THE RIPPLE OF THE BUDGET BLUES By DAWN CLARK NETSCH, Illinois Comptroller

Late payrolls. Unfilled firefighter and police positions. Delayed purchases of garbage trucks. Bills piled up and unpaid for months.

These troubling signs of dysfunctional government are becoming increasingly common as the state of Illinois — beset by its own cash-flow shortage — has been late in making some of its payments to local governments throughout the state.

Specifically, the state has been regularly a month late and, at times, two months late in transferring Local Government Distributive Fund revenues to cities and counties.

This trend is particularly hard on small towns, which often rely heavily on their share of the state's Local Government Distributive Fund as a steady source of revenue. Since many local governments have exhausted most every local revenue raising device available, they count on their share of certain state taxes.

The LGDF, which distributed $483 million to cities and counties in 1991 (plus an additional $302 million from the income tax surcharge), is funded from a one-twelfth share of state income tax revenues, and small amounts of state sales tax revenue, the result of the 1988 sales tax reform law.

Though the LGDF has more than doubled from the $222 million it generated in 1982, this seemingly healthy increase must be seen in the context of declining federal grants and the elimination of federal general revenue-sharing. With this loss of federal support, many local governments have been forced to lean heavily on property taxes to support their operations.

Moreover, the portion of the state income tax surcharge allotted to the LGDF has been cut in half this fiscal year under the terms of last July's budget agreement.

More and more, government financial officials tell me — even those whose LCDF distribution is only 10 percent of their annual budget — how much they rely on the monthly LGDF disbursement to make ends meet.

But beginning in October 1990, my office, short on cash, found it necessary to hold back the LGDF payments one month. We caught up with that payment at the end of the fiscal year (June 1991), but then we had to hold up another LGDF payment in July, and that's where we have been, or worse, ever since. We have been able, at least, to distribute on time sales tax receipts and local governments' share of the income-tax surcharge, which does not go through the state's General Funds. As noted, however, that share has been cut in half for fiscal year 1992.

My office will make every effort to catch up again in June 1992, but with the state's already serious cash-flow problem having deteriorated further in recent months due to recession, that won't be easy.

As I have been warning for months, and now everyone acknowledges, the state's finances are, to put it mildly, depleted, and we do not have the resources to pay all our bills on time. All the payments are important to the recipients, but some, of necessity, are more critical than others.

My priority has to be keeping state government and its vital services up and running, and getting money to those in dire need.

Local governments face the challenge of managing their budgets amid this uncertainty. They cannot always count on the LCDF payment to be on time to bail them out.

This disturbing fiscal fact has already forced some local governments to borrow money from some of the other funds they manage, to delay some programs,

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payrolls and purchases, and even to take risks — like skipping payments to self-insurance funds.

In this uncertain economic climate, county treasurers and city comptrollers need to find creative ways to manage their accounts. The old revenue reliables just might not be there — at least not on schedule.

To see how this lag in LGDF payments affects just one community, we can look at Harvey, a working-class suburb of about 30,000 people southeast of Chicago. The area has been hit hard by job losses in the steel industry. Property taxes there are already high, supporting a $20 million municipal government that employs 300 people. Harvey no longer gets any of the $700,000 in federal revenue-sharing dollars it received as recently as 1985.

"Our fiscal crisis is directly related to the state's fiscal crisis," said city attorney Jean Templeton. "When we don't get the LCDF distribution, we call the Comptroller and virtually beg to know when we will get our money. It comprises a significant portion of our corporate pot, which pays for police, salaries and bills."

Though Harvey garners about 60 percent of its $20 million in revenue from property taxes and water fees, the more than $1.5 million it receives from the state in monthly LGDF payments is crucial if the city is to make ends meet in periods when other revenues are stagnant.

Harvey, like many communities throughout Illinois, has virtually exhausted its local revenue options.

The city suffered several major steel mill closings in the 1970s and lost nearly 20 percent of its population in the 1980s.

"One thing Harvey thought it could count on is timely payments of its share of state revenue," Templeton said. "Our local property taxes are too high already. Any higher and we'll drive more businesses and residents away."

Harvey, I hear your warning. I trust Gov. Edgar does too. •

February 1992 / Illinois Municipal Review / Page 27