Fiscal '88 ends with less of a deficit

The first quarter of state fiscal year 1989 ended on September 30, allowing Illinois to close the books on fiscal 1988. Final figures for the year that ended June 30 show Illinois running a $74 million deficit under the budgetary balance concept. Although that may seem large, the $74 million is the smallest deficit under that concept since 1985. And only three times in the last 10 years has there been a positive budgetary balance (a surplus) or a lower deficit.

The culprit that causes the three-month wait for determining a surplus or a deficit is the lapse period — July, August and September. When the state closes its books on June 30, the revenues for the preceding fiscal year are set. Spending is not. During the following three months money appropriated in the previous fiscal year can still be spent. The result is that the previous year's bills are paid with the current year's revenues. Under the budgetary balance concept, the deficit — or in two cases since fiscal 1979 the surplus — is arrived at by subtracting lapse period spending from the cash the state had on hand June 30. There would be no deficit if the state had exactly enough money on hand June 30 to cover all bills incurred before June 30. There would be a surplus if it had more.

For 1988 it worked like this. The state had $246 million in the bank on June 30. It then spent $320 million during July, August and September that lawmakers had authorized for fiscal 1988. Subtract $320 million from $246 million and you have the $74 million deficit.

The $74 million is much better than the $318 million deficit that Comptroller Roland W. Burris computed for fiscal 1987 and the $153 million deficit he established for 1986. But by employing another concept, Illinois can be shown to have run a surplus last year. Under the available balance concept the budget is balanced if the June 30 ending balance is larger than it was a year before. That is, if you end the year with more money in the bank than you started, your budget is balanced.

Under that measure Illinois ran a $92 million surplus in fiscal 1988: It started the year with $154 million in the bank and ended with $246 million on June 30,1988. Using the available balance concept, the state ran deficits of $134 million and $191 million respectively in fiscal years 1987 and 1986.

However you account for it, the state's fiscal health is improving. Illinois had $230 million in the bank at the end of September, $122 million more than the year before. For the third time in just over two years it ended a month with more than $200 million in the bank, the minimum established by the comptroller for cash flow purposes.

The $320 million in lapse period spending in July, August and September of 1988 was $134 million less than that spent in the same months of 1987. Nearly all of that difference is accounted for in reduced spending for income tax refunds. Those

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had been the source of debate in 1987 when Illinois closed the year with $154 million and almost that much in unpaid income tax refunds. Burris and the administration accused each other then of playing games with the year-end balance.

It took until spring this year to clear last year's backlog of individual income tax refunds. This year the comptroller has no backlog for individual income tax refunds. But there are $85 million in corporate income tax refunds being held until Burris determines whether there will be cash flow problems in November. Because of the holidays in November, revenues lag, making it one of the state's tightest months fiscally.

During the first three months of fiscal 1989, state spending (including fiscal 1988 lapse period spending) totaled $2,836 billion, outstripping revenues during those slow months by $16 million. Total spending for the first quarter was up $43 million, or 1.5 percent over the previous year. That is skewed, however, by the heavy refund spending in 1987. Without refunds, spending was up $140 million this year or 5.4 percent.

On the revenue side things appeared on course the first quarter. Overall receipts were up 2.7 percent, according to Burris' figures. However, the revenue increase is a more healthy 7.2 percent when the one-time payment of $116 million that the state received in August 1987 from the interstate message tax protest fund is subtracted. The largest part of the increase is $99 million in federal receipts, reflecting federal reimbursements for Medicaid claims that were being paid more quickly.

The state's largest revenue sources showed healthy first quarter increases. Individual income taxes were up 5.2 percent, and sales taxes were up 6.8 percent. The corporate income tax was down $3 million, or 2.1 percent, reflecting the continued unpredictability of that source. Public utility taxes, as a result of the hot summer, were up 8.9 percent. And transfers from the lottery fund were unchanged from 1987, continuing the stagnation that has dogged what was once the state's headiest growth source.

Increases in state revenues are healthy and are outpacing spending increases. Continued strong growth could mean a positive budgetary balance for 1989. But that will require continued restraint in spending. Don't bet on it.□

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