Rep. Raymond Poe has gotten calls from contractors who clean up the environment whenever an underground storage tank leaks. They're nervous there won't be enough money in a special state fund designated for cleanup jobs because the governor could swipe excess cash at the end of the fiscal year.
"You can't sweep funds from an account that has ongoing business," says Poe, a Springfield Republican. "It could build up, and then all the sudden, you could have four or five claims."
Poe joined a group of Republicans in sending a message to the governor: Enough is enough. Stop raiding special funds as one-time revenue sources to balance the budget.
For the past three years, Gov. Rod Blagojevich has tapped about 280 of 650 special purpose funds, transferring a total of $1.1 billon in surplus money, says Becky Carroll, spokesperson for the governor's budget office.
Republicans have been the primary critics of this fiscal strategy. But a few Democrats sponsored measures to protect some of those funds, sending another message to the governor: Where should state government draw the line?
These legislative proposals raise red flags on behalf of services that depend on the funds, including cleanup of leaky underground tanks and rehabilitation of veterans. Others question whether such sweeps are even legal.
The special funds set money aside for specific purposes, such as controlling pollution and preventing youth drug abuse. They accumulate money through licensing fees and a variety of sources that are supposed to pay for the costs of regulating and operating those services. In 2003, the General Assembly granted the governor the ability to charge 8 percent of the funds' revenue to pay their "fair share" of administrative services provided by the state. Taking surplus money is referred to as "fund sweeps," while charging up to 8 percent of the revenue is called an "administrative chargeback."
In the governor's budget proposal, he identified a handful of other revenue sources, including increased taxes on cigars and chewing tobacco and a new sales tax on canned computer software. But, continuing his promise not to raise general income or sales taxes, the governor has placed fund sweeps at the top of his list of potential revenue. Fund sweeps account for about 45 percent of the $306 million he hopes to generate during the upcoming fiscal year.
The plan is to transfer $144 million into the state's main checkbook to pay for education, pensions, health care and construction projects. Carroll says the budget office is deciding which funds are in a position to contribute to that amount, depending on how general revenue grows and how each fund is faring through the fiscal year.
Each transfer also goes through a review process. "We don't just look at the fund transfers at a narrow, one-year snapshot," Carroll says. "We look at the funds' activities for the last several years, and we look at projections over the next several years."
At a February press conference, several Republicans said the governor has swept funds for three years, but now entering election season, he's proposing programs to help the people served by those very funds. "The governor said that inadequate care for Illinois veterans is a disgrace, and I couldn't agree more," said Sen. Larry Bomke, a Springfield Republican. "What he doesn't want you to know is that he has diverted more than $1 million from the Illinois Veterans' Rehabilitation Fund since 2004. If the governor wants to help veterans, he would quit using the rehabilitation fund as his personal piggy bank."
These legislative proposals raise red flags on behalf of services that depend on the funds, including cleanup of leaky underground tanks and rehabilitation of veterans.
Carroll says Republicans are simply inserting politics into a budget tactic that's been used by previous governors, including GOP administrations. "They haven't put any ideas on the table, not one time in three years. Instead, they decide to hold press conferences and complain about decisions this governor has made. When you don't open up your own ideas, that criticism falls flat."
But a Senate Democrat also voiced concern about the veterans' fund. Sen. Martin Sandoval of Chicago introduced legislation that would protect the fund from administrative chargebacks, but the measure hadn't made it to the floor for debate by mid-March.
Although previous governors have swept funds, one economist says the transfers served only as emergency measures to deal with cash flow problems. They are not an effective long-term strategy, says J. Fred Giertz, economics professor at the University of Illinois at Urbana-Champaign.
He adds that if agency leaders sense a threat of year-end sweeps, then they might enter defense mode. "Agencies are going to try to avoid accumulating a surplus, if they can. Again, the first year you do it, there's probably quite a bit of extra funds around. But once you sweep those out, then the next year you only get the one-year accumulation, not the long-term accumulation."
Carroll says even with the sweeps, all funds have maintained a $2.3 billion balance. That's partially because each fund has a revenue source to replenish the account. And, she says, most funds don't use the entire amount they're allowed by the General Assembly to spend. Further, she says the governor never sweeps the entire surplus, nor does he ever touch the appropriated amount.
Even if funds need an emergency influx of cash, state law guarantees the general revenue fund could help out. Carroll says that's happened fewer than a handful of times.
Some special funds can't be swept. "Federal funds, income-tax checkoff funds, bond funds and other funds where there may be murky constitutional issues — we take them off the table."
One transfer has landed in the Illinois Supreme Court. The Illinois Chamber of Commerce sued the governor's budget office for applying excessive fees on businesses, then using that money for the state's day-to-day operations. The complaint focused on fees for the Workers' Compensation Commission Operations Fund, which were expected to raise about $30 million, according to state Comptroller Daniel Hynes' 2003 Fee Imposition Report.
The high court's October 2005 ruling says the chamber did not satisfy the burden of proof and the Cook County Circuit Court prematurely ruled in favor of the chamber. The case was sent back to Cook County for more research.
Judy Baar Topinka, three-term state treasurer and leading Republican candidate for governor in the primary, has withheld $235 million in chargebacks and fee transfers because of legal questions, according to her spokesman John Hoffman. "Separate from the policy question of whether it's a good thing or not, she has made the transfers when the General Assembly has passed legislation requiring that."
This spring, Democratic Sen. Terry Link of Vernon Hills got a measure out of his chamber that would prevent fund sweeps of financial credit union organizations, which he says would spare taxpayers from paying the ongoing expenses of a lawsuit. He says the legislation also is a settlement. The governor couldn't sweep that fund anymore, but the financial institutions couldn't try to recapture the money that was swept.
But, Link says, his legislation does not send a message to stop all sweeps. "It's been going on since time. We've all been voting for it. I've voted for sweeps under three governors. It's kind of foolish to let this money lay around here instead of going to the taxpayers again."
Still, opponents say the unpredictable nature of projects covered through the [Leaky] Underground Storage Tank fund might require contractors to use that surplus. Carroll says transfers from the LUST fund totaled $24 million for fiscal years '03 and '04, but nothing has been taken since.
The two years of sweeps, however, have caused cash flow problems for at least one firm. Joseph Truesdale, a professional geologist and engineer with Springfield-based CSD Environmental Services Inc., says the company has been waiting about nine months for reimbursement from the LUST fund. That's down from the previous year. He says the slower cash flow means more credit, which ramps up interest payments and trickles down to delayed payments for subcontractors.
The risk of delay spreads to the nearby property owners. Petroleum contaminants can accumulate near basements and create explosive conditions or pose a risk of a natural gas fire, Truesdale says. "You can't predict when it will occur or under what conditions. That's why due onus should be placed on these particular projects, so that the 1-in-10 chance that an explosion occurs is addressed."
That's also why Rep. David Reis, a Willow Hill Republican, introduced a measure to protect the LUST fund from administrative chargebacks. Republicans and Democrats are co-sponsors, and Democrat Don Harmon of Oak Park picked up the measure in the Senate.
But Harmon says he's frustrated by incomplete information. "I'm having a real difficult time getting actual numbers on either side from the LUST fund activity. There's been a lot of tax dollars collected on behalf of that fund, close to $1 billion [since 1990], if I'm doing my math correctly."
He says it's irresponsible to the taxpayers if the state doesn't use money that's just sitting there, but it's all about striking a balance. Before deciding whether the LUST fund has an idle surplus or needs protection, he says lawmakers need more information.
"It's a case-by-case analysis," he says. "There's no bright line rule."
Bethany Carson can be reached at capitolbureau@aol.com.
Illinois Issues, April 2006
