The fiscal system needs discipline, not crutches

Rep. Woods Bowman (D-4, Evanston), in his January article ("Fix the flaws in the fiscal system") says that the fiscal system used in Illinois has broken down.

Our fiscal system has not broken down. The system itself is well structured and can work and has worked. What is needed is not a new system, but rather more discipline to appropriately implement the current system. Unfortunately, Rep. Bowman's recommendations will not give us that discipline.

In his proposed change in the budget process, Rep. Bowman outlines five specific recommendations:

• a single budget bill
• a June 1 deadline for appropriation bill enactment
• no supplemental appropriations unless one of three conditions is present — the money comes from other places in the agency, there are new federal dollars available or new revenues are passed by the General Assembly
• a tax refund fund
• a rainy day fund

Of the above five recommendations, the first three are proposed as constitutional amendments, and the last two as statutory changes. All of the above recommendations are worthwhile but are really akin to motherhood and apple pie. Rep. Bowman might as well have recommended peace in our time and that the Russians move out of Afghanistan. None of his recommendations will work if the system we live under — that is, the democratic process —does not have the discipline or the will to make them work. And, if the process has the discipline, then we don't need new statutory or constitutional amendments.

I would like to consider each of the five recommendations and comment specifically.

Single budget bill. Rep. Bowman proposes to collapse over 80 appropriations bills into a single omnibus budget bill. What does this mean? It simply means thai instead of having 80 separate budget bills, you have one budget bill with 80 separate sections. Whether you have a single budget bill or 80 budget bills, each agency must still be reviewed in whatever detail the General Assembly chooses.

I wonder if Rep. Bowman has really thought out the process of a single budget bill. Would House Appropriations Committee I or House Appropriations Committee II be the lead committee for hearing the bill? Rep. Bowman says that it would be a joint committee. If that is so, then you wouldn't need two appropriations committees. Rather, I suspect what would happen is that the single budget bill would be broken down into two roughly equal parts, along program lines, such as human services, public safety, etc. Appropriations Committee I would handle about 40 sections, and Appropriations Committee II would handle the other 40 sections. Then, in the end, a joint committee of appropriations I and II could hear the whole bill. But hearing the whole bill simply means hearing each section of the whole bill. We wouldn't really gain any review time or understanding of the status of appropriations by this process.

It seems no more difficult to total 80 separate bills with identified bill numbers than to total 80 sections of a single bill. Amendments to individual sections of a single budget bill would be in various stages of enactment, as would be true if each section were an individual bill. In this; age of computers, it should be relatively simple to keep track of where we are in the appropriation process if the discipline to feed the information to a central computer is there.

The federal government has single appropriation bills or, more precisely, a small number of very large bills. Recently

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in the news was the passage of a $600 billion appropriation bill at the federal level. That, of course, is over half the total U.S. budget. Do we know any more about the individual agency's appropriations or activities than if there were 20 separate appropriation bills? And did it take less time to pass the appropriations? And was the process improved or simplified? The answer to all three questions is no.

In Illinois we tried the omnibus budget bill approach at least once. As I recall, there was a small number of bills — maybe four to eight. In the end, they were scrapped in favor of the traditional single appropriation bill for each agency.

Sometimes, at the end of the legislative session, a number of agencies are combined into a single appropriation bill and passed in that form, but this is merely a convenience and is usually necessitated by the failure of one house to pass a given agency's appropriation in the traditional way.

In summary, the recommendation for a single budget bill sounds attractive and sounds as though it is something that the system could keep track of more easily, but, in reality, it makes no difference. In some ways, separate bills are preferable in that you can complete action on the non-controversial agencies and give more attention to the more difficult appropriations once you have the noncontroversial bills out of the way.

June 1 deadline for appropriation bills. I'm not sure what this accomplishes. If the General Assembly wants to establish a June 1 deadline for appropriation bills, they can do so. They now have the statutory and constitutional authority to establish their own deadlines within each house. The problem is not the absence of an earlier deadline, but rather the will to live by an earlier deadline. If the General Assembly cannot now complete the process by July 1, why should anyone believe that they will complete the process by June 1?

Under the current constitutional and statutory provisions, a bill can be passed after the deadline, but it takes a three-fifths majority to pass a budget bill after June 30. If Rep. Bowman's recommendation were accepted, some provision must remain to allow the General Assembly and the state the flexibility to enact an appropriation bill after June 1. Many bills that would be passed between June 1 and June 30 would not be supplemental but would be new appropriation bills for the upcoming fiscal year.

The Constitution wisely permits passage of budget bills after the current June 30 deadline but exacts a penalty in the form of a super majority for not meeting that deadline. Any earlier deadline established by law or constitution must have the flexibility to permit the passage of a budget bill after June 1. Once you create that flexibility, you have the same system that exists now, and then there is no particular urgency to pass the budget bills any sooner than is currently done. The main point with this recommendation, as is true with several of the others, is that the ability to do exactly what this recommendation proposes is currently available to the General Assembly. What is lacking is not the ability but the desire to act by the earlier date.

No supplemental except under certain conditions. This recommendation is to deny any supplemental appropriation unless one of the following three conditions is present:

• the agency is willing to take money from some other part of its budget to fund the supplemental, or
• the agency can show current evidence of increased federal dollars to finance the supplemental, or
• the agency has proposed explicit new revenue sources to finance increased spending.

This proposal clearly has merit, and I agree with it, but it won't work unless the system has the will and the discipline to make it work. Will the General Assembly deny a supplemental for matching state dollars to capture large federal dollars (already anticipated) in the event of an unexpected, disastrous flood? Will you deny a supplemental to pay the expenses of the state's entitlement programs? Will you deny a supplemental to meet the expenses involved in an unexpected adverse court decision? And will you deny these supplementals if one of the three conditions cited above is not present? I think not. Theoretically, the language could be written so clearly and so completely as a constitutional provision as to make this actually work. But the absence of the will to make it work (with or without constitutional change) will condemn it to failure. It is an important concept in budgeting and it should be implemented, but we need not do it by constitutional change. Rather, we should do it because it is the appropriate thing to do.

The above three recommendations are presented as constitutional amendments and, to the extent that they are amended into the Constitution, the likelihood of success is enhanced but by no means guaranteed. I cite, for example, Article 8, Sec. 2(b) of the Illinois Constitution. It reads: "The General Assembly by law shall make appropriations for all expenditures of public funds by the State. Appropriations for a fiscal year shall not exceed funds estimated by the General Assembly to be available during that year." In the 18 years I have been in Illinois state government, I do not recall a single year where this constitutional provision was met. Literally read, appropriations for a fiscal year have always exceeded funds estimated by the General Assembly to be available during that year. The appropriations are passed by the General Assembly. The estimates for the General Assembly are made by the Economic and Fiscal Commission, and the first is always greater than the last.

So how do we explain noncompliance with this constitutional provision? We ignore it, and no one has challenged it in court; or we redefine it by saying some appropriations are not appropriations at all; or we say our estimates of appropriations that we will not spend are, in fact, funds available, and we simply set that estimate equal to the difference between funds estimated to be available and appropriations passed by the General Assembly. If the system today is clever enough to disregard a clear mandate in the Constitution relative to limitation on the level of appropriations, it will be clever enough to disregard the three constitutional provisions recommended by Rep. Bowman.

The last two recommendations are proposed as statutory changes and not constitutional changes. A statutory change, of course, is weaker than a constitutional change and can be more easily circumvented or rewritten by the same body who wrote the original statutory change. One General Assembly cannot bind future general assemblies and need not even bind itself. Since legislators are the ones who made the statutory change, they can change it.

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Tax refund fund. This recommendation establishes a separate fund for the purpose of paying income tax refunds. If it is to work at all, it must necessarily not be an appropriated account. If it is an appropriated account, then it is no different than the current system. The General Assembly currently appropriates income tax refunds from the general revenue fund, and it has, for the last few years, underappropriated the amount needed to liquidate all refund liability. Sometimes the underappropriation is simply the result of following the administration's recommendations. Sometimes the underappropriation is the sole action of the General Assembly, even if the administration has recommended a higher amount to be set aside for paying income tax refunds. So the first condition is that this fund cannot be an appropriated fund. The second condition is that once the new fund is created, the General Assembly can have no voice in the amount of revenues that is diverted to this tax refund fund.

If these two conditions are present, then it can work and should be supported. Care should be taken to statutorily define the level of receipts that go into the new fund and then it must be an executive branch duty to put that amount in the fund each month. As an example, the comptroller and treasurer could be authorized by law to deposit monthly into the new fund 1/12 of the prior year's liability for income tax refunds as calculated by the Department of Revenue or 1/12 of the last year's expenditures as recorded by the comptroller, whichever figure is greater. Then I believe this recommendation would work and would be worthwhile. Under the conditions described above, neither the General Assembly nor the executive branch could underfund income tax refunds.

One additional adjustment would be necessary across time to ensure that balances in the income tax refund fund do not get too large or that the shortfall is not too great. This would simply be a roll-forward adjustment based on the prior year's experience. This could be similar to the system used by the state's revolving funds in calculating statewide cost allocations. Over time this adjustment would fine-tune the deposits into the tax refund fund so that they closely approximate actual liability and guarantee that refunds are not held an inordinate amount of time.

Low general fund balances would not matter in the case of income tax refunds because such refunds would be paid from a nonappropriated account held by the treasurer into which would be deposited sufficient revenues from the income tax collections to pay all refunds when due. I support this concept and believe that it can work and should be enacted.

Rainy day fund. Creating a rainy day fund by statute has one obvious flaw — the legislative body who created the rainy day fund has the power to define what constitutes "rain." In a practical sense, what would happen is that the state would maintain $200 million in the general fund balance and, let's say, $200 million in a rainy day fund. Conditions would be delineated in the statute as to when and in what amounts the rainy day fund could be used. These would likely be events such as adverse court rulings, decreasing federal aid, unexpected economic downturns or weather-related delays in collection of revenues. Still, in the end, having two funds with a $200 million balance in each is no different than having one fund with a $400 million balance. If the system we live under does not have the discipline to maintain $400 million in a single fund, it will not have the discipline to maintain $200 million in each of two funds. In the end, it is not the creation of the separate fund that matters, but rather the will of a democratic process to live within our means and to provide for future uncertainties. If we cannot do that under the current system, we will not do it under this recommended system.

The above five recommendations sound desirable and could be pursued. We should not, however, delude ourselves by thinking they will make any real difference. The system, when working properly, does not need these crutches, and if the system is not working properly, the crutches will break.

Rep. Bowman has two final proposals, one dealing with short-term borrowing and one dealing with rebuilding the balance. On short-term borrowing, the current law adequately protects the state since three constitutional officers must approve any short-term borrowing. These are the governor, the comptroller and the treasurer.

Relative to rebuilding the available balance, this is a self-correcting phenomenon. The balance will seek the appropriate level over time, and conditions will determine what that level is. To rebuild to a previous balance may make sense sometimes and may make no sense at other times.

One final thought — there are many ways of calculating whether the state has a surplus at the end of a fiscal year. The Constitution considers the beginning balance as funds available and then adds estimated receipts for the fiscal year and subtracts estimated expenditures. Using this definition, the experience has been:

This is, of course, the cash flow definition of surplus. In Illinois, the available balance has long been recognized as the most appropriate indicator of the state's fiscal health. Other balances, such as those cited by Rep. Bowman, are constructions after the fact.

In the end, the critique of how well our fiscal system works is not ours to make. Neither Rep. Bowman nor I nor the Economic and Fiscal Commission can make a truly objective statement about how well the fiscal system works. All of us tend to have a bias influenced by the particular roles that we play. We should, therefore, listen to outside objective critiques. Probably the most important of these are the rating agencies, e.g., Standard and Poor's and Moody's. Standard and Poor's give the state the second highest credit rating possible —AA + , and Moody's gives the state the highest possible credit rating —AAA. This is perhaps the best measure as to whether our fiscal system is working, and the objective observers say yes it is.

Robert Mandeville, director of Gov. James R. Thompson's Bureau of the Budget since 1977, helped establish the bureau under former Gov. Richard B. Ogilvie. In 1974 Mandeville also helped establish the comptroller's office under the first comptroller, George W. Lindberg.

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