Ends and Means: The governor's budget blueprint begs for willing suspension of disbelief

May 1, 2003

Charles N. Wheeler III
Credit WUIS/Illinois Issues

The story line is classic Looney Tunes: The character painting the floor works himself into a corner and appears trapped. He scratches his head, a light bulb comes on, and he quickly outlines a door on the wall. Turning the knob, the clever hero opens the door and escapes.

In the state budget he proposed for the fiscal year starting July 1, Gov. Rod Blagojevich appears to have borrowed a page from the Warner Brothers playbook. After painting himself into a fiscal corner by promising not to increase income or sales taxes nor cut spending on core state services, the new governor unveiled a $52.4 billion blueprint that begs for the same willing suspension of disbelief Cartoon Network viewers routinely grant their favorites.

The plan relies on a combination of selected tax increases and fee hikes, deep cuts in higher education budgets and state operations spending, unprecedented borrowing, an impressive array of one-time cash grabs and an accounting sleight-of-hand to narrow dramatically what he says is a $5 billion budget gap.

While the door always opened for Bugs Bunny, the wall might not be as yielding for Blagojevich. Among the potential sticking points in his plan:

• The governor wants to borrow $10 billion to pay some $1.9 billion in current pension obligations, then invest the remainder, earning enough to repay the loan plus interest. The proposal would fill a big chunk of the current budget hole, but could leave future taxpayers holding the bag if underlying financial assumptions don’t pan out. Moreover, credit- rating agencies and Wall Street analysts might wonder whether Illinois, which after 185 years as a state has $8.8 billion in outstanding debt, should double that figure in a matter of months.

• The governor plans on raising $1.2 billion in ongoing revenue through a number of tax and fee increases, most on corporate taxpayers and all requiring legislative approval.

While leaving the rates unchanged, Blagojevich proposed boosting income and sales tax receipts some $531 million by closing what he called loopholes, credits and exemptions that business advocates and their legislative allies argue help spur job creation.

He also called for hiking fees, again chiefly paid by business, by some $342 million.

In addition, he proposed $208 million in “sin tax” increases, most to come from the state’s riverboats, which would see their top tax rate jump to 70 percent of adjusted gross receipts of $250 million or more. Claiming the higher taxes would all but sink Illinois boats, gaming industry spokesmen pushed an alternate legislators might prefer: permitting boats to have more slot machines with a promise of even more dollars for the state.

The governor called for skimming some $330 million annually from more than 500 special funds, as well as a one-time dip of $144 million this year. Likening the funds to Swiss bank accounts controlled by special interests, Blagojevich said they should be charged a 5 percent management fee to cover the costs to the state’s main checkbook account — the general funds — of keeping track of them. (Ironically, the first section of Blagojevich’s 27-page pension borrowing bill adds a new special fund — the pension contribution fund — to the current list.)

Lawmakers may disagree. At roughly $3 billion, for example, the road fund is among the largest special accounts and is a major source for highway funding. With the governor’s planned diversions, funding for new road projects would drop 26 percent while the miles of roads needing repairs would jump an estimated 30 percent. Don’t expect either prospect to appeal to downstaters. 

Besides initiatives meant to swell state coffers year after year, Blagojevich also proposed some $849 million in one-time revenues, including $350 million from selling the 10th riverboat license. Industry analysts, however, cautioned the license would fetch much less if the governor gets his casino tax increase. Moreover, the license is tied up in court proceedings that may not end for years.

The governor also hopes to net $233 million from selling state real estate, including the Thompson Center in downtown Chicago and the Illinois State Toll Highway Authority headquarters in Downers Grove. That approach, however, is like “burning the furniture to keep warm” said state Treasurer Judy Baar Topinka, the Republican Party chair. And GOP lawmakers warned relying on one-time fixes would only postpone the day of fiscal reckoning.

Meanwhile, local officials from Chicago Mayor Richard Daley on down are likely to be upset by Blagojevich’s plan to dock cities and counties $80 million in revenue sharing he said they were overpaid.

On the spending side, the governor targeted state colleges and universities for $200 million in cuts, to the chagrin of some legislators with colleges in their districts. He also pledged to slash state operations by close to $1 billion, largely by what he termed better management. The governor doesn’t need legislation to leave unfilled some 60 percent of job vacancies due to early retirement or to cut pay 4 percent for 11,000 nonunion workers. Less sure, though, are his chances of saving $120 million by driving harder bargains with drug makers on prescription costs for Medicaid clients and seniors.

Blagojevich also drew criticism from Republicans for proposing $715 million in new general funds spending in tight fiscal times. His centerpiece is a $250 increase, to $4,810, in the foundation level the state guarantees for each public school student’s education. The boost would help many downstate school districts, but to help pay its $235 million price tag, the governor would eliminate new funding for some two dozen other programs, most of much greater help to suburban districts than the per-pupil guarantee. On the list: $67 million for safety grants, $29 million for textbooks, $19 million for gifted students, $8 million for regional superintendents’ salaries and $65 million for Chicago teacher pension contributions. A similar effort to combine programs last year went nowhere, and support again may be hard to muster from lawmakers whose districts stand to lose money.

Such obstacles notwithstanding, the governor has sketched a way out of his corner. In the coming weeks, we’ll all find out whether the door actually opens. 

 

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

Illinois Issues, May 2003