Governor presents budget blueprint

[FEB. 19, 2004]  SPRINGFIELD -- Gov. Rod Blagojevich unveiled a fiscal 2005 budget blueprint Wednesday that delivers on his promise to reform education, further protect the citizens of Illinois and better spend taxpayers' dollars. Just as he proposed last year, the governor's budget plan fulfills these promises without raising the state sales or income tax.

"The change and reform we began last year has to continue," Blagojevich said. "And like last year, there are no easy answers. We're going to make tough decisions. We're going to make painful cuts. We're going to ask those who, for a long time, have benefited from the system, to give something back and to lead in the shared sacrifice. That's what we will do. What we won't do is balance the budget on the backs of the hardworking people of this state."

Speaking to a joint session of the Illinois General Assembly, Blagojevich presented a general operations budget for all funds of $43.5 billion. The governor's proposal allocates an additional $400 million for K-12 education and puts new Illinois State Police officers on the streets. His budget proposal solves the $1.7 billion structural deficit caused by major expenses, including Medicaid and employee health insurance, growing faster than revenues.

Overall, Blagojevich proposed balancing the upcoming year's budget by reducing operational costs by $840 million and by adding $945 million in new revenue to the state's coffers. New revenue would be added by taking a number of steps, including maximizing the amount the state receives from the federal government and closing loopholes that allow wealthy corporations to avoid paying their fair share in state taxes. The governor also projected a modest 1 percent, or $280 million, growth in base revenue.

With his comprehensive efforts to cut waste and even out the tax burden, the governor again fulfilled his goal of investing more in education, public safety and health care.

Education funding

--Increase state spending for K-12 education by $400 million: Despite facing a second year of historic budget deficits, the governor proposed an additional $400 million to elementary and secondary education. If the legislature accepts the governor's proposal, it will mean that during two years of fiscal crisis, the state will have increased education spending by $800 million. The governor urged lawmakers to work with him to identify the most important areas in education that require additional funding. Blagojevich will also urge the General Assembly to pass legislation to create a new Department of Education. The new department will provide significant opportunities to help local schools save money on supplies and services; it will also streamline the long list of rules and regulations that demand time and energy from teachers and administrators.

--Improve the MAP grants: Blagojevich will push to change the formula by which Monetary Award Program grants are distributed, in order to assist 1,000 more students and award higher grants. His changes will level the playing field by allowing more of the MAP funding to go to the neediest students, regardless of whether or not they attend the most expensive institutions.

Public safety

--Increase front-line positions: Over the next four years, 400 more state police officers will be put on the front lines, by moving current officers from desk jobs back out onto the streets and by hiring at least two new classes of cadets. In addition, cost-savings from a reorganization of the Illinois State Police and consolidation of Central Management Services and Illinois Commerce Commission police forces under the state police will be used to equip Illinois State Police officers with 600 state-of-the-art mobile data computers and 425 new vehicles to replace outdated squad cars.

--Eliminate the existing DNA case backlog: An additional $3.3 million will be dedicated to training new forensic scientists and outsourcing a portion of the existing DNA backlog so that the current backlog will be eliminated by Dec. 31. In addition, the funds will allow the state crime labs to continue processing 105,000 DNA samples from convicted felons annually and add the results to a centralized database.

--Expand programs that deter crime: The governor built on last year's increase for Operation Spotlight, his long-term effort to double the number of parole officers. This year he will add 102 new parole agents, seven supervisors and six casework supervisors who will help parolees find employment and other services that will keep them out of jail. In addition, the newly reopened Sheridan drug rehabilitation facility that offers comprehensive substance abuse treatment services to nonviolent offenders will be expanded.

Health care and human services

--Expand health coverage for working parents: The governor's budget proposal includes $66 million to expand the FamilyCare initiative to an additional 56,000 parents of KidCare-eligible children.

--Improve services for developmentally disabled: Blagojevich proposed increasing funding for community services for the developmentally disabled by $76 million. Another $47.5 million will allow 200 more developmentally disabled individuals to receive in-home care and will provide a wage increase for personal assistants who help developmentally disabled individuals continue living at home. In addition, $30 million will fully fund existing services and shorten the amount of time it takes the state to pay its providers.

--Boost funding for HIV and AIDS prevention: The governor plans to increase funding for the Department of Public Health's AIDS Drug Assistance Program by more than $3 million to make lifesaving medications available to more HIV clients, and an additional $2 million will significantly improve the department's outreach to minority populations that have seen the most dramatic increases in HIV and AIDS cases.

--Maximize federal Medicaid funds: Blagojevich announced that the state will make changes to get the maximum benefit from the federal Medicaid program. Currently, when the state gives a grant to a human service provider, it generally does not collect enough information about the services being provided to determine if, in some cases, they may be eligible for federal Medicaid reimbursements. By switching to a fee-for-service model, Illinois is expected to receive approximately $60 million more in federal funds.

--Bring accountability to the process of awarding contracts to social service providers: The governor proposed requiring agencies that do business with the state to submit competitive proposals. Social service providers who receive state grants would also be required to account for how they spend state money.

While he was pleased to make more resources available for critical services that directly benefit the public, Blagojevich emphasized that it's time to take aim at past spending and budget practices that caused the deficit. The governor proposed a series of fiscal reforms to bring accountability and restraint to the state budget process.

"If we are smart and don't squander this opportunity, we can use the next few months to not only solve this year's budget deficit but to finally begin budgeting in a way that recognizes that the decisions we make today impact our budgets and our plans for tomorrow," the governor said.

Fiscal reforms

--Balanced Budget Act: In order to keep state spending in check, Gov. Blagojevich presented legislation that would require every spending increase considered by the General Assembly to identify corresponding revenues or spending cuts.

--Responsible Spending Act: This bill makes permanent the fiscal reforms implemented by the Blagojevich administration during its first year. First, for every billion-dollar increase in the budget, it would require the state to deposit another $50 million in the Rainy Day Fund. Second, all state agencies would be legally required to set aside 2 percent of all funds within their budgets. Third, all state agencies would be legally required to allocate their budgets quarterly and to prepare and execute a monthly spending plan.

--On-Time Bill Payment Act: This legislation gives the governor the resources he needs to make sure hospitals, nursing homes and pharmacies that provide services for the state get paid on time. It sets the goal of paying all bills within 30 days, but never longer than 60 days. It also would create a revolving line of credit to reduce interest costs.

In addition to better budget practices, Blagojevich proposed reducing operational costs by $840 million. To achieve that savings, the governor proposed consolidating government agencies and streamlining departments to reduce administrative costs, decreasing the number of non-front-line state employees, closing some state facilities, and reducing or eliminating some grants. Reductions in operational costs include:

Streamlining government

--Mergers: Governor Blagojevich announced plans to merge various agencies and functions for a total estimated savings of $15.3 million. The departments of Professional Regulation, Financial Institutions, Insurance, and the Office of Banks and Real Estate are to be merged into the new Department of Financial and Professional Regulation. The governor is also merging the Department of Agriculture's Land Division into the Department of Natural Resources. He plans to merge the Circuit Breaker program and the Low-Income Energy Assistance Program into the Department of Public Aid, the Medical District into the Illinois Finance Authority, the Child Health Insurance Program into the Department of Revenue, the Illinois Building Commission into the Capital Development Board, and the Illinois Commerce Commission's Railroad Commission into the Illinois Department of Transportation. Finally, the governor will consolidate the press offices of nearly 25 different state agencies and boards into one, at a savings of $1 million.

--State employee head count reduction: Gov. Blagojevich's budget includes a new early retirement incentive limited to 2,000 employees, targeting only non-front-line positions and titles. The limited early retirement incentive is expected to save a conservatively estimated $25 million. Overall, the budgeted head count for fiscal 2005 is about 61,000 full-time employees, which is the lowest level since 1972, the earliest period for which data is available. The fiscal '05 head count does not reflect early retirement reductions and represents a decrease of 2,000 funded positions from the budgeted level for fiscal '04. The majority of the reduction will be achieved by eliminating currently vacant positions.

--Illinois State Police reorganization and consolidation: Reorganization will be achieved through the limited early retirement incentive, moving desk officers to front-line positions, civilianization initiative and reduction in administrative staffing. It's estimated the reorganization will save $10 million. The governor also proposed consolidating Central Management Services police and Illinois Commerce Commission special agents into the Illinois State Police force, at an estimated savings of $1 million.

--Facility closings: For a total savings of $50 million, the governor proposed closing some of the state's oldest, most outdated facilities. Vandalia Correctional Center will be closed and inmates moved to the new Lawrence facility. The Illinois Youth Center in St. Charles will be closed and detainees moved to Kewanee.

Revenue: corporate tax loopholes

In an effort to balance the state tax code for both businesses and individuals, the governor's budget proposal includes closing various tax loopholes associated with the corporate income tax and business sales taxes. In 1980, corporations paid $1 for every $4 paid by individuals. By 2003, for every $1 paid by corporations, Illinois taxpayers paid $8. Income tax revenues forecast for fiscal 2005 shows that ratio increasing to $1 to $9. It's estimated that closing various corporate income tax loopholes will generate an estimated $223 million, closing various business tax loopholes will net $98 million, and other tax adjustments will generate another $80 million. Among the various tax changes the governor proposed and the estimated amount generated:

--Tax all corporate income as business income: $29 million

--Eliminate the foreign tax haven: $40 million

--End exemption to unitary reporting by domestic subsidiaries: $21 million

--Use straight-line instead of accelerated depreciation: $74 million

--Limit the farm chemicals tax exemption to include only small farms: $27 million

--Collect sales tax on software packages, currently paid by consumers but not by businesses: $64 million

--Eliminate luxury watercraft use tax loophole: $7 million

Union negotiations

All employee bargaining unit contracts expire on June 30. As the state continues to negotiate with each of the unions representing state employees, the governor expressed willingness to discuss wages and all benefits.

"As governor, my job is to present a balanced budget," Blagojevich said. "That's what I just did. I presented spending cuts, head count reductions, loophole closings, and I told the unions they'd have to sacrifice. In other words, these are the real options, and I think that considering the priorities of the people, not paying more in income and sales taxes, and having more money for education, health care and public safety, it's a tough budget, but it reflects the people's priorities."

[News release from the governor's office]