The state of the State

By NORA NEWMAN JURGENS

Governor on high wire with budget, priorities

GOV. James R. Thompson could be spending the final year of his third term in office doing a fiscal high wire act. Determined to provide the encouragement the economy needs to grow while restraining the growth of state government, he will have to balance a budget based on optimistic economic and revenue forecasts with a spending program built on promises to keep. And his Democratic opponents are doing everything they can to help him lose that balance.

Regardless of the outcome, everything Thompson does would entitle him to be listed in a Guinness Book of State Records: the longest serving governor in the state's history presenting 10 consecutive annual state of the state messages and 10 annual budgets. In the "unprecedented" category, he is seeking a fourth term as Illinois governor.

Rounding out a decennium of state of the state addresses February 10, Thompson set a course for the future of the state along a series of "corridors of opportunity." But it was obvious that he wanted to avoid mentioning any potential fiscal stumbling blocks.

He illustrated where in the state the corridors lie, using overhead projections to show their location and how different areas of the state will be connected. In his speech he highlighted his underlying priorities: education and economic development.

Before education reform can move ahead, Thompson said in his speech, fears over school consolidation had to be dealt with. Insisting that he has never advocated "forced" consolidation, Thompson called for the General Assembly "to make that point squarely," which it did March 5 when it amended the law to clear up misunderstandings about the state's mandate to local schools to study district reorganization. (See "Legislative Action," pages 29-30.)

Thompson's next set of priorities, dealing with those areas of government that are viewed by many as burdensome to the state's private sector, is certain to enhance his image as a good Republican. Heading this list is the need to address what he called the crisis in liability insurance. He joined business and local government organizations in pointing a finger at the tort system as the major cause. He called on the General Assembly to approve "serious tort reform" in the area of joint and several liability, as well as placing caps on awards and modifying comparative negligence to eliminate the "deep pockets" problem. Deep pockets means ability to pay, referring to a person, government or corporate defendant who is ordered to pay a judgment even though not totally at fault. (See "Liability insurance crisis," January 1986, pages 8-12.)

He also called for action this year to renegotiate the 1983 agreement on unemployment compensation. The agreement is set to expire in 1987, and business and labor groups are already planning to meet. On the other perennial business-labor issue, Thompson said that while much-needed reforms of the state's workers' compensation system have been made, he will instruct the chairman of the Illinois Industrial Commission to suggest further changes.

Budget backs priorities

Thompson's budget priorities closely match the priorities outlined in his State of the State message. Reflecting that balance between encouraging economic development and restraining government growth, fiscal year 1987 will see a continuation of the emphasis on education, while the rest of state government will be held at "maintenance" levels.

Under Thompson's proposed fiscal 1987 budget, appropriations for all funds total a record-setting $20,137 billion, an increase of 3.2 percent over fiscal 1986 but less than the estimated 3.6 percent inflation rate. Total appropriations are separated into two basic parts, general revenue funds (GRF), which at $10,660 billion represent slightly over half, and all the other funds. Projected to increase 2.7 percent over fiscal 1986, GRF is earmarked for the traditional state services of education, health and human services, public protection and justice, and public aid. All other appropriations, which include transportation and environmental and natural resources, are set at $9,477 billion, a $355 million increase over fiscal 1986.

While the fiscal 1987 budget appears to be balanced, there is a part of it which is funded on a "time payment" plan. Referred to as the "Capital Program," that part of the budget involves the actual building of Illinois. It is funded by a combination of bond sales and specific tax funds, including various transportation-related taxes and fees as well as federal aid and general revenue funds.

Most capital projects, other than Build Illinois, are supported by the sale of general obligation bonds. Thompson plans to sell $340 million worth of general obligation bonds in fiscal 1987 to fund $316 million in new appropriations. The sale of these bonds has been declining over the past five years, according to Bureau of the Budget (BOB) chief Robert L. Mandeville, in an effort to lessen the state's debt load. The debt load is moderate for a state the size of Illinois, according to the major bond houses, he said. General obligation debt as a percent of personal income has been declining, Mandeville said. It now stands at 2.07 percent.

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In his fiscal 1987 budget recommendations, Gov. Thompson has asked that $3.8 billion, which includes the Build Illinois program, be appropriated for capital programs. Of that, $1.5 billion is for new projects — Build Illinois and others — to be approved by the legislature. The remaining $2.3 billion represents funds to be reappropriated for projects approved in past fiscal years. Expect the usual with these capital projects, that a good portion of that $3.8 billion will end up being appropriated again in succeeding years. But those appropriations — or spending plan — will have to be balanced by the ability to pay for them. The administration expects all revenues to total $16.886 billion. The $3.251 billion difference between the total spending plan and the estimated revenues is made up by a combination of reappropriations (capital budget) and the assumption that 2 percent of the budgeted appropriations (GRF) will not be spent.

Thompson's estimates for revenue growth are being watched closely by some Democrats, who believe them to be based on rather tenuous assumptions about the continuing growth of the state's economy and the availability and performance of some of the revenue sources.

The two major sources of state revenue, the income and sales taxes, reflect the state of the economy. The Thompson administration is counting on the continuing economic recovery to lead to a 5.5 percent increase in income tax receipts. Sales tax revenues are expected to increase 5 percent, based on a full year of receipts from the cigarette tax increase, which took effect last December, and the new tax on the sale of used cars between individuals, effective last October. In addition, the administration expects to receive the full amount of the new tax on interstate messages, which is currently being paid into a protest and pending court action.

Thompson does admit that "we have some unknowns facing us this year." The budget as written does not take into account any effects of the federal budget-reducing mechanism known as Gramm-Rudman. Thompson and Mandeville insisted in early March that there are too many uncertainties surrounding the new law to make any allowances in the budget Thompson proposed March 5. Thompson emphasized that the National Governors' Association had raised concerns about the increasing federal deficit "four or five years ago. We've finally gotten people to listen to us." But he also qualified that, saying that if the Gramm-Rudman measure withstands its constitutional challenge, and if it goes forward without congressional adjustments, and "if the full impact comes to Illinois, there will be no automatic pickup by the state" of those programs cut or lost.

Such programs would be examined on a case by case basis, Thompson said, to determine if they were worth continued funding. During the 1987 state fiscal year there appears to be very "little extra money," and it will be hard to "restrain expectations" that the state will be able to fund more programs. He believes there will be no need for Gramm-Rudman if the president and Congress agree on a federal budget.

Education commitment

Thompson did not equivocate on spending state funds for education in fiscal 1987. Education is the biggest winner in the state's new budget. Holding to last year's promise of funding new initiatives in Illinois education, Thompson is committed to increasing education spending by a total $368 million for elementary, secondary and higher education. Under the new budget, education spending at all levels would total over $5 billion in all funds, an all-time high.

The total budget for elementary and secondary education is set at $3,377 billion, with $2,875 billion coming out of general funds and representing about 40 percent of total general funds appropriations. The governor has left the allocation of the $250 million increase up to the State Board of Education (ISBE), but he expects the money to be used to continue funding last year's education reform package, including a new math and science academy, additional preschool programs, truancy prevention, special reading programs and periodic assessments of student and school performance.

With an increase of $118 million in general funds for the state's colleges and universities, the total higher education fiscal 1987 budget is $1,766 billion for operations and grants. The budget includes enough money for salary increases of 6.5 percent for faculty and staff.

In their original budget reports, both the ISBE and the Board of Higher Education asked for more, and the ISBE is determined to push the legislature to increase funding for elementary and secondary education, claiming the $250 million promised by Thompson will not be enough to support the reform effort.

A Republican governor campaigning for his fourth term against the same opponent he barely beat to win his third term should expect criticism from Democrats. He got it on the budget before the ink had time to dry on the bright green three-volume plan.

A summary of the fiscal 1987 budget prepared by the Senate Democratic appropriations staff points out apparent discrepancies and holes in every program "highlighted" by the administration. The summary accuses Thompson of being a "johnny-come-lately" in his commitment to education. "Only in the last two years has the governor's recommended GRF funding level for elementary and secondary education exceeded the average increase in the total GRF budget," according to the Senate Democratic report.

Thompson's other major priority is the continuation of the Build Illinois program. New appropriations for fiscal 1987 total $295 million, but only about $250 million of that is expected to be spent before the fiscal year ends. This does not include the $28 million "deferred" from the fiscal 1986 program. Mandeville plans to sell another $120 million in Build Illinois bonds in fiscal 1987 to help fund new projects. The $2.3 billion program will be funded over the next five years by $948 million in bond sales plus a transfer of 2.2 percent of the general sales tax revenue. Build Illinois has come under fire by members of the legislature, and its future course may not be as smooth as the governor predicts (see "Where is Build Illinois its first year?" p. 13).

The Democratic staff summary points out that the revenue source for Build Illinois "has fallen dramatically short of BOB's [Bureau of the Budget] estimates. . . . A 2.2 percent sales tax transfer which is projected to generate $72 million for the Build Illinois Fund will not support the governor's planned eight-year schedule of spending." A note of warning is also sounded about the potential jeopardy posed by federal changes affecting the ability to sell tax-exempt bonds, a major Build Illinois funding source.

Continuing his focus on economic development, Thompson proposes to spend $14 million through the Department of Commerce and Community Affairs (DCCA) to help the state's businesses retrain workers in new technologies. Wanting to make his corridors of opportunity become reality, Thompson has asked DCCA to invest $2.5 million of its budgeted appropriations to "organize local and regional economic development interests," including providing funding to help areas of the state develop their particular corridors.

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The total budget for DCCA is set at $702.5 million from all funds, which, according to the Democrats, is $273 million more than is expected to be spent by DCCA in fiscal 1986. The report from the Democrats notes that "as is usually the case, DCCA appropriations, especially from federal funds, are inflated by both bad estimates of actual awards received and by slower than anticipated spending in construction related programs."

In the area of human services, the major budget emphasis is on public health initiatives relating to infant mortality and to AIDS (acquired immunodeficiency syndrome). Budget allocations to the Department of Public Health (IDPH) for its share of the Infant Mortality Reduction Initiative, introduced by Thompson in fiscal 1986, are $18.6 million.

To deal with the highly emotional issue of AIDS, the department formed an Interdisciplinary Advisory Council to make recommendations on how to approach the problem of identifying and treating victims of the disease. In fiscal 1987, $2.4 million has been budgeted to support the council and to run the state's AIDS Hotline as well as to develop educational materials and training for health care providers.

While Thompson is concerned about the physical and economic welfare of the state, there will be no increased payments for its welfare recipients. Thompson has repeatedly said that the state cannot afford to increase payments under the Aid to Families with Dependent Children (AFDC), Food Stamp and Medical Assistance programs administered by the Department of Public Aid (IDPA).

Reflecting the adminstration's "new philosophy" that financial assistance is a "bridge to economic independence," IDPA's first priority will be in getting people off the welfare rolls. This will be accomplished through the department's new "workfare" initiative called Project Chance (see "Project Chance: more than just a check?" p. 33).

Public aid programs will require $3.38 billion in the next fiscal year, of which $3.26 billion will come from general funds ($1.5 billion will be reimbursed by federal funds).

In addition to its emphasis on Project Chance, IDPA will also step up its fraud investigation efforts, including increased collection of child support payments and collection of overpayments. The Democratic summary mentioned that the state is "under the threat of some $15.5 million in sanctions from the federal government" for an excessive AFDC error rate.

As an illustration of how his administration has saved welfare dollars, Thompson pointed out that IDPA's $1.73 billion appropriation for medical assistance in his fiscal 1987 budget is "only" $3.5 million more than what will be spent in fiscal 1986. He credits the department's Illinois Competitive Access and Reimbursement Equity Program (ICARE) with holding down the cost of medical care. Through ICARE, state hospitals contract with IDPA to provide a certain number of days of care for medical assistance patients. Thompson said that the program has resulted in a slowing of the increase in medical assistance expenditures; the rate is less than 15 percent, compared to a 50 percent increase in expenditures nationwide.

Even more savings are expected through a new Ambulatory Care Reform Initiative which will encourage the health care community to provide more services on an outpatient basis.

While the Thompson-proposed budget was termed "lean" by the governor, administration officials insist that no services are being cut. Total appropriations for all departments are down a total of $172 million, compared to fiscal year 1986. The administration said it had not cut the agencies below their actual spending estimated for fiscal 1986. For example, appropriations for the Department on Aging totaled $150 million in fiscal 1986; the governor is proposing $138 million for fiscal 1987. This is more than the $117 million in actual spending that the department estimates for fiscal 1986. The Democratic staff report points out that most of the fiscal 1986 funds not spent, the so-called "lapsed" funds, will be in the Community Care Program, "where the Department has routinely miscalculated monthly caseloads."

Other departments are experiencing similar decreases in their appropriations. The Department of Revenue, whose appropriations include refunds to taxpayers, will see $89 million less as the economic recovery results in fewer corporate tax refunds, according to Mandeville. The Democratic report notes that the department had similar low requests in fiscal 1985 and 1986 and "returned to the General Assembly for large supplemental.

From the podium in the House chambers on March 5, Gov. Thompson told the General Assembly that "for the tenth year in a row, I am proposing a balanced budget." At first glance, he has indeed. He predicts an available balance in GRF at the end of fiscal 1987 of $220 million. Though far below the record $479 million available at the end of fiscal 1985, it is still above the $200 million " warning zone," which has become the yardstick for measuring the general health of the state's cash flow.

But there is another way of looking at the budget, one which is sure to be used again and again by his Democratic opponents. "The budgetary balance has been negative in eight out of 10 Thompson budgets," the Democratic staff report said. By using the "budgetary balance concept," which compares current year revenues with expenditures over a 15-month period (which includes the fiscal year plus the next three months to pay all bills and obligations incurred before June 30), the Democrats point out that the Thompson administration continues to spend more than it has taken in.

Whether or not the budget is actually balanced, it does reflect Thompson's efforts to balance the needs of everyone, including the legislature. He is "recommending" a budget for the General Assembly of $50 million, a $317,000 increase over fiscal 1986, with the biggest increase going to the auditor general, who oversees state spending.

With the Democrats determined to see him fall, he will be counting on a healthy state economy as well as the accuracy of his budget prognosticators to keep him on that high wire.

6/April 1986/Illinois Issues