July 9, 2003
FISCAL "BLACK HOLE" DOGS GOV. BLAGOJEVICH

ANALYSIS & OPINION BY RUSS STEWART

The silence in Springfield is deafening.

Democratic Governor Rod Blagojevich, halfway through the first year of his first term, is governing Illinois like a tight-fisted Ronald Reagan Republican, temporarily forestalling both a fiscal crisis and a state income tax or sales tax hike.

Yet Democrats aren't jeering -- because he's a Democrat. They wanted more spending on their projects and more state patronage, and they aren't getting enough of either, but they don't want to publicly complain. And Republicans aren't cheering -- again, because he's a Democrat, and because he has still increased spending.

Nevertheless, credit should be given where credit is due. And although the governor is afflicted with an obsessive-compulsive campaign disorder, spending inordinate amounts of time at publicity-generating events and only rarely in Springfield, it must be conceded that his tenure is off to an auspicious start.

Over the past few decades, Illinoisans have shown a preference for re-electing energetic, competent and personable governors. Neither George Ryan (1999-2002) nor Dick Ogilvie (1969-72) was likable, and they each served only one term. Dan Walker (1973-76) was a campaign machine, but he was viewed as inept. Jim Edgar (1991-98) was energetic and competent but not overly personable. Still, voters re-elected him in 1994 and would have done so again in 1998. But it was Big Jim Thompson (1977-90) who personified all three qualities and who persuaded voters that a governor on the road, at staged events, is just as effective as a governor in the capital.

Over the past few decades, Illinois governors have shown a marked propensity for atypical behavior. When Republicans are elected, they throw fiscal caution to the wind, raise taxes and spending, and act like liberal Democrats, and when Democrats are elected, they embrace fiscal restraint, refrain from hiking taxes, and act somewhat like conservative Republicans. Blagojevich is acting atypically normal.

For example, it was Republican Ogilvie who imposed a state income tax and increased state spending by more than $4 billion during his term; the budget for fiscal 1973, his last year, was $7.4 billion. Thompson's fiscal year 1978 budget, his first, was $10 billion. He raised the state income tax twice, embarked on huge road-building and capital-construction projects, and left office with a budget of  $26 billion in fiscal year 1991. Edgar imposed a temporary "surcharge" on state income taxes and tried for a permanent hike in 1997. His last budget, for fiscal year 1999, was $37.4 billion. Ryan was even more profligate than his predecessors were in spending money; his last budget, in fiscal year 2003, was $52.8 billion.

So, to recap, Thompson increased state spending by $16 billion over 14 years, Edgar by $11.4 billion over 8 years, and Ryan by $15.4 billion over just 4 years. Thompson, Reagan's state campaign chairman in 1980 and 1984, never even considered a tax cut. And during the flush 1990s, while governors in New York, Texas, Pennsylvania and elsewhere were cutting taxes, Edgar pondered raising them. It's almost enough to make one say: Good riddance of all those "Republican Democrats."

Democrats have been similarly atypical. Otto Kerner (1961-68) steadfastly refused to consider any income tax. Walker upped spending by $2.5 billion during his term, but he didn't raise the income tax. During his 2002 campaign, Blagojevich promised to increase state spending but not hike the income tax, and thus far, he's honoring his pledge.

The state's 2004 budget is $53 billion, with state revenues up by just $800 million (to be offset by $650 million in state tax refunds). The governor's budget increased spending by $410 million on Medicaid, $350 million on pensions and education funding, $220 million for state employees' benefits and overhead, $130 million for the Department of Corrections, and another $550 million in other allocations. Right now, there is a projected budget "black hole" of $4.8 billion -- in other words, the revenues anticipated during the next fiscal year, which ends on June 30 of 2004, will be nearly $5 billion less than budgeted expenditures.

Through a series of creative and imaginative maneuvers, and some budget cutting, the 2003 fiscal year ended in the black. Blagojevich's stratagems included the borrowing of  $10 billion, of which $2 billion was used to make scheduled state pension payments (taking that off-budget), with the balance used to retire state bonds. Then $10 billion in new pension bonds were issued at a lower rate of interest. The deficits of 2003 were basically pushed into 2004. Blagojevich, in early July, made an additional $222 million in budget cuts. But crunch time is still 6 months away: The state is spending down its $53 billion, and that money will be gone by next March or April.

Blagojevich can take some comfort in the fact that, in California, Governor Gray Davis is confronting a $38 billion deficit, and the prospect looms of payless paydays for state employees and a shutdown of the state's schools. In addition, Davis is the subject of a recall election, which is not permissible in Illinois.

Polls show Blagojevich to be quite popular with the electorate. The good news is that they give him credit for both ingenuity and integrity. The bad news is that he just solved the problems attendant to the 2003 budget (which was Ryan's) and is now grappling with a 2004 budget with a $5 billion shortfall. And the worse news is that, unless the economy moves into a full-throttle recovery mode quite soon, Blagojevich will either have to perform similar budget tricks for many more fiscal years to come or raise taxes.

Blagojevich, like Thompson once did, harbors presidential ambitions. And, ironically, his fate as governor and his aspirations for the White House are inextricably tied to those of Republican President George Bush. An imminent economic recovery, plus Bush's 2004 re-election, are indispensable for Blagojevich's 2008 presidential hopes. As the 2002 elections demonstrated, governors get no traction when they try to blame the president after raising state taxes. A bad state economy is deemed to be the governor's fault, and voters toss the governor.

If an economic recovery, with a spike in state revenues, does not surface by 2004, Blagojevich will have to muddle through budget crises in the 2005, 2006 and 2007 fiscal years -- all before he runs for re-election in 2006. The $5 billion black hole of 2003-04 could balloon to $10 billion or more. If that occurs, no amount of energy or personality would insulate Blagojevich from the wrath of Illinois voters, especially if he cuts key services or raises taxes.

The Republicans' all-but-certain 2006 gubernatorial candidate, state Treasurer Judy Baar Topinka, is waiting for Blagojevich to implode so she can run against the "inept" governor on a platform of fiscal responsibility. And here's an aside: Of the state's 63,000 jobs, Blagojevich has chosen not to fill more than 5,000 vacant positions as a cost-savings measure. This has outraged many Democratic committeemen and county chairmen, who want those spots filled by Democrats who will work precincts. If the patronage spigot is not opened by 2004, Blagojevich will face a torrent of abuse from his party's leaders.

Blagojevich has no desire to exceed Thompson's record 14-year reign. He just wants to win a landslide re-election as governor in 2006, and then run for president in 2008 -- or, at least, to end up on the Democratic ticket for vice president (possibly with Hillary Clinton). Here are two plausible scenarios:

Best case scenario: The economy rebounds and Bush demolishes his Democratic foe in 2004. But then the public grows disillusioned with Bush, and Democrats ride a wave in 2006, with a huge Blagojevich re-election in Illinois. The spurt in state revenue means Blagojevich didn't have to raise state taxes.

Blagojevich, the chronic campaigner, then heads off to Iowa and New Hampshire, running as an "energetic" Democratic who is socially liberal (pro-abortion rights, pro-gun control, pro-gay rights) yet fiscally "responsible." His major foe will be Clinton, who may or may not be electable. If Blagojevich beats her in some early primary, she's toast. If he doesn't beat her but comes in a close second, then he's the perfect veep candidate.

Worst case scenario: The economy doesn't rebound, a Democrat beats Bush in 2004, and Blagojevich has to wait until 2012 to run for president. That means up to nine more fiscal years of gimmicks and innovations, re-election in 2006 and 2010, and nonstop campaigning in the state and nation.

Blagojevich's one and only shot at the White House is in 2008, presuming that's the year Bush retires. If he doesn't make it then, or he's not elected vice president, his window of opportunity will shut tight.