any lessons for his Republican successor, James R. Thompson, in dealing with
Washington?
Yet this was not the final decision. The climactic confrontation between Illinois and the Nixon administration was still to come. Ordinarily, plan
approvals would have disposed of the
case, but this was not an ordinary case.
HEW1 still had to grant single-state-agency waivers. The governor's staff
therefore was not sure just what obstacles lay ahead, or just how much Illinois could realize from services grants and when. They would not be satisfied until they actually saw the money, for which they were daily more desperate. Neither the Family Assistance Plan nor revenue sharing, on which the Ogilvie administration also had been counting, had passed, and in August, as part of a "new economic policy," the President had announced that they were to be postponed. But there was no halt in the rise of welfare costs. In the fall of 1971 Ogilvie's budget office was estimating
the state's welfare deficit for fiscal year 1972 at $107 million. By counting on
federal funds to make this up, the
Ogilvie administration had sacrificed
other alternatives. Borrowing or shifting funds around among state accounts
would have required legislative approval, which could not be obtained.
The legislature would have insisted on
cutting welfare grants. And it was now
too late even for that. Had it been done a
year or two earlier when a deficit in the welfare budget had first been anticipated, sizable savings might have been
realized from small and relatively
acceptable cuts, on the order of 5
percent. To make up the deficit at this
late point, however, would have required cuts on the order of 20 percent,
which was simply unthinkable. In this
situation, Illinois opened action on new fronts.
In Springfield, the governor moved to
cut welfare costs in a highly selective
way. Early in October he announced
changes in the Medicaid program that
were estimated to save $50 million. He also announced a plan to cut back on
general assistance, the relief program
for persons ineligible for the federally
aided categories (AFDC2, and aid to the
aged, blind, and disabled). He proposed
to transfer $21 million from general
assistance to AFDC, where the money
would be matched with federal funds.
The governor's staff believed that many
people on general assistance in Cook
County, which receives more than 90
percent of the state's general assistance
expenditures, were actually eligible for
the federally aided categories but were
on general assistance because the Cook
County Department of Public Aid did
not want to cope with the paperwork.
In Washington, the state prepared to
take legislative action. The Illinois office
in Washington had conceived the idea of
emergency federal legislation to relieve
the states of increases in welfare costs
for a year beginning on June 30, 1971.
That is, the states would be "held
harmless" against the rise in welfare
costs. This relief would be offered only
to states that had not tightened eligibility standards or lowered standards of
cash payment in the categorical programs, which of course included Illinois. Governor Ogilvie had broached this idea to President Nixon in August, hinting that California and New York might also be interested, and at the
President's invitation he had submitted
a proposal to Ehrlichman. The administration did not agree to it, however. Budget Director Shultz3 was thoroughly opposed to the idea, which would have added a billion dollars to the
federal budget and set a bad precedent
in intergovernmental fiscal relations.
Secretary Richardson4 and other proponents of the Family Assistance Plan within the administration feared as well that the proposal would deprive states of an incentive to support welfare
reform. In an interview with a reporter
from the Chicago Tribune, Richardson
said he could not foresee administration
support for the proposal. The interview
appeared in the Tribune on November 3
— the very day, as it happened, on
which Illinois newspapers also reported
a decision by the state supreme court
against Governor Ogilvie's plan to cut
general assistance. A suit by Cook
County, successful in a state circuit
court, had been upheld. The governor's
situation seemed steadily to be growing worse.
Success, however, was not far off for
Illinois. Fortuitously, the attempt to cut welfare at home made it possible to achieve victory in Washington, for it drew the state's senior senator, liberal Republican Charles H. Percy, into the
contest on Ogilvie's side. After Ogilvie
announced the cuts, a nationally known
black leader from Chicago, Jesse Jackson — the director of a poor-people's
movement called Operation Breadbasket — came to Washington to appeal to
Senator Percy to intercede with Ogilvie.
After consulting with Ogilvie's Washington office, Percy responded by promising active support for hold-harmless legislation for the states. He thereupon
set out to gather support for the
proposal from governors and other
senators. He announced that he would 1 Health, Education and Welfare, U.S. Department of
2 Aid to Families with Dependent Children
3 George Shultz
4 Elliot Richardson, secretary of HEW
June 1977 / Illinois Issues / 23
introduce the bill if it had administration support.
As it happened, Illinois did not wait
for the President and his staff to
acquiesce in the bill. It took advantage
of the administration's opposition. On November 15, Senator Percy
introduced the hold-harmless proposal
as an amendment to the President's tax
reduction bill, part of a package of
economic legislation to which the
administration attached highest priority. In November, it appeared to be
the only major legislation likely to be
acted upon before the end of the year; it
was, an Illinois official said, "the last car
going." Hence Illinois got on board with
the Percy amendment, in a last-ditch
effort to extract concessions from the
Nixon administration. Opposed to the
Percy amendment as such, the administration also wanted to prevent extraneous amendments to the tax bill, especially if they related to social security or
welfare, subjects that would have
opened up an interminable debate.
Accordingly, no sooner had the Percy
amendment been introduced than the
administration offered to pay to remove
it. "We got their attention, didn't we?"
an Illinois man later observed of this
moment. On November 16, Percy and Thomas
J. Corcoran, the head of the Illinois
office in Washington, met with Ehrlichman; Paul H. O'Neill, who had
succeeded Nathan5 as assistant director
of the OMB6; and a man from Vice-President Spiro T. Agnew's office who
handled relations with the states. The
meeting was held in the vice-president's
office in the Senate. Governor Ogilvie
was to have been there but at the last
minute did not come, having been
detained by state business and deterred
by the advice of his Washington staff.
Corcoran, who had written a master's
thesis on Woodrow Wilson, remembered the lesson that Wilson should not
have gone to Versailles. He was relieved when Ogilvie did not come to
the meeting with Ehrlichman. Ehrlichman appealed to Percy and to Corcoran
as the governor's representative to
support the President's program. Illinois had reached a fork in the road, he
said, describing the choice with his
hands. (Illinois officials would later
recall the phrase with high indignation.)
It would either take the path of helping a
Republican President achieve his purposes or it would pursue a selfish, obstructionist course: Illinois should
decide which way it wanted to go.
Illinois was told that if Percy should
withdraw his amendment, the administration would make several concessions, among them the HEW would complete action on the state's social services
proposals. Other items included backing for some of the cost-cutting measures that the governor had announced.
For example, the 0MB estimated that
the state could save $20 million to $30
million by transferring eligible people
from general assistance to the categories, and the federal administration
would accede to a claim for retroactive
reimbursement in such cases, which
O'Neill suggested would yield around $5
million. He also proposed that the
federal administration advance the
state's public assistance grant for the
first quarter of fiscal year 1973.
Amounting to about $50 million, that
grant, if made in the last quarter of fiscal
year 1972, would go a long way toward
making up the state's deficit. Percy
countered that Ogilvie would have to
assure him that the offer was acceptable
and that he needed to cover his own
commitment to other senators and to
governors whose support he had enlisted for the amendment. Twenty
governors were supporting him. That
night, a delegation from the Illinois
Budget Bureau flew to Washington to
represent the governor in negotiations.
On November 17, the Illinois group
met with O'Neill. They reviewed what
the federal government might do for
Illinois. As would any man in his place,
O'Neill was casting about for items of
expenditure that could be given legally
and at low cost. Sensing a strong
bargaining position, for the administration thought the Percy amendment had
a good chance to pass, Illinois was
lengthening its list of demands, which
now ran to fifteen or sixteen items. The
discussion ranged over water resources,
health, and food stamps as well as
welfare. Not much was said of social
services, which were mutually understood to be part of the package. In
particular, it is not clear that there was a
shared understanding of what the
Illinois social services proposals would
cost. In the spring, Illinois officials had
$75 million in mind. In November they
seem to have been anticipating a greater
yield but not to have revealed the precise
magnitude of their aspirations to
O'Neill. The open-endedness of the law and the uncertainty of federal laws and
regulations left that figure in doubt. At
the end, Illinois officials said they were
not satisfied with O'Neill's offer. It was
not enough to induce them to agree to
withdrawing the Percy amendment.
They then left for Capitol Hill, where
debate on the amendment was starting. In mid-debate, Percy got a better
offer from Ehrlichman — better, not in
what it contained regarding social
services, which was being treated as a
settled item, but in its response to the
substance of the Percy amendment.
Ehrlichman agreed that the amendment
could be incorporated in the administration's welfare reform bill. In debate,
Percy then elicited a pledge from
Senator Russell B. Long, chairman of
the Finance Committee, that the welfare
bill would be reported by March 1 and
pledges from Long and Senator Abraham Ribicoff, who would be a key figure
in the welfare debate, not to oppose his
amendment. O'Neill, according to
Illinois sources, was very upset over
Ehrlichman's concession, which Ehrlichman later defended by saying that he
had avoided a present danger for a
speculative one. Within the administration, the proponents of the Family
Assistance Plan had come to regard the
Percy amendment as an asset when
linked to welfare reform, for it would
increase the incentive to the states to
support legislation. George Shultz
continued to be deeply opposed, and
personally called Ogilvie in a vain effort
to reverse the outcome. Ultimately, neither the Family Assistance Plan nor the Percy amendment
passed, but social services grants were
soon well on their way to providing the
billion dollars in federal fiscal relief that
the amendment would have provided. It
is unlikely that either Ehrlichman or
O'Neill anticipated this. In the November confrontation, social services grants
were just one chip among many with
which they tried to buy off Illinois in
order to avoid the billion dollar cost and
the bad precedents embodied in the
Percy amendment. Presidential support proved helpful
to Illinois in the last stages of its
negotiations with HEW. In the spring
Illinois officials could only hope to leave
an impression that they had backing
from the President's office. After
November 17 they had the real thing. 5 Richard P. Nathan, assistant director, U.S. Office of Management and Business
6 Office of Management and Business, U.S.
24 / June 1977 / Illinois Issues
For a while the question of whether Illinois should be granted waivers of the single-state-agency requirement moved through bureaucratic channels. Governor Ogilvie submitted two requests to Secretary Richardson on September 28 and two more on October 20. Within HEW they were referred to the Office of Field Operations (OFO) in the SRS7 and from there to interested program units — the Assistance Payments Administration, Medical Services Administration (MSA), and Community Services Administration. In November and December, all three agencies raised major questions about the waivers and recommended against approval. Unpredictably, the reaction from the CSA was particularly trenchant. CSA officials said that, judging from the justification submitted by the SRS regional office, Illinois was seeking the waivers in order to capture additional federal funds, a purpose for which federal law did not authorize waivers. Waivers, the CSA said rather starchily, were supposed to improve program administration. The MSA was worried about the possible effects of the Illinois proposals on its own program costs, as the following memorandum indicates:
Through discussions with staff of OFO, APA8, and CSA we have learned that the acceptability of an Illinois proposal for the purchase of services has a history of negotiations between Central Office, Regional Office and the State extending back at least to April 1971, in which MSA has not been a participant. A review of such records as have been made available to us revealed little or no discussion regarding the extent to which medical care would be purchased under the service programs with claiming of Federal financial participation at the 75% rate. In view of the potential impact of such a practice on program costs, we feel the need for clarification ....
On February 1, 1972, Governor Ogilvie and Tom Corcoran called on Secretary Richardson to argue for the waivers and to urge that they be granted retroactively from the date on which plan amendments had become effective (October 1970). Richardson agreed. Behind the scenes, Illinois officials were claiming that the waivers were integral to the state's social services proposals, which Ehrlichman and O'Neill had agreed in November, to approve, and they were insisting that O'Neill deliver on the commitment made then. An honorable man, he did. However, even had the November bargain never been struck, it would have been hard for Richardson to deny the waivers in view of Simpson's having encouraged Illinois many months before to use that technique. At Simpson's suggestion, the need for waivers had been noted in the original plan submission.
After Ogilvie's meeting with Richardson, Joel Cohen10 was asked to prepare an opinion on whether waivers could be granted retroactively. He found that the Intergovernmental Cooperation Act, an OMB circular on single-state-agency waivers, and departmental policies were silent on the question of effective date. But he also had to deal with the June 17 memo, in which he had himself included an explicit defense against the precise demand that Illinois was now making. Under great pressure, the administration had bargained that defense away, and he wrote:
We shall not attempt here to construe the effect of this issuance generally in relation to section 204 of the Intergovernmental Cooperation Act. Its application to Illinois can perhaps be decided separately. If, on the basis of the course of dealing between SRS and Illinois regarding the State plan amendments on purchase of social services, it can be determined that both before and after the June 17, 1971 issuance the State had reason to expect that waivers could be requested from the Secretary at a later date and granted without adverse effect on Federal funding of Illinois expenditures from the effective date of the plan amendments, then it would not be unreasonable, in our view, for SRS to treat the sentence in the June 17, 1971 issuance — whatever its effect in other situations — as not applicable to the negotiations with Illinois which were already in progress.
Once again, federal policy was being
shaped to meet the needs of the governor of Illinois.
Looking back on the spending explosion, many HEW officials blamed it on
the President and his staff, who, they
hinted, had played politics with social
services. Bax11, when pressed to answer
who had approved the Illinois plan
amendments, finally said that the OMB
had done it. He testified:
I believe it would be my opinion that that decision was recognized by many people as setting a precedent and it was a very significant budgetary — a significant budget impact was made by — either made by or approved by someone in the Office of Management and Budget. I think OMB was the principal funding agency that made that decision ....
As planned, Illinois made up its budget deficit with federal funds. Ogilvie announced on February 15 that the state would receive $102 million in new social services grants in fiscal year 1972, more than the $75 million it had begun by counting on. Actually, Illinois ultimately received $188 million for fiscal year 1972, as well as an addition of $ 18.5 million to the $24.9 million that it had been granted in 1971. Thus its 1972 grant was $163.5 million more than the unadjusted 1971 grant, a very large increase. Illinois also received $60 million as an advance on its public assistance grant for the first quarter of 1973, although in this it got no special treatment in the end. The OMB concluded that it would be in the federal interest to make an advance payment to all states, in the amount of $1 billion. This cost the federal government nothing, enabled it to spread welfare expenditures more evenly over the two fiscal years, and helped to balance the budget announced in January 1972. To the extent that this helped Illinois, it was "serendipitous," O'Neill later said, and Illinois officials agreed.
Governor Ogilvie lost the 1972 election. Reflecting soon thereafter on his four years in office, he identified the welfare crisis of 1971 as "the climactic issue," which he had dealt with by cutting general assistance costs and getting "large federal commitments on several fronts." His budget staff, too, took satisfaction in the outcome. Deputy Director Cotton12 remarked on how experience had changed his perspective on budgeting. He had come to Illinois to introduce the latest analytic procedures but had found budgeting to be much more political than he had imagined. He concluded that the Budget Bureau "serves the Governor rather than some abstract notion of a budget system." As a leading example of how the bureau had served the governor, he cited its success in securing federal public assistance funds.
While there was pride and satisfaction
in Illinois, there was neither in HEW.
The department's policy on social
services was a shambles, and spending
was out of control altogether.
7 Social and Rehabilitation Services of HEW
8 Assistance Payments Administration
9 Donald F. Simpson, regional director of Social and Rehabilitation Services, Chicago
10 Joel Cohen, assistant general counsel for SRS
11 James A. Bax, sworn in July 1971 as commissioner of Community Services Administration (CSA)
12 John F. Cotton, deputy director, Illinois Bureau of the Budget
June 1977 / Illinois Issues / 25