Legislative Action

State finances plunged toward crisis in the first quarter of fiscal year 1991. On September 30 it became apparent that the state had carried over $200 million in unpaid bills into fiscal 1991, bills that helped push the state general funds balance more than $200 million below projections. And the high lapse-period spending for the previous fiscal year pushed the general funds balance, under the budgetary balance concept, to a negative $191 million, an unprecedented $339 million drop in one year.

To figure out where Illinois is headed, let's look at where state finances started, how revenues performed and what was spent in July, August and September (these three months comprise both the first quarter of fiscal 1991 and the lapse period for fiscal 1990). Illinois began the quarter in an apparently good position, with $395 million in general funds available for spending on July 1. This beginning balance was the third highest in the last 15 years. And the balance was $120 million more than the governor's Bureau of the Budget had projected last spring.

On the revenue side money flowed into the state coffers just a little faster than had been projected for the first quarter. The Bureau of the Budget had estimated revenues at $3.078 billion. Actual revenues were $3.123 billion, $45 million or 1.5 percent higher than projected.

In the major revenue sources:

•  Personal income tax — receipts up $131 million, or 15.8 percent. More than half the total growth, or $68 million, came in July. Part of the increase is believed attributable to delays in receiving income taxes at the higher withholding rates following the tax rate increase in June of 1989.

•  Corporate income tax — receipts up $22 million, or 21.0 percent. A year ago corporate income taxes had been stagnant, despite the 20 percent rate increase.

•  Sales taxes — receipts up $25 million, or 1.6 percent. September receipts were $12 million below those of September 1989, but early October receipts made up for that shortfall.

•  Other cash receipts — up $18 million, or 4.4 percent. Most of these revenues — cigarette, liquor, utility and insurance taxes — are stagnant, and the increase came almost entirely from $ 15 million not needed for debt service for civic centers in the Metropolitan Exposition Auditorium and Office Building Fund.

•  Transfers — lottery profits down $14 million and other transfers down $40 million, due to onetime payments from the protest fund in 1989.

•  Federal sources — up $32 million, or 7.0 percent, as a result of higher public aid spending.

Legislative revenue forecasters found few surprises in the fiscal year's first quarter. Robert D. Brock, acting director of the Illinois Economic and Fiscal Commission, says that income tax receipts have been slightly more robust than predicted but appear to be tailing off in September. Sales taxes saw a drop in September that appeared to be a timing question. "At this point I would say the thing seems to be tracking pretty much as we anticipated," Brock says.

The commission's general funds revenue estimate is $13,357 billion for fiscal 1991. The Bureau of the Budget's estimate is $13,471 billion, a difference of $114 million. The commission numbers are below the bureau's by $42 million in corporate income taxes, $30 million in sales taxes, $30 million in lottery profits and $54 million in federal revenues.

Clearly revenue is not the problem. Illinois began with a high bank balance and then received revenues at a healthy growth rate. Where's the problem? On the spending side.

For the first quarter, spending was $3.311 billion, an increase of $424 million or 14.7 percent. Spending exceeded revenues by $188 million and grew at nearly three times the rate of revenues. The bank balance fell from $395 million on June 30 to $207 million on September 30.

Veto session schedule Perfunctory: November 8 (Thursday) Session days: November 13 (Tuesday) November 14 (Wednesday) November 15 (Thursday) November 28 (Wednesday) November 29 (Thursday) November 30 (Friday)

In its August quarterly financial report the Bureau of the Budget had projected first quarter spending at $3.053 billion; spending came in $258 million higher at $3.311 billion. The bureau had also projected that the state would end the first quarter with $420 million in its general funds. Instead it had $207 million. The $213 million drop becomes particularly significant because the bureau had projected the state would end the second quarter on December 31 with $150 million. If the state is already down $213 million, some tight times lie ahead for the general funds.

George Hovanec, Gov. James R. Thompson's deputy budget director, says the increased spending was intentional, Thompson's veto of $120 million from Public Aid lines left medical payments underfunded, forcing some of the payments to be put off until fiscal 1991. Hovanec says that through September the bureau did not slow payments, an action that would have improved cash flow. He says there is some hope that all requested spending authority will not be needed, Hovanec says that as the money runs out, the cycle will slow.

The other culprit in first-quarter financial problems was lapse-period spending. In Illinois, money can be spent from the previous year's appropriation during the first three months of the next fiscal year (in this case during July, August and September of fiscal 1991). Lapse-period spending totaled $586.4 million in the first quarter of fiscal 1991, the highest level ever recorded.

At $586.4 million, lapse-period spending was $200 million higher than one year ago. It was also $200 million higher than Thompson's original budget had projected in the first quarter of fiscal 1991. That means $200 million in spending was postponed from fiscal 1990 into fiscal 1991.

That also means the state was not as well-off as it appeared on June 30. Take the $395 million beginning balance and

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subtract the extra lapse-period spending of $200 million, and the true balance would have been only $195 million.

Lapse-period spending is accounted for under the budgetary balance concept of a balanced general funds budget. That concept says that a budget is balanced if the cash on hand June 30 is sufficient to cover lapse-period spending charged to the previous year's appropriation. For fiscal 1990, with an ending balance of $395 million and lapse-period spending of $586 million, the balance was a negative $191 million.

Under this concept the first negative balance was in fiscal 1976, and in only three years since (1979, 1985 and 1989) has the budgetary balance been positive. The $191 million negative balance in 1990 was the fourth largest, but the $339 million swing, from a $148 million positive budgetary balance in fiscal 1989 to a $191 million negative balance in fiscal 1990, was the largest ever.

In his October report Comptroller Roland W. Burris concluded that there will be major cash flow problems throughout the rest of fiscal 1991. He said that cash flow measures, such as borrowing from other state funds, major changes in spending patterns and continued high spending in fiscal 1991's lapse period will be necessary to maintain a semblance of order in the General Revenue Fund cash flow throughout fiscal 1991. Those actions will, in turn, cause problems in fiscal 1992. Burris notes that the pattern of declining balances in fiscal years 1990 and 1991 mirror the decline between fiscal years 1986 and 1987. Extend that and it means that fiscal 1992 will mirror fiscal 1988. Incase you've forgotten, fiscal 1988 was the year Thompson proposed $1.2 billion in new taxes. That's the year that lawmakers said "no" and sent Thompson a budget balanced by spending every cent in the year-end balance. That's the year Thompson cut spending by $363 million, including $166 million in cuts to education. And that's the year that vendors waited months for payment of state bills, and the comptroller had to micromanage the state's cash flow.

Thompson will not propose tax increases next year. Instead gubernatorial candidates are promising a tax freeze or tax cuts. Whoever is elected will get a hands on lesson in managing a state in fiscal crisis.

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