As I understand it from a friend who lives in Ill, both. Not only was the State telling the Church how to spend monies it received from State and Federal grants, it was also demanding compliance even if there were no government many of any sort involved. Otherwise they wouldn't grant the licenses and certifications required to operate an adoption service or child care related charity.
My friend has heard that the groups behind this maneuver next want to refuse all Catholic schools the right to operate unless they agree to teach that abortion and aberrant sexual behaviors are not immoral but just secular matters. We'll see if they go that far yet or not, but after the 2012 elections I expect Illinois to try very hard to eliminate Catholic schools within the state.
At the rate things are going in Illinois, despite the Demonratic Machine, despite recent horrendous redistricting, messing with parochial schools (and by necessary implication Christian academies) would lead to widespread destruction of Demonrat candidates and control of state government. There are already pension scandals galore, unprecedented individual and corporate tax hikes, blatant exemptions for major employers, refusal to pay many state government bills for more than a year after they are incurred, local gummint skewels in Rockford putting up advertising boards on school property claiming that state educational subsidies are being withheld to the alleged detriment of the truly and utterly crummy "public schools", etc., etc., etc. This state has seen at least four of the last six governors sent to the federal hoosegow: three Demonrats (Kerner, Walker and Blagojevich) and one corrupt excuse for a Republican (Lyin' Ryan) who would up being a pro-abort, an opponent of the death penalty and a boodler on the take extraordinaire as bad as any Demonrat.
Unless Pat Quinn (the most brainless and most incompetent excuse for a public official I have ever seen) is removed from office, he will hold office until early 2015. The easy ways to force him out are: 1) Indict his sorry ass, convict him at the expense of having him succeeded by the late Paul Simon's feminazi daughter, or 2) take away his legislature and its spendthrift ways which might be enough to force him to take the Papa Hemingway route to exit this life.