Budgeting on a tightrop

When the General Assembly convenes this month lawmakers will find the state's fiscal cupboards bare. A year and a half of spending money faster than it flowed in has ravaged cash balances. In fact, state fiscal experts are counting on the Supreme Court to free $160 million in protested taxes to keep current finances within estimates.

That revenue has been in limbo since a circuit court last spring ruled the interstate message tax unconstitutional. Enacted in 1985 to pay for education reform, this tax on out-of-state telephone calls was found a burden on interstate commerce. Bill Ghesquiere, chief counsel to the governor, says state lawyers are confident they can convince the Illinois Supreme Court to reverse the lower court and free the $160 million sitting in a protest fund. He calls a May or June release "pretty realistic."

The 1988 budget will be built on the assumption that the money will arrive, says Robert L. Mandeville, director of the Bureau of the Budget, who sees no point in making alternative plans now. "I think we've got to just make a call on it and go with it. Obviously if we don't get the money, we have a $160 million problem we've got to solve," he says. That $160 million is counted on to end the year with a $222 million balance.

His legislative counterpart agrees. Paul G. Vallas, executive director of the Economic and Fiscal Commission, says he would do the same in Mandeville's position, but cautions that alternatives may be needed if the situation stays unresolved in late spring. Loss of the court case would force some combination of borrowing, transfers, payment delays or spending cuts. Vallas says.

Although a court defeat would empty state coffers, the message tax is not the only fiscal difficulty facing Illinois. State spending outstripped revenues in the year that ended last June 30, and that patten continued through November of the current fiscal year. Cash reserves tapped in 1985 to pay the bill for education reform have been exhausted. New taxes have fallen short of estimates. And changes in the tax base have curtailed growth from existing taxes.

When the general funds balance plum meted November 24 to a 14-year low of $2,468,000, Comptroller Roland W. Burris found a striking resemblance to the 1982 fiscal crisis that forced lawmakers to permanently boost sales taxes and temporarily hike income taxes. "If you lay the graph for 1986 on top of 1982, the similarity is scary," Burris said.

And Burris insisted the problem is more than a temporary cash flow situation. "To overcome what we have now, you have to have some big infusion of revenue. We don't see that," Burris said. In fact he said he believes the governor has overestimated revenues and underestimated expenditures but would not say by how much.

The man who made those estimates disagreed. Budget Director Mandeville said the current low balances were anticipated and will turn around after February. After a slow start, he said, revenues through October stood $44 million over internal estimates, which he would not divulge. Mandeville said he expects the state to be "pretty close" on December 30 to the $128 million balance his agency projected in July. And he held to his July estimate that the state will end the year on June 30 with a $222 million balance.

8/January 1987/Illinois Issues

"Basically our position remains unchanged. This is a tight year. There will be days the balance is low," Mandeville told reporters at a briefing called to respond to Burris' discloure. "I don't think we're talking crisis yet," he insisted. Mandeville said spending typically exceeds revenues in the early months of a fiscal year. The freeze of interstate messages tax receipts exacerbated the problem, he said. If that money were flowing to state coffers, Illinois would be posting healthy balances, he said.

The comptroller was unconvinced. "It looks like there's no more rabbits in the hat. I don't know what Thompson's going to do." Burris said the governor's only options are "either cut or raise taxes."

The administration acted to shore up balances. Four days before the record-low balance, Gov. James R. Thompson ordered transfer to the general funds of $10 million in interest not needed for payments in various bond funds. In October the governor asked public universities to postpone demands on general funds by using tuition money before drawing state aid. And a $49 million payment to community colleges was deferred from November until December.

Doctors and hospitals who service public aid recipients are waiting 30 days for payment, five to 10 days longer than in better times. None of this is outside contractual and statutory limits, Mandeville says.

Just a year before November's historic low balances, lawmakers were eyeing record-high balances and pondering tax relief. The $479 million available balance on June 30, 1985, prompted then-gubernatorial hopeful Neil F. Hartigan to propose hiking the state income tax personal exemption. Introduced in the 1985 veto session, the measure has not resurfaced.

Since then monthly balances have fallen steadily, and surpluses accumulated during the temporary 1983 income tax hike have dissipated. The trend continued in the current year. Through the first five months revenues stood at $4,159 million, while spending totaled $4,367 million. The difference leaves Illinois $208 million in the hole and reduces the $288 million available July 1 to $80 million. And, Burris claimed the state would have been even worse off if $90 million in spending had not been put off from November to December.

The state's poor economic performance limits revenue growth. "Since Illinois' employment and personal income growth have trailed that of the nation for much of the past decade, forecasts of slow to moderate growth at the national level translate to still slower growth at the state level and, in turn, in state revenues," the General Assembly's Economic and Fiscal Commission said in its November estimate of revenues.

The commission's latest estimates, ignoring message tax money, put current year revenues at $10,811 million, an increase of $228 million or 2.2 percent over fiscal year 1986, which ended June 30. That compares with increases of $266 million in fiscal 1985 and $660 million in fiscal 1984. The Bureau of the Budget estimates current year revenues $23 million higher than the commission.

Contributing to stagnation in the sales tax are measures which have reduced that tax base. The commission projects a $92 million increase in general funds sales tax receipts this year, pegging the total at $3,328 million for the year ending June 30. But it notes another $143 million earmarked for McCormick Place and Build Illinois debt service is unavailable to general funds. The used car tax which was supposed to replace some of that loss to general funds will fall $40 million short this year.

And, the commission notes, sales tax relief enacted over the years has trimmed revenues another $779 million. Relief includes elimination of the tax on food and medicine and exemptions for gasohol and for machinery and equipment used in manufacturing, agriculture, graphic arts, coal mining and oil fields. The shift in the public utility tax base from the dollar amount of a bill to the energy used has capped what was once the state's fastest growing revenue source. Receipts were $636 million in the year ended June 30 and are projected at $630 million this year.

Just as the new used car tax has fallen short, so has the increased cigarette tax enacted to fund education reform. Both are producing less revenue than prepassage expectations. The commission projects the cigarette tax total will fall $17 million below estimates.

Although Burris sees red ink while Mandeville sees black, they see the same difficulty for legislators in writing the fiscal 1988 budget: finding money for new programs. Mandeville says fund balances can't be drawn down farther: "I think we are continuing to draw down one-time revenues. ... I think we've got to face the fiscal realities. In my way of thinking we're back to the basic budget principles: if you want to increase spending you raise revenues."

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