From boom to bust by '91

By MICHAEL D. KLEMENS

It was a good spring to be a state lawmaker. Revenue growth was strong. Bank balances were up. Accumulated bills had been paid off. Those factors plus cigarette and income tax increases allowed lawmakers to boost general funds spending by $1,362 billion or 11.5 percent. The situation will be dramatically different next spring when the governor and lawmakers craft a budget for the fiscal year that begins July 1, 1990.

A year from now Illinois could easily be looking at having something on the order of $400 million to spend for new programs. An increase of that size would be less than half what lawmakers had available before adding this year's tax increases. And it would be almost $1 billion less than the increased spending they ultimately approved with the tax hikes. An increase of $400 million will put the state on a maintenance budget, at best, and could be below the rate of inflation. "I think '91 will be a very tough year of modest increase," says Robert L. Mandeville, director of the governor's Bureau of the Budget.

The move from boom last spring to bust next spring will be the result of substantial increases in spending in the current fiscal year, fiscal 1990. According to the Bureau of the Budget's projections, spending will increase by $1,362 million to $13,200 million in the current year that ends June 30, 1990, compared to the year that ended June 30, 1989. Revenues, over the same period, will increase $876 million to $13,009 million. By June 30, 1990, spending will exceed revenues by $191 million (a deficit budget), but that deficiency will be made up by drawing down the state's available cash balance from $541 to $350 million.

Looking ahead to 1991, assuming revenue growth that hits 5 percent, revenues would be up by $650 million to a total of $13,659 million. But the 1990 spending level, already set at $13,200 million, will use $191 million of that revenue growth, permitting only $459 million in new spending for 1991.

When lawmakers begin to craft a budget for fiscal 1991, they will find much of whatever they have to spend locked in. Annualization of welfare grant hikes will cost an extra $36 million. Compliance with the Omnibus Budget Reconciliation Act will take $30 million of the mental health budget. Debt service will be up $25 million and double exemptions for the blind and elderly will take $25 million. And it will be time to start hiring guards for the new prisons approved this year.

The dramatic shift in 1991 will come because the surplus of 1989 will become the deficit of 1990. In the 1989 fiscal year revenues exceeded spending by $295 million,

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freeing up that much money for expenditure in fiscal year 1990. But in 1990 the opposite will happen as spending exceeds revenues by $191 million. In short, Illinois dug itself out of a fiscal hole with two years of restrained spending. Having gotten out, it proceeded to adopt a budget in which spending exceeded revenues.

There will be considerably less one-time spending in 1990 to pad the 1991 spending tab. For example, Illinois caught up on approximately $150 million in back bills that it owed in fiscal 1989, freeing up that amount of money for lawmakers to spend in 1990.

Comptroller Roland W. Burris urged caution in an August 2 assessment of the state's financial position. Burris noted that the budget was balanced for only the second time in the last decade under the budgetary balance concept that says cash on hand June 30 should be enough to cover lapse period spending from the previous year's appropriation. The comptroller described Illinois as being in "a sound fiscal position."

The caution came when he noted the circumstances of the only other time the state had a budgetary balance. That was in 1985 when the state ended the fiscal year with $479 million in the bank. Burris noted that within a year the state had succumbed to spending levels that could not be supported by revenue growth. The comptroller's prediction: "Historical patterns of general funds available balances indicate peak balances during the first six to nine months of fiscal 1990 followed by gradual declines in month end balances over the next two to three fiscal years — eventually falling below the $200 million level. The question to be answered, will the governor and the General Assembly, even with the additional taxes, be able to break this historical pattern?"

And on August 17 Mandeville sounded his own warning. Acknowledging that 1989 and 1990 had been good revenue years, Mandeville said that expectations would have to be lowered in 1991. The tax increases, the 1989 surplus and the 1990 balance drawdown will not be repeated, Mandeville said. "It isn't a question that we can sustain the level we reached in 1990. It's a question of how much higher we can go," Mandeville said. It will also be a question of convincing lawmakers that the money is not there for another spending spree. □

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