Facing perhaps the worst fiscal crisis in state history, Illinois lawmakers chose an equally unprecedented remedy — selling long-term bonds — to help fill a $1-billion-plus hole in the state’s day-to-day operating budget.
Legislative approval of the measure to allow Gov. George Ryan to borrow up to $750 million for government operations underscored how difficult lawmakers found it this spring to raise taxes and cut spending enough to make ends meet. Instead, two days into overtime, the borrowing option became the final plank lawmakers hoped would shore up the $53 billion budget they fashioned for the fiscal year starting July 1.
The spending plan included $23 billion in general funds — some $500 million less than current appropriations, but still some $440 million higher than Gov. Ryan requested when he unveiled a scaled-down FY 2003 budget proposal in a Memorial Day address to the General Assembly.
To help bankroll the plan, law- makers approved some $675 million in additional revenue from higher taxes on cigarettes and riverboat gambling and from transfers among various state accounts, then headed home until the fall veto session.
But their summer vacation could be over almost before it starts, if Ryan calls them back into special session to do a better job of producing a balanced budget. His summons would be justified on several grounds, most notably the notion that the state should bond current operations, a practice long considered an anathema by public finance experts.
While an attractive way to pass the bills for current programs on to future generations, the practice could harm the state’s bond rating, making it more costly to borrow for brick-and-mortar building projects typically financed with long-term bonds.
But there are other good reasons the governor might ask for a legislative encore. Consider the budget allocations now before him. In his Memorial Day address, Ryan agreed to restore some $323 million in cuts proposed in his initial budget plan, offered in February. The list included rescinding $165 million in Medicaid rate cuts, adding back $75 million for services to the mentally ill and the developmentally disabled, dropping an increase in co-payments for low-income parents with subsidized day care, and keeping open Vienna Correctional Center.
In return, though, the governor called for more than $500 million in other cuts, including closing Sheridan Correctional Center and several work camps and adult transition centers around the state, privatizing prison food service operations and eliminating a fifth year of need-based scholarships for low-income college students. And he asked for $590 million in tax hikes, including tripling the rate for the real estate transfer tax assessed when property is sold, as well as $300 million in other revenue-raising measures.
Lawmakers embraced the governor’s restorations, but kept funding for Sheridan and other facilities Ryan wanted to close, including the Zeller Mental Health Center in Peoria and the Lincoln Developmental Center. They also provided funds for fifth-year scholarships and state-run prison kitchens, and included hundreds of millions of dollars for their local pet projects. Legislators who championed these and other causes insisted revenues would be there to cover the restored spending.
Less impassioned observers, though, saw myriad vetoes as Ryan tried to balance the budget in dollars and cents, not just in rhetoric. Their point of view is supported by the revenue picture. While the governor wanted $590 million in higher taxes, lawmakers approved only $375 million, scaling back the take from cigarettes and riverboats and rejecting entirely the $120 million increase in real estate transfer taxes. Instead, they voted to:
- Hike the cigarette tax by 40 cents to 98 cents a pack, raising an estimated $240 million. Ryan wanted a 50-cent boost, good for another $45 million.
- Increase the rates for each step of the graduated riverboat gaming tax and boost the admission tax by $1, for some $135 million. The governor wanted taxes raised enough to get another $50 million.
- Shift $205 million into the general revenue fund from other accounts and use road funds, rather than general revenue funds, to cover $95 million in operating costs for the secretary of state and the state police, all as Ryan wanted.
Each of these provisions, however, could be on shaky constitutional ground for reasons involving the number of votes required at the date of passage. Though seemingly a matter of parliamentary hair-splitting, the issue provides ammunition for lawyers eager to shoot down the measures. And any court challenge would delay the flow of new dollars into state coffers for months. In similar straits is legislation to save $240 million by denying an additional break, mostly for businesses, on state income taxes as a result of the federal economic stimulus plan.
Indeed, the only money-saving proposal free of the timing shadow is a measure that would allow some veteran state employees to retire early, saving an estimated $65 million.
Even as lawmakers struggled to finish the spring session, more bad revenue news arrived. With the books closed on May, state general fund receipts through 11 months of FY 2002 were down $673 million from the same period in the prior fiscal year. The outlook is for the gap to continue to widen, so that when the fiscal year ends June 30 the budget deficit could exceed $1 billion. The bills will have to be paid with FY 2003 tax receipts, when revenue growth is likely to be only some $250 million to $350 million.
Ryan could sign everything and let the next governor sort out the mess. He could veto $700 million or so and take the heat from those losing services. He could sell the bonds and blow the state’s credit rating. But don’t be surprised if he asks lawmakers to spend the Fourth of July in the Capitol, too.
Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois at Springfield.
Illinois Issues, June 2001