STATE FISCAL CRISES: FROM CONNECTICUT TO CALIFORNIA By DAWN CLARK NETSCH, Comptroller, State of Illinois

At least 30 states are in fiscal crisis, Illinois among them. The crises in these states are no doubt exacerbated by the decline in federal aid to cities and states under the Reagan Administration and the rising costs of Medicaid and Public Aid programs.

But many states, Illinois included, are also facing shortfalls because of budgetary practices. For years debts have piled up and obligations have been deferred. Expenditures have been allowed to outpace revenues. Not surprisingly, the accumulation of all these factors has taken its toll on Illinois' finances.

Until recently, we have heard little about Illinois' fiscal crisis. We have heard a great deal more about baseball and the turmoil of the families Kennedy and Reagan.

But some alarming numbers have surfaced in Illinois. In my first four months as the state's chief fiscal officer, I have been forced to assume the role of a traveling grinch as I speak across the state, warning that the state is nearly $1 billion in debt.

It is clear spending must be harnessed so we can begin to pay the millions we owe to medical and social service providers for essential services already delivered to our people.

Our budget and debt problems have been largely overlooked, perhaps because people have read that California is in hock more than $12 billion, or that Connecticut owes $2.5 billion on a base of $7.5 billion. In comparison, Illinois' $1 billion debt on a nearly $26 billion budget doesn't appear to be as urgent.

But it is. The fact we can still see a way out of the fiscal hole we're in doesn't mean we should delay climbing toward the bottom line of fiscal stability.

Big debts give state government a bad reputation among businesses. It can hurt our bond rating. It hurts people who don't get paid in a timely manner. Health professionals who care for our poor and elderly. Impoverished people who struggle each day to survive.

Small businesses that depend on timely payment so they can meet their payrolls.

Though I strongly disagree with Gov. Jim Edgar over the way his proposed 1992 budget strips funding from vital social services, I commend him for making the payment of old bills a priority in his budget. Proposing cuts of $468 million and earmarking $627 million to pay old bills, these are major first steps toward righting our state's finances, after 14 years of smoke-and-mirror budgets under the previous administration.

Illinois has been spared the despair of many recession-battered states, in large part because tax revenues had generally kept pace with projected increases. In March, however, income and sales tax revenues slowed dramatically, and state unemployment jumped nearly a full point to 6.8 percent.

These figures show that Illinois may not be immune to recessionary pressures. Because such pressures can compound states' fiscal imbalances, we need to keep a close watch on the extent of fiscal disarray in our struggling sister states. We need to observe and to assess how neighboring states are coping with their financial challenges.

When we look out at some other states we see:
• Rhode Island shutting down state government for 10 days.
• Connecticut considering the creation of a 6 percent personal income tax.
• Massachusetts moving to fire 6,200 state workers.

June 1991 / Illinois Municipal Review / Page 23

• Michigan looking at a 9 percent across-the-board cut in programs.
• Virginia reducing agency spending from 12 to 20 percent and postponing 100 capital projects.
• New York laying off more than 10,000 state workers.

The grim reports of these state fiscal crises have led pundits to describe these times for governors as an era of "The New Pragmatism" where they will be forced to "innovate with less." But there should be no limit to efforts to find creative, workable solutions to fiscal crises.

So what can be done? We certainly can't solve the budget imbalance solely on the backs of the state's nearly 129,000 employees (42,000 of them university employees). Almost two-thirds of state workers earn less than $30,000 a year. What's more, Illinois ranks 42nd among states in its number of state employees per 1,000 population.

The experience of other states has shown that massive layoffs provide only short-term economic answers and often lead to unacceptable cuts in state services. We can't close down our prisons, nor disconnect the child abuse hotline. We don't want to cut back our state college system, which is so vital to our economic well-being.

The long-term fiscal woes that accompany a recession of any depth require a long-term plan of fiscal restraint and responsibility, one that enables the work of government — vital services — to continue.

What is required is a new approach to spending, a new attitude about making budgets. We should phase down the practice of lapse spending, paying last year's bills with this year's revenues. We need to curtail our bond programs and learn to pay as we go for certain programs.

On the revenue side, the state should push for the collection of millions of dollars in accounts receivable, money owed to the state's General Funds. Most importantly, let's make the 1990s the decade of honest budgets. We cannot rightly hide our problems any longer, and we should not pass the bill on to future generations. •

Page 24 / Illinois Municipal Review / June 1991