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Illinois Issues
Archive2001-Present: Scroll Down or Use Search1975-2001: Click Here

Ends and Means: The governor shifted the anti-pollution agency to fee-based finance

Charles N. Wheeler III
WUIS/Illinois Issues

An alarming scenario could be brewing for the Illinois Environmental Protection Agency. The potential nightmare for the state’s pollution fighters doesn’t include visions of corrosive fumes enveloping a town or toxic wastes polluting a local water supply.

Rather than chemistry gone awry, the looming disaster is rooted in the state’s fiscal problems. Simply put, the EPA could run out of money to operate in the new fiscal year, which began July 1.

Similar ominous prospects of budget shortfalls could face a number of other state agencies, all of whom share a common thread: Each is losing all or most of its funding from the General Revenue Fund, the state’s hard- pressed checkbook account. Instead, operations at the agencies are to be supported in greater measure with funds derived from fees paid by the industries the agencies regulate.

The EPA, for example, lost more than $23 million in general revenue funding, some $17 million of which covered almost one-third of the agency’s payroll. To replace the lost money, the new budget counts on revenues generated from higher licensing and permit fees. But the new funds the EPA and other affected agencies are relying on might not be available in the wake of an almost certain court challenge to the new revenue stream.

The funding shift was part of Gov. Rod Blagojevich’s plan to narrow the state’s $5 billion budget gap without increasing income or sales tax rates.

In his budget address, the governor noted that many agencies, like the EPA, should be able to support their operations from fees, rather than from general tax revenue, if existing licensing and permit fees were increased.

“For example, there are more than enough corporations who need pollution permits to fund the EPA,” Blagojevich said. “From now on, polluters will pay $21 million per year to clean up the hundreds of Illinois lakes and rivers they dirty with their dumped garbage and industrial waste.”

Indeed, the EPA spending plan lawmakers approved for FY 04 calls for almost all of the agency’s day-to-day pollution fighting activities to be paid for with revenues from licensing and permit fees, rather than with general taxes.

To bankroll the shift for the EPA and other affected agencies, the legislature raised hundreds of fees on scores of businesses and dozens of activities, good for an estimated $326 million in new revenue in FY 04.

Therein lies the peril for the EPA and the other agencies, and a clear invitation for a court challenge. Because the governor wanted extra dollars for the general funds, too, in most cases the fee hikes were much higher than what would have been required simply to pay the costs of regulation. In the EPA’s case, four new fees and eight increased fees will produce an estimated $55 million, of which only about $22 million will go into the agency’s budget, with the rest slated for the General Revenue Fund.

Nor are the higher environmental fees the only ones aimed at closing the budget gap. Insurance companies and agents, for example, will pay an estimated $26 million more in FY 04, according to legislative analysts, while outlays for the agency that regulates them, the Department of Insurance, go down by almost $2 million. Similarly, finance companies, title insurers, currency exchanges and credit unions will pay almost $5 million more in fees, while regulators at the Department of Financial Institutions take a $1 million budget cut.

In fact, one provision gives the state budget director generic power to siphon revenues raised by the new and increased fees into the General Revenue Fund from the accounts into which they normally would go. While shoring up general funds by boosting fees might seem like a great idea to someone who’s intent on avoiding higher income and sales tax rates, the Illinois Supreme Court might not agree.

In 1984 and again in 1986, the court threw out separate fee hikes, first on divorce filings, then on marriage licenses, intended to fund domestic violence shelters and services. The court ruled that fees having no relation to the services rendered, but assessed to provide general revenue, were in fact taxes, and that the legislature could impose such fees upon a limited group of taxpayers to pay general government costs only if there were some rational relationship between those being taxed and the purpose for which the money would be used.

Given the case law, a challenge to the governor’s fee increases seems likely. One might reasonably question, for example, whether charging auto dealers $1,000 instead of $50 for an annual license or doubling the permit fees developers must pay for water and sewer hookups — or imposing most of the other new and higher fees — bears a rational relationship to providing more money for local schools, for health care for the indigent and for prison costs, the chief beneficiaries of general funds spending.

For the EPA and the other agencies moving to fee-based finance, the immediate threat is not that the Supreme Court will invalidate the fee hikes. Rather, the danger lies in the likelihood that a trial court will find the challenge meritorious enough to deny them the new revenues. Whether the judge throws the fees out entirely, blocks their imposition for a time, or orders the proceeds held in escrow, the loss of those dollars would seriously undermine operations of the EPA and the other affected agencies.

Ultimately, the Supreme Court might find such a link. In the meantime, though, the cash shortfall stemming from the legal wrangling could hamstring the EPA’s efforts to keep a closer eye on the very polluters the governor excoriated. 


 

Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois at Springfield.

Illinois Issues,July/August 2003

The former director of the Public Affairs Reporting (PAR) graduate program is Professor Charles N. Wheeler III, a veteran newsman who came to the University of Illinois at Springfield following a 24-year career at the Chicago Sun-Times.
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