Time and money: the story of fiscal 1983

Last November, state revenue projections fell by $173 million. To avert a crisis, Thompson asked for the unprecedented power to cut final appropriations for general funds, and then cut the unspent portion by 4 percent. But his new power is under challenge in court. If the downward trend in revenue projections continues, and with only a few months of spending left to cut, spending in fiscal 1983 could outstrip revenue by $260 million

THEY must be laughing at us in Michigan. We had to cut the budget $78 million last year. We've had to cut appropriations $159 million so far this year. Right after the elections the talk was all about raising the income tax. They'd love to have our problems in Michigan. They've already raised the income tax and they're still running in the red.

Yet, in Illinois at this writing (late January), we're seven months into fiscal 1983 and we still don't know whether we'll finish the year in the red or black.

According to the January 31 revenue projections by the governor's Bureau of the Budget (BOB), revenue in the general funds will run $8,312 billion in fiscal 1983. The legislature's Economic and Fiscal Commission (EFC) had projected revenue only $2 million higher or at $8,314 billion on January 11. The spending projections the BOB made December 17 still held true on January 31: spending in the general funds will total $8,572 billion in fiscal 1983. The net result is spending will outstrip revenue by at least $260 million. Unless there's a change, the $187 million balance that started this fiscal year on July 1, 1982, will become a $71 million deficit at the end of the year, June 30, 1983. Of course, these are only projections. (See table 1.)

The trauma in fiscal 1983 lies in the timing. For fiscal 1982, the revenue problem was spotted during the appropriations process and two months before fiscal 1982 began. Adjustments could be made — and were. In fiscal 1983, more adjustments were made in spending, even a couple in revenue. Revenue was transferred to avert a cash flow crisis, and the governor asked state workers to voluntarily take furlough days. But the big problem was not discovered until the fiscal year was five months old. Thompson had to get the General Assembly to give him special power to cut appropriations after they were enacted into law. More than one case would be filed in court challenging the concession of power, since the Constitution clearly says it is the legislature that shall make the final appropriation of funds.

Not that problems weren't expected during fiscal 1983. The monthly balances in the general funds had started to fall when fiscal 1982 began on July 1, 1981. They were still falling when fiscal 1983 began July 1, 1982, and it was clear the state could run into cash flow problems during the first half of the year. (See table 2.)

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In late June 1982, during the last days of the spring session, Thompson cut a deal with the General Assembly to get the kind of power he needed to solve such cash flow problems: the power to transfer money out of other funds and into the general funds (see "Legislative Action," August 1982, p. 36). The deal amounted to a concession by the legislature since it legalized the practice by Thompson (and other governors) of manipulating the balance in the general funds to political advantage. But political advantage was what the deal was all about. Thompson wanted to guarantee the solvency of the general funds through the November elections. So did the General Assembly: Everybody was up for reelection.

Hindsight says it was the right thing to do. Revenues held during the first quarter of the year, July through September. It was during the second quarter, October through December, that they started to fall short. If the General Assembly hadn't given Thompson the transfer power, Illinois would have gone bankrupt November 30, 1982. (See table 3.)

The fiscal 1983 appropriation process began when Thompson unveiled his budget in March 1982; he asked for the appropriation of $8,180 billion in general funds. By July, when the legislature adjourned its spring session, the General Assembly had passed only $145 million more than the governor's total in general funds. By October, Thompson had signed $8,208 billion in general funds appropriations, vetoing only $117 million or 1.4 percent. By mid-December, when the legislature adjourned its fall lameduck session, a final total of $8,206 billion in general funds was appropriated

Table 3 Governor's use of intrafund transfer power during fiscal year 1983* (millions of dollars)
	Borrowed	Repaid
July	$ 1.0	$ 0.0
August	15.0	0.0
September	8.5	10.0
November	30.1	0.0
December	7.9	7.5
TOTAL	62.5	17.5
*Under the provisions of the power, the governor was allowed to transfer into the general funds until December 31, 1982; he is required to transfer back to the original funds by June 30, 1983. Source: Comptroller

(see "Legislative Action," February 1983, p. 26). (See table 4.)

The March 1982 projected revenue figure from BOB was $8,814 billion in general funds; the EFC, however, projected $145 million less. During the first quarter of fiscal 1983, July through September, revenues held to BOB projections. Then suddenly, at the start of the second quarter in October, they dropped sharply. Revenues were still down in November: the fluke had become a trend. On November 18, the EFC revised its revenue projections downward by $173 million to $8,496 billion; that was $318 million below the BOB's March projections. (See table 5.)

Crisis time. The General Assembly had all but finished its work. Thompson told them December 1 that despite their tight appropriations total, spending would still outstrip revenue by the end of the fiscal year. So he boldly asked the General Assembly for the only kind of power that could solve the revenue/spending problem at such a late date in the fiscal year: the power to cut final general funds appropriations. He said cutting 4 percent of the unspent portion of the appropriations, across the board, would offset the revenue shortfall (see "Legislative Action," January 1982, p. 35).

In an unprecedented move, the General Assembly relinquished its power, with qualifications, to control the so-called "entitlement" programs, affecting elementary and secondary education, higher education and public aid. The General Assembly sets by statute the formulas for benefits and reimbursements, and passes the appropriations to cover the projected cost of the programs. In the "normal" years a few sessions ago, supplemental appropriations would be passed if the total was below what the programs were entitled to.

Thompson also wanted another $46 million in general funds revenue in fiscal 1983; he asked the General Assembly to raise the state liquor tax to generate $12 million more and to accelerate

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the collection of state public utilities taxes to yield another $34 million. They agreed to the collection of public utilities taxes, but they refused the liquor tax increase.

The power to cut final general funds appropriations amounted to an inconceivable concession, but there may have been a method in the General Assembly's madness. Democrats knew they had control of both the House and the Senate in the new General Assembly convening in January. So did Thompson. Giving Thompson the power to cut appropriations would also give him the glory — and the blame.

With his new power, Thompson immediately announced plans to cut $159 million in final general funds appropriations. And on December 17, when the BOB announced its revised projections (taking into account the $34 million in new revenue and the $159 million in cuts), revenue and spending were down, but just about balanced. Revenue was at $8,567 billion and spending was at $8,572 billion. The BOB's revenue projection, however, was $71 million over the EFC's figure. (See table 5.)

On December 29, Thompson signed S.B. 1652, the Emergency Budget Act, and announced how he had cut the authorized 4 percent across the board of the unspent final general funds appropriations for fiscal 1983. The effect would be a drop of 2,000, possibly 2,500 (including 1,400 layoffs in mental health), in the number of state workers by the end of the fiscal year, June 30.

As expected, the biggest cuts came in grants spending for the biggest entitlement programs. Public aid was cut $54.6 million, chiefly in medical assistance; elementary education was cut $41.6 million, chiefly in stat aid. Other major cuts came in higher education ($20.1 million) and mental health ($16 million). (See table 6.)

The Emergency Budget Act also authorized the other executive constitutional officers and the judiciary and the legislature to cut final general funds appropriations; they did for a total of $8 million.

In early January, the BOB knew

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revenues in the general funds were still down in December, the end of the second quarter of the fiscal year. On January 11, the EFC again revised its revenue projections downward; they now expected $8.314 billion, which was $182 million less than their earlier projection and $253 million below the BOB'sDecember projection. (See table 5.)

Obviously, Illinois is in worse shape in fiscal 1983 than in fiscal 1982 or fiscal 1981, the year state government first felt the effects of the recession. In fiscal 1981, spending ran $191 million ahead of revenue, and the balance in the general funds dropped from $390 million on July 1,1980, to $197 million on June 30,1981. In fiscal 1982, spending ran only $10 million ahead of revenue mainly because $78 million was cut from the budget and $190 million was vetoed in appropriations. By July 1, 1982, the general funds balance had dipped to $187 million. At this writing seven months into fiscal 1983, it appears, unless there's a change, the general funds balance checkbook will be in the red with no carryover into the start of fiscal year 1984 on July 1, 1983. (See table 1.)

Even before the bad times started in fiscal 1981, Thompson had insisted there are always two alternatives to fiscal crisis: cut spending or raise revenue. Before fiscal 1981 his strategy was to cut spending to balance the budget. Snce fiscal 1981 his strategy has been to cut spending to avoid the red ink. In fiscal 1981 Thompson's strategy was to keep the increase in general funds spending in line with the increase in general funds revenue. It didn't work. In fiscal 1982, the $78 million revenue shortfall forced Thompson to try a different tack. He switched his strategy to spending less in general funds than the year before. It worked. In fiscal 1982, Illinois spent $15 million less than in the previous year.

In fiscal 1983 Thompson has been using the same strategy of cutting spending.

Thompson's strategy of cutting spending is a gamble that the economy will recover, sooner rather than later. So far he's losing — at least this fiscal year. With the first revenue shortfall, he had to scramble to cut. If he decides to try to salvage further revenue shortfalls, there will be only four or five months of spending left to cut.

Ever since the bad times started in fiscal 1981, the General Assembly has basically gone along with Thompson. The new General Assembly is seated now, and the Democrats control it — within one vote of a veto-proof House and three of a veto-proof Senate.□

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