The state of the State

Gov. Jim Edgar told state lawmakers on April 7 that Illinois faces a $1.5 billion budget gap next year. He proposed a budget for fiscal year 1993 that includes layoffs of more than 1,000 state workers, elimination of state-funded welfare payments to "employable" adults, reduced revenue sharing to local governments and rate cuts for hospitals and nursing homes that serve the poor. If it sounds familiar, it should. Both the budget gap and the governor's proposed cuts mirror those that Gov. Edgar and lawmakers wrestled with last spring and for 18 days into July.

Edgar added one new element for fiscal 1993: increased taxes. Having pledged during his 1990 campaign for governor not to raise taxes for four years, Edgar proposed higher taxes on alcohol and tobacco products beginning July 1. Edgar decreed the increases user fees: "I view it as a user fee. Others might view it as a tax."

Five years of general funds revenues and spending, fiscal years 1989-1993 (fiscal year as 12 months, July 1 through next June 30) (dollars in millions)
	1989	1990	1991	1992	1993
Beginning balance	$ 246	$ 541	$ 395	$ 100	$ 110
Revenues	12,133	12,841	13,261	14,200 *	14,546
$ change	513	708	420	939	346
% change	4.4%	5.8 %	3.3%	7.1 %	2.4%
Spending	11,838	12,987	13,556	14,190	14,456
$ change	310	1,149	569	634	266
% change	2.7%	9.7%	4.4%	4.7%	1.9%
Ending balance	541	395	100	110	200
* Excludes $185 million in short-term borrowing. Fiscal year 1992 figures are Bureau of the Budget estimates. Fiscal year 1993 figures from Gov. Edgar's proposed budget.

Legislative disagreement was quick in coming. Senate President Philip J. Rock (D-8, Oak Park), whose members fought Edgar over last year's cuts, predicted a fight: "In less than the 48 minutes it took to give the speech, he dismantled 18 days worth of agreements." House Speaker Michael J. Madigan (D-30, Chicago) was more critical of what he saw as Edgar's insensitivity to urban problems: "It's an embarassment. It comes from a gentleman who intellectually lives in a cocoon, who lives behind a guarded fence."

In short, state government finds itself financially about where it was a year ago, despite the July and January budget cuts. General funds revenues are now projected to fall more than $350 million below estimates on which the fiscal 1992 budget was originally built. And spending, after $260 million in January cuts, came in about $50 million below original estimates. Edgar quipped that being governor might be fun if the state had some money.

In the general funds — the General Revenue Fund, the Common School Fund and the Education Assistance Fund — where the state has been carrying backlogs all year and where unpaid bills stood at $727 million on March 31, Edgar proposed to set fiscal 1993 spending at $14.456 billion, an increase of $81 million over the current year's estimated spending of $14.375 million. The increase would be $274 million if the $193 million spent in fiscal 1992 to repay short-term borrowing is ignored.

Because Edgar proposed to increase the amount of bills carried over into fiscal 1993, spending growth on a 15-month basis is smaller. When spending during the three-month lapse period (July, August and September) that is charged to the previous year's appropriation is counted, again ignoring the borrowing, state general funds spending for fiscal 1993 would go from $14.259 billion to $14.379 billion, a $120

8/May 1992/Illinois Issues

million (0.8 percent) increase.

To reach that spending level, Edgar proposed appropriations (spending authority) in the general funds of $13.367 billion, an increase of $31 million from the 1992 level of $13.336 billion. Fiscal 1992 appropriations were actually higher, but lawmakers and the governor "reserved" (agreed not to spend) $285 million.

Spending increases are constrained by slow revenue growth. In the general funds, Edgar projects growth from $14.385 billion in fiscal 1992 to $14.546 billion in fiscal 1993, an increase of $161 million (1.1 percent). If the short-term borrowing is ignored, the increase is $346 million (2.4 percent) and is the smallest in the last 20 years. Budget Director Joan Walters acknowledged that revenue estimates were conservative, saying that her office learned a "poignant lesson" from their fiscal 1992 estimates that proved more than $300 million too optimistic.

Edgar proposed an all funds fiscal 1993 budget that would raise spending from $22.530 billion to $23.630 billion, an increase of $1.100 billion (4.9 percent). To reach that spending level, Edgar proposed appropriations of $28.594 billion, an increase of $1.210 billion (4.4 percent) over the fiscal 1992 appropriation of $27.384 billion.

The $1.459 billion budget gap that Edgar set out to close resulted from fiscal 1992's one-time revenues and increased spending demands. The governor identifies $409 million in one-time revenues which are not available in fiscal 1993: $91 million in accelerated sales and gasohol tax collections, $95 million in transfers from special state funds, $105 million in transfers from surpluses in Build Illinois accounts, $77 million in income tax surcharge allocations originally intended for local governments and $41 million in other transfers.

The rest of the gap resulted from spending pressures. Edgar said $568 million was needed to sustain increased demands for services from the Department of Public Aid. He cited other assorted spending pressures: $70 million for children's services; $52 million for state workers' health insurance; $61 million to open a prison, four work camps and a community correctional center; and $43 million for mental health services. The last component of the gap was $256 million to increase the year-end bank balance and improve the state's cash flow.

To close the gap Edgar proposed to use $306 million in natural revenue growth and another $182 million in upward "revenue adjustments," including:

• $83 million from liquor taxes by tripling tax rates on beer and wine and increasing rates on liquor by 50 percent. Edgar calls the tax a user fee and said the rates he proposed would put Illinois at the national average.

• $5 million more from the sales tax when imposed on the new liquor tax.

• $10 million by requiring prepayment of the sales tax on liquor.

• $ 10 million by imposing a 20 percent tax on tobacco products that currently escape the cigarette tax: cigars, pipe tobacco, snuff and chewing tobacco.

• $20 million by prohibiting corporations from carrying losses back and receiving refunds on corporate income taxes already paid.

• $30 million drawn from Build Illinois reserves that are not needed to make bond payments.

• $24 million in increased federal aid.

Besides the "adjustments," Edgar proposed $237 million in new state revenues by grabbing money that would otherwise have gone to local governments. The 1989 surcharge split proceeds of the 20 percent income tax increase equally between education and local governments. The budget compromise of 1991 (for fiscal 1992) gave the state three-quarters of the original local government share, leaving local governments with one-quarter for fiscal 1992. The budget compromise also included an agreement to split the local government share 50/50 between the state and locals for fiscal 1993, after which the surcharge would expire. Edgar proposes to make the tax permanent with no share to local governments, even in fiscal 1993.

Edgar completed the closing of the gap with $734 million in cuts: $175 million from assorted agencies and $559 million from the Department of Public Aid.

Much of the problem in crafting a fiscal 1993 budget results from the deep hole that state government finds itself in for fiscal 1992. Edgar proposes $173 million in new spending for the current year, pushing lapse-period spending to a record high $842 million. The fiscal year 1992 budgetary balance — the $110 million in the bank on June 30 minus $842 million in spending charged to the fiscal 1992 appropriation during July, August and September — would be a negative $732 million, the largest negative balance ever.

Edgar's budget contains several elements that save money without cutting programs. He called for some state services to be supported by fees rather than general funds and proposes $34 million in fee increases. The Department of Professional Regulation is a good example. Regulating approximately 600,000 professionals, such as doctors, architects and real estate agents, in 1992 it received $5.8 million from the state general funds and $14.2 million in fees. Edgar's budget would make the agency self-supporting, funding operations from the fees it charges. Edgar proposed higher fees for cosmetologists, collection agencies, veterinarians, private detectives and security alarm specialists. Other agencies will be more fee dependent, such as the Department of Conservation, the Department of Financial Institutions and the Department of Insurance.

Edgar's budget also streamlines operations by merging or eliminating a dozen minor agencies, including:

• The Property Tax Appeal Board goes into the Department of Revenue.

• The Prisoner Review Board goes into the Department of Corrections.

• The Governor's Purchase Care Review Board goes into the State Board of Education.

• The State Police Merit Board goes into the Department of State Police.

• The Governor's Council on Health and Physical Fitness is eliminated, with the Illinois Humanities Council funding moved to the Illinois Historic Preservation Agency.

• The Export Council is eliminated.

• Programs of the Prairie State 2000 Authority are transferred to the Department of Commerce and Community Affairs.

• Governance of adult education is transferred from the State Board of Education to the Community College Board.

• Five boards that oversee workforce preparation programs are consolidated.

Another hallmark of Edgar's budget is the willingness to trim operations. Edgar said average cuts were 12 percent, including:

• The Department of Agriculture will have less for funding entertainment at the

May 1992/Illinois Issues/9

The state of the State

Illinois State Fair and the DuQuoin State Fair. Ag Director Becky Doyle said that reductions might mean one night less of grandstand entertainment.

• The Department of Alcoholism and Substance Abuse will end its funding for the Addictions Research Institute.

• The Department of Conservation will operate 52 of its 266 sites on a seasonal basis, closing them or curtailing hours between October and May.

• The Department of Energy and Natural Resources will close its art galleries at Lockport and in the State of Illinois Center in Chicago.

• The Illinois Environmental Protection Agency will close its southeast Chicago satellite center.

• The Illinois Historic Preservation Agency will operate most of its sites seven days weekly for nine months and five days weekly for the rest of the year.

• The Department of Public Health will make cuts in regional offices and reduce some inspections.

• The Department of Revenue will eliminate its Tax Ombudsman's office.

Finally Gov. Edgar carefully selected his priorities for funding increases: education, children and public safety.

Elementary and secondary education gets a $30 million increase from its fiscal 1992 unreserved level (post-January budget cut). Edgar put $25 million in the general state aid formula and $5 million in prekindergarten programs. The money falls far short of the $120 million increase requested by the State Board of Education and leaves education funding below the 1990-1991 school year level. The state share of education funding will drop to 33.3 percent, the lowest since 1969-1970.

Higher education's general funds were held at the fiscal 1992 level. The governor premised his higher education budget on a 4 percent tuition increase that would give public colleges and universities about $15 million in new money to spend.

The Department of Children and Family Services sees a $76 million increase to reflect growing caseloads and the need to comply with a federal court consent decree (see "Legislative Action," page 26).

The Department of Public Aid will institute a new managed care program for welfare mothers and children. Healthy Moms, Healthy Kids will provide case management and higher reimbursement rates for physicians treating children and pregnant women. The $29.1 million program is to pay for itself within two years by providing preventive services that avoid more costly hospitalizations later.

The Department of Mental Health and Developmental Disabilities will see a $43.4 million increase. Operations of state facilities will be trimmed as the department moves 418 individuals from state facilities into the communities. "Making community providers the cornerstone of Illinois' service system is investing in the future," said department director Jess McDonald.

The Department of Corrections has $35 million in new funds to open new prisons, provide pay increases and account for prison population increases. The department will open the Big Muddy Correction Center near Rend Lake, four work camps and a Chicago work release center during the year.

The budget battles this spring will not be fought over the modest increase for a handful of programs, the consolidation of agencies nor the elimination of extras. The guts of the battle will be the deep program cuts that Edgar proposed.

Among Edgar's cuts are the elimination of 1,900 positions, including 750 in the Department of Mental Health and Developmental Disabilities, 730 in the Department of Public Aid and 280 in the Department of State Police. He adds another 1,300 jobs, including 800 prison guards to staff new facilities. Edgar's proposals will reduce the size of the state's workforce to 67,800 by June 30, 1993, a reduction of 2,000 since he took office in January 1991.

State aid to the poor is targeted to absorb much of the governor's cuts. Edgar cuts $559 million from the Department of Public Aid, but $200 million represents one-time spending in fiscal 1992. Gone from the department's budget proposed by Edgar are state general assistance payments to employable single adults. By eliminating general assistance, Edgar put the savings at $76 million and said 38,000 individuals would be affected. Most dental care for adults would be eliminated, as would work incentive transitional payments to seasonal workers.

Another chunk of savings comes from cuts or rate freezes for nursing homes and hospitals that serve the poor. He would eliminate incentive payments to nursing homes that provide outstanding care and the extra payments to hospitals that provide care to the poor without compensation. Edgar also turned the department's touted welfare-to-work program, Project Chance, over to community colleges across the state.

Individuals will also be affected by cuts of $46.6 million that Edgar proposes for the circuit breaker program that provides grants and payments for medicine to senior citizens and the disabled with household incomes of less than $14,000. Edgar sought to eliminate the $80 flat grant which last year was limited to those already receiving it. He would decrease from 30 percent to 25 the amount of rent attributable to property taxes in this program originally set up to give tax breaks to elderly homeowners. Edgar would also restructure the pharmaceutical assistance program available to those eligible for the circuit breaker program, providing tiered payments for prescriptions.

Edgar proposes outright elimination of the Tax Increment Financing program under which local governments can claim for themselves revenue increases from state sales for redevelopment of blighted areas. The state would save $17.4 million in fiscal 1993.

With all of the cuts and new revenues, Edgar's budget still leaves some fiscal problems unsolved. Edgar proposes putting off repayment of $36 million borrowed from the Road Fund in fiscal 1991. By starting fiscal 1993 with $842 million in lapse-period spending for fiscal 1992 items ($77 million more than a year ago), the state faces an instant backlog of bills.

While Edgar says his fiscal 1993 revenue estimates are cautious, Comptroller Dawn Clark Netsch projects that the governor's revenue estimates are at least $100 million too high for fiscal 1992, which will not end until June 30. If Edgar misses his 1992 revenue estimate, he will start 1993 in the hole

Assembling a budget for fiscal 1993 will be a difficult task. Some of the deep cuts that Edgar proposed a year ago were avoided, in part, through the use of an assortment of one-time revenues. Their use, however, now limits the revenue options available to lawmakers who are facing largely the same hard choices as they did a year ago.

10/May 1992/Illinois Issues