Buried deep within Governor Rod Blagojevich's annual budget address last week was a nasty argument with the most influential bunch of do-gooders in Illinois - the social-service providers. These are the groups, many of them religious (such as the Catholic Conference, Lutheran Social Services, and the Jewish Federation), that take care of the state's most vulnerable citizens. Back in the old days, the state provided most of those services directly, but the government eventually discovered that the privates could do it better and for quite a bit less money. The developmentally disabled, the mentally ill, alcoholics, and other addicts are all cared for by these private service agencies.

Up until now, the state has awarded grants to these groups and then mostly washed its hands of the severe social problems they deal with. The groups are, in effect, the real "shadow government" because they spend tons of tax dollars to perform a lot of work that the state is responsible for. They also claim that the money they receive from the government is only 60 to 70 percent of the cost of providing the services. Nobody is getting rich off of this way of life.

The governor wants to change all that. From now on, he wants to dump the grants and pay for the programs on a fee-for-service basis. The groups would have to bid against each other and against any other new players that emerge. The governor claims, and he's right, that it will be easier to access more federal matching funds with the new fee-for-service rules

The opposition to the plan is basically twofold. First, the groups say that the governor is using this new "accountability" device to disguise the fact that 200,000 people would no longer receive care under his new proposal. And, second, they worry that if the governor focuses too much on costs, fly-by-night contractors could swoop in and provide substandard care and pocket the profits. In other words, somebody might try to get rich off of these programs, which could be a very bad thing.

The governor tried to cut funding to these groups last year and was twice rebuffed. At this point, it looks doubtful that he can pull off a complete victory this year, either. The groups' natural political base is absolutely gigantic (Catholics, Lutherans, Jews, and other not-for-profits connected to minority communities), and they've earned lots of respect in Springfield for taking care of the people nobody wants.

Meanwhile, the governor has insisted that it would be fiscally irresponsible for him to even consider skipping any state pension-fund payments, but that's essentially what his budget proposes - to the tune of $312 million.

The issue here is the state's long, sad history of underfunding its pension funds. For years, state contributions to the funds were woefully short. A crisis loomed if something wasn't done, so the state finally got its act together in the 1990s.

The problem is, this costs a heckuva lot of loot. The price this fiscal year was $2 billion. Next fiscal year, which starts in July, the tab has risen to an astounding $2.5 billion.

Part of the reason for this increase is the cost of former Governor George Ryan's early retirement program for state employees. Originally projected to cost $70 million next fiscal year, it has since ballooned to $382 million.

But the governor's new budget only funds the original $70 million.

So, either there is a $312-million hole in the governor's budget (the $382-million actual cost minus the budgeted $70 million) that he'll have to fill with a big pile of mystery cash, or they're gonna skip the payment, which the governor has said would be irresponsible.

Adding to the dilemma is $60 million the governor has already budgeted from state employees who would pay their own pension contributions. The state has been picking up that cost since Jim Edgar was governor, but Governor Blagojevich wants the workers to start paying four percent of their own wages into the pension fund.

This is probably not going to happen. State workers are already working harder than ever before because the early-retirement program thinned their ranks. This is not necessarily a bad thing, but they are in no mood to take a 4-percent pay cut right now. The union won't be able to agree to this. And that means the governor will have to find another $60 million somewhere, or ignore it.

Rich Miller also publishes Capitol Fax, a daily political newsletter. He can be reached at (http://www.capitolfax.com).

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