STATE OF THE STATE

Dollar signs trump theories at national legislators' conference

by Burney Simpson

The hip word among government insiders these days is "devolution." By that they mean the federal government is decentralizing control over some programs. In turn, the theory goes, the power of the states is growing. But during this summer's annual meeting of the National Conference of State Legislatures in Indianapolis, most elected officials who attended from across the country didn't have time to philosophize about power shifts. They were too busy trying to figure out how to ensure that their states' coffers keep growing along with the buzzing economy.

At this 25th anniversary gathering of the group — a central clearing-house for information and discussion on major issues facing the states —money was the subtext of most every session.

There was plenty of congratulatory back-patting, too. In the last few years, the conference's leadership has claimed several accomplishments. In 1995, it led the push against unfunded federal mandates; in 1996, much of the work on reforming welfare was turned over to individual states. And this year, federal attempts to get a cut of the tobacco settlement billions were pushed aside. By all indications, there's much to be optimistic about in the near term, as well.

More than 5,000 legislators attended the meeting, along with policy and support staff, government officers, members of the media, exhibitors and businesses catering to the states. Some 300 officials showed up from Illinois.

Participants could choose among 140 seminars during the five-day event, and typically six or seven were held simultaneously. This forced participants to try two approaches: focus on a specialty, say agriculture and international trade, or scramble from one panel to the next. In fact, it was not unlike a typical legislative session in Springfield. Many of the debates were similar, too.

Here's a recap of some of the hottest topics under discussion this summer by state lawmakers throughout the nation.

Budgeting. The conference's annual report on the states' budgets contained, no surprise, a lot of good news. Daniel Blue, the organization's president and North Carolina's senior House majority leader, said he and his colleagues couldn't find a better economic prospect in the record books.

At the end of fiscal 1999, the states had a combined total of $33.4 billion in the bank. (Several states and territories had not completed their budgets before the national report was compiled.) That figure includes both general fund balances and rainy day funds. Illinois may be one of only five states without a rainy day fund, but this state compares favorably by meeting Wall Street's benchmark with the equivalent of 5 percent of its general fund expenditures in the bank.

The states' revenues went up 3.7 percent, not counting those dollars from the tobacco settlements, (Illinois is one of 16 states that have deferred a decision on how to use that money.)

As for spending, the states put more of their surpluses into education than into the other major cost categories, Medicaid and corrections. Appropriations for elementary and secondary education went up for all states by 6.8 percent. Illinois did better, with an increase of 8.5 percent. However, on higher education spending, Illinois was running a bit behind. Combined states' spending on colleges and universities rose about 6 percent; Illinois' spending increased by 5.7 percent.

More notably, Illinois did not join the 20 states that cut taxes for a net reduction of $5.5 billion in this fiscal year.

Agriculture trade. Farm states are worried about Europe's response to genetically modified crops. Some members of the European Union are requiring such crops to be labeled, and beyond the logistical problems that creates for American farmers, the policy threatens overseas trade. In the first quarter of this year, sales of soybeans to the European Union were down 45 percent, according to the federal Department of Agriculture.

Illinois' trade economy is not as threatened as some other states,

6 September 1999 Illinois Issues

though. While this state ranked third in agricultural exports in 1997, according to the state ag department, its three top customers are Japan, Canada and Mexico, not EU nations. Further, Illinois' export economy is on the rise. The percent of cash receipts the state's farmers earned from exports rose from 34 percent in 1991 to 40 percent in 1997.

Still, much is at stake. A federal agriculture agency report estimates exports account for 63,700 Illinois jobs. Nationwide, according to the federal estimates, 800,000 jobs are generated by the export economy.

The World Trade Organization, which sided with the United States on Caribbean bananas and American-bred hormone-treated beef, will meet this fall in Seattle to discuss the dispute. Meanwhile, some countries have put a hold on importing the modified crops. But legislators at this summer's conference, many of whom are farmers, argued the labeling requirement is a negotiating device designed to protect the European farm market.

Conference staff suggest state lawmakers could have some influence on the Seattle negotiations by contacting their congressional delegations.

Sprawl. Seminars on metropolitan sprawl were standing room only affairs. Even such wide-open states as Utah are in the throes of figuring out how to address the issue.

Nevertheless, the panel discussions didn't get closer to finding a solution to surging strip malls, unchecked growth and highway gridlock.

Former Indianapolis Mayor William Hudnut urged urban planners to preserve and rebuild from the center city outward. But that isn't a plan many metropolitan areas in Illinois are disposed to adopt. State Rep. Ricca Slone, who attended most of the meetings, says, "The attitude now is that the middle is the throwaway; it's like the hole in the donut." The Peoria Heights Democrat says her Smart Growth Task Force, which had no luck getting proposals through the legislature last spring, will hold hearings again this fall. She argues sprawl is especially difficult to control in states like Illinios where there are many local governments.

Internet taxes. By some estimates, annual consumer sales on the Internet will hit $100 billion, while business-to-business sales will tally $1.3 trillion within the next five years. But states and localities aren't collecting much in taxes from these sales due to the three-year moratorium Congress imposed in a 1998 effort to enable Web commerce to grow.

Complicating matters are several rulings from the U.S. Supreme Court that free mail order businesses from collecting taxes. The upshot is that unless a business has a physical presence within a state, that state cannot collect sales taxes on the transactions, Because Web retailers operate in so-called cyberspace. some equate these businesses with mail order firms, and the states arc beginning to worry about "lost" revenue. A 1994 study concluded Illinois could have collected $233 million from mail order transactions.

According to a June study by Illinois Comptroller Dan Hynes' office, about 33 percent of retail sales at brick-and-mortar stores could be done over the Internet. Illinois stands to lose. The state relies on the sales tax for 17 percent of its revenue, and in fiscal 1 998, that meant about $5.3 billion.

Though potential losses and gains could be huge, states are mulling the best approach to the Internet gold rush. There are several reasons for the go-slow approach. For now, the issue is not a priority because most states have healthy bank balances. And Internet taxes could be a logistical nightmare for merchandisers, who would have to find their way through a maze of state and local taxes for each purchase. This presents a terrifying prospect for policy-makers: To get to the golden land of Internet riches, they will have to take a machete to the tax code.

For now, the dollars to be recouped from Internet sales are comparatively email-lawmakers face an important question: Just how big is this thing going to get? The national conference organized a task force to consider the issue, and that group has put together a seven-point set of recommendations, including requiring uniformity tor the thousands of local taxes.

The task force is in agreement on one point: It is the states' sovereign right to tax these sales, and sooner or later, they are going to get their fair share of the dollars. As commerce becomes less smokestack and more digital, argued University of Georgia law professor Walter Hellerstein in a speech to the group, it is "arcane and archaic" to tax a sale at Blockbuster Video while not taxing the sale of a video downloaded over the Net. And, contrary to what some e-retailers contend, Hellerstein says, it would not be unduly burdensome for a business to determine all of the local and state taxes a buyer may owe.

"They know my hat size and belt size. Of course they can figure out my local tax."

Census. Not surprising, there were numerous seminars on the 2000 Census and myriad ways it might affect the apportionment of congressional and state legislative districts. In fact, half a dozen software firms were peddling high-tech programs for the states' mapmakers. Lawmakers could see demonstrations, for instance, on ways to shift boundaries to target any groups of voters they might want.

Central to the discussion was the controversial subject of undercounting, which could mean a financial hit for urban areas. Chicago estimated that a census undercount of 159,000 residents in 1990 has caused that city to lose out on $185 million in additional federal dollars over the last decade.

But next summer, as enumerators comb Chicago's neighborhoods, the city will play host to the conference. Voters will be sizing up political candidates for that fall's election. Pocketbook issues will decide most races.

And philosophers are still likely to be pondering "devolution."

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