The state of the State

IT'S AN election year and the cynics say Gov. James R. Thompson, with his taxpayer dividend plan, is trying to buy votes at $10 a shot. But would a $10 check (reduced by federal income taxes) buy anyone's vote? Besides, Thompson's not running for reelection this year. Thompson's dividend proposal could be designed to buy votes for other Republicans who are running, of course. But is the one-time, $115 million dividend giveaway worth enough votes to win the Republicans a majority in the Illinois House? Just whose tax relief package is this, anyway?

Last year Thompson unveiled a 19-bill tax relief package that was exactly the kind of long-range, comprehensive proposal expected of a governor launching his second term. Predictably, it included the tax and spending limits voters had just endorsed via the Thompson Proposition. But none of the 19 bills made it through the General Assembly because the Democrats bottled up all tax relief bills except their own priority proposal to eliminate the state sales tax on food and nonprescription drugs.

But Thompson has succeeded, via special session, in forcing the General Assembly to act on: (1) the corporate personal property tax replacement, (2) a new suburban sales tax to subsidize the Regional Transportation Authority, and (3) a one-penny cut in sales tax on food and nonprescription drugs (thereby wresting the credit from Democrats for sales tax relief). But, he failed in his fourth attempt, via special session in January, to force the General Assembly to limit property tax revenue, the mainstay of local government revenue. The limitation of government spending, both state and local, is the hallmark of Thompson tax relief.

This year, Thompson's four-point tax relief package was a surprise. It was exactly the kind of short-term, politically expedient proposal expected of a party leader in an election year. But unpredictably, top priority was given to the one-time, taxpayer dividend giveaway (for details, see "Legislative Action," p. 24). Aside from political motivations, Thompson's explanation was simple: the state could afford the $115 million in tax relief in fiscal 1980 plus another $174 million spread over fiscal 1981 and 1982. It was an abrupt about-face for a governor who maintained for three years the state couldn't afford any tax relief, a governor whose goal is still to limit state and local spending.

Thompson has always insisted the state must pay for tax relief from revenue generated by the income tax and sales tax, rather than from the balance left at the end of the fiscal year. That philosophy left Thompson no options for tax relief during the first three years of his administration because of the previous administration's imprudence. Without any provision forcing him or the General Assembly to hold the line on spending, they did it anyway. While Thompson was prudently balancing the budget, the year-end balance grew from $52 million to $390 million. But Robert L. Mandeville, Thompson's budget director, believes the year-end balance should be at least 5 percent of budgeted spending in order to have a sufficient reserve. The estimated $390 million year-end balance for fiscal 1980 represents 5.8 percent of the budget.

Last fall, Thompson said that the $390 million year-end balance was not enough to cover $100 million in sales tax relief — or any other kind of tax relief — and still leave sufficient reserve. This spring Thompson says it is enough to cover his $115 million dividend plan and still leave sufficient reserve. But the $285 million left constitutes a 3.5 percent reserve, which Mandeville knows to be a barely acceptible percentage in the eyes of the investment community.

With his admission that the year-end balance is enough for tax relief this year, Thompson may have opened the door for the Democrats who are certain to come up with their own proposal for using $115 million as tax relief. It's also doubtful whether Mayor Byrne will be there to back Thompson as she did last year, when she supported his sales tax proposal over those of Chicago Democrats. Byrne would have little to lose and the Democrat everything to gain by grabbing all the credit for tax relief in an election year. They would be certain to gain on their slim majority in the General Assembly, especially in the House where they have only a one-vote edge.

Thompson may have given the Democrats the opportunity to burnish their reputation on tax relief, and may have also opened himself to charges that he is pursuing tax relief for the publicity it generates. Thompson points out that the sales tax cut passed by the General Assembly last October and the expanded homestead exemption approved this January spell $525 million in relief for Illinois taxpayers. And he's quick to add that his new proposal, if approved, would mean another $289 million, for a total of $814 million tax relief for Illinois. That would generate a lot of publicity for the state — and its governor.

Higher office certainly seems to be one understandable reason why Thompson would promote another tax relief proposal a month before a primary election in which he is not a candidate. The governor has behaved exactly as a potential GOP presidential running mate should behave.

2/April 1980/Illinois Issues